POWR.L Regulatory News (POWR)

8 March 2016

Powerflute

Preliminary Results for the year ended 31 December 2015

Powerflute Oyj ("Powerflute" or the "Group") today announces its preliminary results for the year ended 31 December 2015. Powerflute is quoted on the AIM market of the London Stock Exchange (POWR).

HIGHLIGHTS

· Transformational acquisition of Corenso, coupled with strong improvements in performance in both Coreboard and Cores and Packaging Papers

· Sales and production records achieved across the Group

· Group revenues increased to €357.2 million (2014: €150.1 million)

· EBITDA excluding non-recurring items increased to €55.2 million (2014: €20.9 million)

· Net debt reduced to €37.1 million (2014: €61.5 million) representing 0.7 times EBITDA

· Proposed dividend increased by 100% to 3.0 cents per share (2014: 1.50 cents)

Results excluding non-recurring items (1)

· EBITDA from operating activities increased to €55.2 million (2014: €20.9 million)

· Operating profit of €45.3 million (2014: €14.9 million)

· Underlying EPS increased to 9.6 cents per share (2014: 3.8 cents)

Results including non-recurring items

· EBITDA of €53.3 million (2014: €16.2 million)

· Operating profit of €43.3 million (2014: €10.1 million)

· Profit before tax of €37.7 million (2014: €8.6 million)

· Basic EPS of 9.1 cents per share (2014: 2.2 cents)

(1) Results excluding non-recurring items exclude expenses directly related to the acquisition and integration of Corenso

Commenting on the results, Dermot Smurfit, Chairman of Powerflute said:

"2015 has been another very successful year for Powerflute. The Corenso acquisition has been truly transformational, more than doubling the size and profitability of the Group and significantly increasing its scale and global presence. Although we benefited significantly from favourable market conditions and foreign exchange rates throughout the year, our executive management teams have once again delivered improvement in the underlying operating performance across the Group.

"Despite some recent softening of market conditions, both Coreboard and Cores and Packaging Papers currently have satisfactory forward order books at price levels comparable with the prior year. In the absence of any marked change in the external environment, we currently expect that 2016 will be another successful year for the Group."

- Ends-

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About Powerflute

Powerflute is a paper and packaging group quoted on the AIM market of the London Stock Exchange (Ticker: POWR) which seeks to acquire businesses with strong fundamentals whose performance can be improved through a combination of management focus and targeted investment.

The Group currently has two main activities; Packaging Papers which trades under the name Powerflute and operates a paper mill in Kuopio, Finland producing a specialised form of Nordic semi-chemical fluting used in the manufacture of high-performance corrugated board; and Coreboard and Cores, which trades under the name Corenso and is a leading international manufacturer of high performance coreboard and cores, with coreboard mills in the United States and Europe and a network of core producing facilities in Europe, North America and China.

Nordic semi-chemical fluting is made from locally sourced birch and boxes manufactured using it demonstrate superior strength and moisture resistance and are used for transportation of fruit and vegetables, high-value industrial goods such as electrical appliances and automotive components. The Kuopio mill is one of only three suppliers of Nordic semi-chemical fluting in Europe.

Cores and coreboard are manufactured from recycled paper and are used for applications in paper, packaging, textiles, steel, aluminium and many other industries. Coreboard and cores produced by Corenso demonstrate superior strength and rigidity and are suitable for use in the most demanding applications.

For further information, please visit www.powerflute.com.

CHAIRMAN'S STATEMENT

Year in review

I am pleased to report that 2015 has been another very successful year for Powerflute, The Corenso acquisition, completed in December 2014, has been transformational, more than doubling the size and profitability of the Group and significantly increasing its scale and global presence. While we benefited significantly from favourable market conditions and foreign exchange rates throughout the year, our executive management teams have once again delivered improvement in the underlying operating performance of their businesses across the Group. Together, these factors contributed to a very significant increase in profitability and earnings per share, and in accordance with its strategy of pursuing a progressive dividend policy, the Board of Directors is proposing a 100% increase in the annual dividend to 3.0 cents per share (2014: 1.50 cents per share).

Results

Revenue from continuing operations increased to €357.2 million (2014: €150.1 million), including revenues from the recently acquired Coreboard and Cores of €213.2 million (2014: €15.8 million) and revenues from Packaging Papers of €144.1 million (2014: €134.4 million).

EBITDA from operating activities before non-recurring items increased by €34.3 million to €55.2 million (2014: €20.9 million), including EBITDA of €26.3 million (2014: €2.2 million) from a full year of trading in Coreboard and Cores and €29.3 million (2014: €18.7 million) from Packaging Papers. Profit before tax for the period was €37.7 million (2014: €8.6 million) and is stated after charging non-recurring items of €1.9 million (2014: €4.8 million). Basic earnings per share increased to 9.1 cents (2014: 2.2 cents).

Further details of the results of the Group and each of its business segments are provided in the Operating Review and Finance Review.

Strategy

Since its admission to trading on AIM in 2007, Powerflute has encountered many changes in economic and stock market conditions, yet over this period the returns that have been generated for shareholders have been very good. We believe that the Group's strategy to buy and improve underperforming specialist paper and packaging businesses offers the prospect of attractive returns in the future. The Group will continue to search for and evaluate accretive investment and acquisition opportunities. The strong cash generation during 2015 has reduced net debt to €37.1 million (2014: €61.5 million), representing 0.7 times EBITDA, and leaves the Group well positioned to pursue future acquisition opportunities.

People

It is easy to say that the strength of any organisation depends not only on its products and services, but also on the quality and commitment of its people. However, the results of the past year are a clear testament to this, and on behalf of the Board, I would like to thank all of our management and employees for their continuing contribution they have made to our success. In particular, I would like to recognise those involved in the acquisition, integration and continuing management of Corenso for their herculean efforts and the very significant progress made during the year.

Governance and the Board

We continued to review the composition of the Board to ensure that the executive management has the level of support and challenge appropriate for a company of our size and in May 2015, we announced the appointment of Wolf-Dieter Baumann as an independent non-executive director. He brings more than 30 years' of experience and knowledge of the packaging and paper industry to the Board, including in-depth knowledge of many of our manufacturing processes gained in senior positions he has held in a number of leading multinational suppliers of paper mill and packaging technology.

In January 2016, Dermot Smurfit Jr informed the Board of his decision to resign as a director. Following his relocation to the United States in connection with his role as Chief Executive of another listed company, he considered that he would not be able to effectively discharge his duties as a director of Powerflute and accordingly tendered his resignation, which was accepted with regret by the Board. We would like to sincerely thank him for the contribution he has made since his appointment in April 2010.

On a more personal note, I am delighted to say that during the year I was honoured to be named as a Knight, First Class, of the Order of the Lion of Finland. This award, made under the auspices of the President of Finland, is recognition of the contribution that Powerflute and its leadership has made to the paper industry in Finland. During the ten years since our first investment, we have repeatedly demonstrated that it is possible to be successful, to preserve and create employment and to create significant value for our shareholders and other stakeholders by reinvigorating businesses than many viewed as being in decline and by continuously challenging established thinking.

Dividends, Dividend Policy and TSR

The Board considers payment of an attractive dividend to be an important component of Total Shareholder Return ("TSR") and has a policy of pursuing a progressive approach to dividends with a view to providing shareholders with an attractive and sustainable dividend while maintaining dividend cover at acceptable levels.

Underlying earnings per share for the year ended 31 December 2015 increased considerably compared with the prior year and accordingly, in line with its policy, the Board intends to propose an increased dividend of 3.0 cents per share (2014: 1.50 cents) reflecting our overall confidence in the business. This represents a dividend cover of approximately 3.2 times based on underlying earnings per share (2014: 2.5 times), 3.0 times based on basic earnings per share (2014: 1.5 times).

Outlook

During the final quarter of 2015, increasing economic uncertainty weighed heavily on global paper and packaging markets, forward order books weakened and there was modest downward pressure on prices in some markets. There has been some recovery in confidence during the first quarter of 2016, and despite the softening market conditions, both Coreboard and Cores and Packaging Papers currently have satisfactory forward order books at price levels comparable with the prior year.

The full year impact of favourable currency rates and the operational momentum that exists within both of our businesses will help to mitigate the impact of softening market conditions compared with the prior year and in the absence of any marked change in the external environment, we currently expect that 2016 will be another successful year for the Group.

Dermot F Smurfit

Chairman

8 March 2016

CHIEF EXECUTIVE'S REVIEW

Overview

Despite turbulent economic conditions across much of Europe, lower growth than expected in the US and the ongoing challenges faced by the Chinese economy as it restructures and adjusts to lower rates of growth, demand for paper and packaging products remained robust throughout most of 2015 and the Group benefited from favourable conditions in most of its markets. The relative weakness of the Euro against the US Dollar and Chinese Renminbi also had a positive impact on the Euro value of revenues and earnings from these markets in both Coreboard and Cores and Packaging Papers.

The acquisition of Corenso and the favourable operating environment contributed significantly to the improvement in financial performance of the Group. Considerable progress was also made in both business areas with initiatives to improve operational performance. New production and sales records were achieved by a number of our businesses and we are clearly seeing the benefits of capital investment programmes completed in earlier years.

Through the successful acquisition of Corenso, we have acquired one of the world's leading manufacturers of coreboard and cores. A tough period of separation and integration activities is now largely behind us, the anticipated restructuring of operations in Germany and the US has been successfully completed and an accelerated programme of capital investment is underway to improve operational and financial performance. While there is still much to do, we are pleased with the substantial improvement in performance achieved over the last year and we remain excited by the potential for further development in Coreboard and Cores.

Packaging Papers continued to perform strongly and was able to capitalise on favourable market conditions and exchange rates and stable raw material and other input costs, achieving new record levels of production and profitability. During the year, we completed the final phase of investment in the pulp mill and the focus of our development and investment plans will now shift to other areas where we consider there to be considerable potential for further improvement.

The Group remains strongly committed to its strategy of acquiring speciality paper and packaging businesses with established positions in attractive markets where our proven operational and strategic expertise can drive performance improvements. We will continue to search for, identify and explore suitable opportunities while at the same time developing and improving our existing businesses, where there continues to be significant potential for profitable growth.

Investment, sustainability and innovation

Capital expenditure in 2016 will continue to be focused principally on delivering improvements in the performance of our products, driving operational effectiveness, reducing both variable and fixed operating costs and maintaining compliance with increasingly demanding health, safety and environmental legislation.

In Coreboard and Cores, we have committed to a programme of investment of approximately €15.0 million over three years, with expenditure of €1.5 million incurred or committed in 2015 and a further €5.0 million anticipated in 2016. In Packaging Papers, we will continue the multi-year programme of upgrades and mill refurbishment started in 2011 and expenditure will continue to be in line with the level incurred in prior years. In addition to investment in existing operating locations, we are actively evaluating a number of interesting joint venture opportunities in attractive and fast growing markets and will commence construction of a new core plant in China in the near future.

People

The quality of our people and our decentralised approach to management are sources of genuine competitive advantage for the Group and we continue to encourage the development of a more entrepreneurial culture within each of our businesses. Significant progress has been made within the recently acquired Corenso businesses and the more dynamic environment that exists in a smaller more focused organisation such as Powerflute has been a key factor in the performance improvement achieved over the last year.

Outlook

We expect that the economic environment will remain challenging for the foreseeable future and that markets will be less favourable in some areas than in the prior year. However, our continuing focus on servicing and supporting our customers, on delivery of operational improvements within our own businesses and on investing in improving the quality and performance of our products provides us with confidence for the future.

Marco Casiraghi

Chief Executive

8 March 2016

OPERATING REVIEW

Coreboard and Cores

 (1) EBITDA from operating activities is stated before charging non-recurring items

The businesses in the Coreboard and Cores reporting segment were acquired on 1 December 2014 and the results for the year ended 31 December 2014 include only one month of contribution from this business. During the twelve months ended 31 December 2014, Coreboard and Cores achieved revenues of €196.0 million and EBITDA from operating activities of €25.2 million. This does not include any allocation of central expenses and is therefore, not directly comparable with the reported performance in 2015.

The strong performance of Coreboard and Cores in the year ended 31 December 2015 and the improvement compared with the prior year can be attributed to a number of factors. Most significantly, the North American coreboard mill enjoyed favourable market conditions and was able to take full advantage of these with a record production performance. In Europe, the coreboard mill in France achieved a significant improvement in profitability due to the success of a number of production related initiatives and more focused sales and marketing activity, while the other businesses in this region performed broadly in line with the previous year despite facing tough competition. In China, the slowdown in economic activity resulted in more intense competition and pressure on both prices and margins. Despite this, we were able to maintain profits in local currency terms and both this business and the US operations benefited from more favourable currency rates on translation of their results into Euros.

North America

Markets in North America were generally more buoyant than those elsewhere in the world during 2015 with favourable trends in demand and selling prices and relatively low raw material costs. We were able to capitalise on these conditions with a particularly strong performance in the coreboard mill, which operated at close to full capacity throughout the year and achieved a number of new production records.

The core converting operations faced more challenging conditions due to competitor activity and margins remain under some pressure in this business. During the year, we successfully completed a reorganisation of the production environment, including a reduction in headcount, and committed to a number of capital investments some of which yielded benefits in 2015, and we are confident of achieving further profit improvement during 2016.

Europe

Against a background of sluggish demand and intense competition, we are relatively pleased with the progress made in the European businesses during the last year, although there remains much work to do and considerable scope for further improvement.

The relationship with Stora Enso, the former owner of Corenso and the largest single customer in Europe, has continued to be good with both parties co-operating well to ensure a smooth transition to independent ownership and a mutually beneficial customer-supplier relationship. Volumes have been in line with our expectations and discussions on pricing have been constructive and well balanced.

A greater focus on customer and product profitability, capacity utilisation and production efficiency as we work to improve the mix and value of sales and the performance of manufacturing operations is already beginning to deliver benefits throughout the region. The impact of this has been most marked in the coreboard mill in France, where increased volumes and a number of initiatives to improve efficiency and reduce costs in production have combined to deliver a significant improvement. Elsewhere, we are already seeing signs of a change in approach which over time should translate into a more dynamic and entrepreneurial culture.

In the underperforming core converting operations in Germany, we completed a restructuring and cost reduction programme which resulted in a number of loss-making activities being discontinued and a significant reduction in total headcount. A new management team has been installed and we have already seen some improvement in performance. However, we expect that the transformation will take time to achieve and that this business will continue to experience stiff competition for the foreseeable future.

There remains much to do in this region and we do not underestimate the challenges of operating in an environment with limited underlying growth and tough and entrenched competition. However, we are confident that there is considerable scope for further improvement within our own businesses and optimistic that their position within their markets can be improved.

Asia-Pacific

The challenges faced by the Chinese economy have been well documented and despite continuing heavy investment in new paper and packaging capacity to meet growing demand our own markets have not been immune to the impact of the general slowdown in economic activity and reduced growth expectations. Pressure on prices and margins has increased considerably as competitors aggressively pursue volumes and customers seek to protect their own profit margins.

Despite the more challenging environment, our businesses in this region continued to perform well and were able to achieve a modest increase in volumes and to maintain revenues and profits in local currency at close to prior year levels.

We continue to believe that there are good prospects for profitable growth and further expansion in this dynamic region and a number of such opportunities are actively under consideration.

Packaging Papers

The exceptional performance in Packaging Papers was a result of the combination of strong underlying market conditions throughout much of the period, favourable trends in exchange rates and improved currency hedging compared with the prior year and the significant improvements achieved in production efficiency and capacity as a result of the multi-year investment programme that has been underway since 2011.

For much of the year, market conditions remained remarkably good with strong underlying demand further supported by reduced availability of SC-fluting products from competitors engaged in major investment programmes. This resulted in strong competition for available volumes, which translated into full order books, improved pricing and the absence of the normal seasonal fluctuations in demand. Although market conditions softened in the fourth quarter of the year, with weaker forward order books and some downward pressure on prices in certain markets, both demand and price levels remained good by historic standards.

The Group benefited considerably from its strategy of diversification into non-European markets, many of which rely upon prices denominated in US Dollars. While prices in these markets remained stable or increased modestly in local currency terms, the Group had currency hedging in place at more favourable rates than in the prior year and this, together with the impact of favourable spot rates on unhedged exposures, meant that the Group benefited considerably on translation of these revenues into Euros.

During the year, we completed the final stage of the separation of the pulp lines and this, together with a number of other less significant investments, contributed to further improvements in product quality, an increase in capacity and improved production efficiencies. A new production record of 273,000 tonnes was achieved (2014: 257,000) and there were further improvements in raw material yield and reductions in energy consumption.

Although market conditions are likely to be more challenging for this business in 2016, we continue to believe that there are opportunities for further improvement. In particular, we are currently evaluating a number of options to further improve the quality and performance of our products and the efficiency and effectiveness of our manufacturing operations with a view to building on our position as a leading producer of SC-fluting.

Kotkamills

In March 2015, the majority owner of Kotkamills Oy ("Kotkamills") exercised its rights under a shareholder agreement to acquire the Group's minority interest in the company as part of a larger transaction that saw the business sold to a new investor who has plans for its further development and expansion. The Group received cash consideration of €3.7 million from the sale of its shareholding and has recognised a gain on disposal of €2.1 million.

The shareholding in Kotkamills was recorded as an investment held for sale and not consolidated or equity accounted. Accordingly, other than the gain realised on disposal, the results of Kotkamills had no impact on the income statement of the Group for the years ended 31 December 2014 or 2015.

FINANCIAL REVIEW

Segmental performance

Revenue

Revenue from continuing operations increased to €357.2 million (2014: €150.1 million), including revenues from Coreboard and Cores of €213.2 million (2014: €15.8 million) and revenues from Packaging Papers of €144.1 million (2014: €134.3 million).

Coreboard and Cores was acquired by the Group in December 2014 and the substantial increase compared with the prior year was due to the inclusion of a full year of trading.

Revenues from Packaging Papers increased by 7% due to a combination of higher delivered volumes and higher average selling prices. Deliveries increased by 3% to 267,000 tonnes (2014: 259,000 tonnes) following a very strong performance in production, while average selling prices improved by 4% due largely to the impact of more favourable US Dollar exchange rates and currency hedging on conversion of dollar denominated revenues.

EBITDA excluding non-recurring items

Before taking account of the impact of non-recurring items, EBITDA increased by €34.3 million (164%) to €55.2 million (2014: €20.9 million). This was due largely to the inclusion of a full year of results from the Coreboard and Cores segment (2015: €26.3 million, 2014: €2.2 million), although the performance of Packaging Papers also improved considerably (2015: €29.3 million, 2014: €18.7 million)

Coreboard and Cores was acquired by the Group at the beginning of December 2014 and the result of the prior year included only one month of trading. On an underlying basis profits from this activity improved considerably compared with the prior year due to stronger performances from the US and French coreboard mills, the benefits derived from restructuring of the US and German core converting operations and the favourable impact on translation into Euros of revenue and profit streams denominated in US Dollars and Chinese Yuan.

The significant improvement in Packaging Papers was due to the combined effect of an increase in deliveries and average selling prices, with little or no increase in variable costs per tonne and fixed overheads. The result for the prior year was also stated after charging all of the Group's central costs to this activity, whereas in the current year the costs have been allocated to each operating segment using appropriate methodologies. The increase in deliveries was possible as a result of an improved production performance as the benefits of earlier investments in the pulp mill and paper machine are realised. The increase in average selling prices was largely due to the impact of more favourable exchange rates and currency hedging on sales denominated in US Dollars and on an underlying basis, prices were relatively stable in most major markets.

Non-recurring items

In the year ended 31 December 2015, the results of the Group included a net charge for non-recurring items of €1.9 million (2014: €4.8 million) consisting of expenses of €4.0 million relating to the integration and restructuring of Corenso which were partially offset by the gain of €2.1 million arising on the disposal of the Group's investment in Kotkamills Oy.

The expenses related principally to the one-off costs of separating Corenso from its former parent company, Stora Enso, and integrating it into the Powerflute group and included €1.6 million of restructuring costs attributable to downsizing and reorganisation programmes that were successfully completed in the US and German core converting operations. In the year ended 31 December 2014, non-recurring items of €4.8 million included the costs of acquisition of Corenso of €6.2 million, partially offset by the accounting gain arising on acquisition of €1.4 million.

A reconciliation of reported EBITDA to EBITDA excluding non-recurring items for the year ended 31 December 2015 is provided below:

EBITDA and Operating Profit

EBITDA increased by €37.1 million to €53.3 million (2014: €16.2 million). Operating profit from continuing operations improved by €33.2 million to €43.3 million (2014: €10.1 million) after charging depreciation and amortisation of €9.9 million (2014: €6.0 million).

Foreign currencies

During the year ended 31 December 2015, approximately 28% of the Group's revenues were denominated in US Dollars (2014: 25%) and 8% in Chinese Yuan (2014: 2%).

From the Group's perspective, the average US Dollar/Euro and Chinese Yuan/Euro exchange rates for the year ended 31 December 2015 both improved by approximately 17% and 15%, respectively, compared with the prior year. While the full impact of this was mitigated by the currency hedging in place, the underlying weakening of the Euro against both currencies increased the value of the Group's US Dollar and Chinese Yuan revenue and profit streams in Coreboard and Cores, and significantly improved the profitability of sales made in US Dollars by the Packaging Papers activity where the costs are predominantly Euro-based.

At constant exchange rates, the profitability of Coreboard and Cores would have been approximately €2.8 million (11%) lower and that of Packaging Papers would have been approximately €4.9 million (17%) lower.

Finance income and expenses

Net finance expenses were €5.6 million (2014: €1.5 million), consisting of finance income of €0.4 million (2014: €0.2 million) and finance expenses of €6.0 million (2014: €1.7 million). Finance expenses included interest expenses of €4.0 million (2014: €1.3 million) and €2.0 million relating to amortisation of costs incurred restructuring the Group's borrowing facilities in connection with the acquisition of Corenso in December 2014 (2014: €0.4 million).

Profit before tax from continuing operations

Profit before tax from continuing operations was €37.7 million (2014: €8.6 million). On an underlying basis, excluding the impact of non-recurring income and expenses in both periods, profit before tax increased by approximately €26.3 million to €39.6 million (2014: €13.3 million).

Taxation

The income tax charge of €10.5 million (2014: €2.3 million) represents an effective tax rate of 28% (2014: 27%) and is based upon the weighted average annual tax rate for the year applied to the underlying profit before taxation after adjusting for the impact of disallowable items of income and expenditure.

The underlying rate of tax on profits before taxation in Finland during the year was 20.0% (2014: 20.0%) and the difference between this and the effective rate arises principally because several of the Group's businesses operate in jurisdictions where higher tax rates apply.

Under the terms of the agreement for the acquisition of Corenso, to the extent that it is able to utilise brought forward tax losses to reduce the liability to corporate income taxes in the United States the Group is obliged to provide compensation to the former owner, Stora Enso, up to a maximum amount of €2.0 million. The net effect of this arrangement is that while the Group is obliged to utilise brought forward losses to reduce the taxes payable, it currently derives no benefit from this. During the year ended 31 December 2015, the utilisation of such losses reduced the cash taxes payable by the US businesses by €1.9 million (2014: nil). However, the effective tax charge has not been reduced to reflect this and the applicable portion of the related liability instead of being shown as a current income tax liability is recorded within other current liabilities.

Dispute with Finnish Tax Administration

In preparing its financial statements for the year ended 31 December 2011, the Group assumed that gains arising on the sale of shares of the Graphic Papers business and Harvestia were exempt from corporate income taxes under the participation or substantial shareholder exemptions available to industrial companies.

During the year ended 31 December 2012, the Tax Administration division of Verohallinto, the Finnish taxation authority determined that the Group was a venture capital company and issued tax assessments for the year ended 31 December 2011 which included €3.6 million of taxes relating to the gains realised on the share transactions. While these taxes were paid to avoid the risk of interest and other penalties, the Group strongly disagreed with the decision of the Tax Administration and did not recognise the taxes paid in its income statement but instead recorded the amount as a recoverable non-current financial asset in its balance sheet.

During the year ended 31 December 2013, the Group filed an appeal against the tax assessments with the Assessment Adjustment Board (AAB) of Verohallinto. In December 2013, the appeal was upheld and the original assessments were overturned. However, in March 2014 the Tax Recipients' Legal Services Unit, a division of Verohallinto, filed a further appeal with the Administrative Court in Helsinki against the decision of the AAB. In April 2015, the Group received notification that this appeal had been upheld and the original assessments reinstated. The Group has since filed a further appeal with the Finnish Supreme Administrative Court and this process is still on-going.

In the event that the Group does not prevail in its appeal against the assessment of taxes on the gains, then additional taxes of €3.6 million would need to be recognised within the results of discontinued operations. There would be no impact on the net cash position of the Group, or on the results of continuing operations.

Earnings per share and dividends

Basic earnings per share was 9.1 cents (2014: 2.2 cents).

On an underlying basis, excluding the impact of non-recurring items, basic earnings per share increased by 150% to 9.6 cents per share (2014: 3.8 cents).

The directors intend to propose an increased dividend of 3.0 cents per share for the year ended 31 December 2015 at the Annual General Meeting of Shareholders to be held in Kuopio, Finland on 26 May 2016 (2014: 1.50 cents per share). Further details of the proposed ex-dividend, record and payment dates will be provided in the notice sent to shareholders ahead of the meeting.

Sale of investment in Kotkamills

In March 2015, the Group disposed of its investment in Kotkamills to Opengate Capital LLC, the majority owner of Kotkamills, as part of a larger transaction under which the business was sold to a new investor. Under the terms of this agreement, the Group received cash consideration of €3.7 million for its shares.

The Group's shareholding in Kotkamills was previously recorded as an investment held for sale and not consolidated or equity accounted. In the financial statements for the year ended 31 December 2014, the Group recognised an increase in the fair value of its investment of €2.0 million within other comprehensive income and the gain arising on sale of shares of €2.1 million has been recognised in the income statement for the year ending 31 December 2015 and regarded as a non-recurring item.

Discontinued operations

In May 2011, the Group disposed of its interests in the Graphic Papers business for consideration of €38.5 million before disposal costs. Although the initial period during which claims could be made by the purchaser under warranties and indemnities has expired, there remains the possibility of claims under certain circumstances and accordingly a provision against future claims of €0.7 million has been retained (2014: €0.7 million).

Financial position

The total assets and total equity and liabilities of the Group increased by €21.9 million to €286.0 million (2014: €264.1 million), while total equity increased by €23.7 million to €101.9 million (2014: €78.1 million).

The principal reason for the increase in total assets, total equity and liabilities and total equity was the retained profit for the year of €27.2 million (2014: €6.3 million), the majority of which has been converted into increased cash and short term deposits or used to reduce interest bearing loans and borrowings resulting in a €24.4 million reduction in net debt to €37.1 million (2014: €61.5 million).

Within total assets, the net book value of property plant and equipment increased by €6.3 million, there was a volume related increase in inventories and trade and other receivables of €4.7 million and an increase in cash and short term deposits of €11.7 million. Within total equity and liabilities, total equity increased by €23.7 million, there was a volume related increase in trade and other payables of €4.3 million (partially offsetting the €4.7 million increase in inventories and receivables) and a reduction in interest-bearing loans and borrowings of €12.7 million.

Capital investment

As expected, capital expenditure increased considerably to €11.0 million (2014: €5.7 million) and was slightly above depreciation of €9.2 million (2014: €5.9 million) due to a combination of the higher level of investment in Coreboard and Cores and expenditure on IT systems and infrastructure of €2.7 million (2014: nil) related to separation of these businesses from their former owner's shared services centres.

Operational capital expenditure during the period continued to be heavily focused on Packaging Papers, with many of the larger projects initiated in Coreboard and Cores not due for completion until 2016 due to long lead-times on equipment.

In Packaging Papers, continuing investment in pulp production at the Kuopio mill accounted for the majority of the expenditure with further upgrades to pulp washing and refining increasing flexibility, resilience and quality. Following completion of the final stage of investment during the maintenance shutdown in September, the business enjoyed a period of record production, achieving new levels of output, quality and consistency.

In Coreboard and Cores, a large number of small and mid-size investment projects were successfully completed during the year. The majority of these offered the prospect of quick returns and many began to deliver immediate benefits through improved quality and consistency, lower production and operating costs or increased capacity.

Investment in new IT systems and infrastructure for the Coreboard and Cores activity is progressing in line with our expectations and the various projects involved are currently on target for completion before the expiry of the transitional service agreements with Stora Enso towards the end of 2016.

Cash flow, borrowings and liquidity risk

Cash flow

The net cash inflow for the period was €24.0 million (2014: €70.1 million outflow), resulting in a reduction in net debt from €61.5 million at the start of the year to €37.1 million at 31 December 2015. The outflow in the prior year arose principally as a result of the purchase consideration attributable to the Corenso acquisition on a cash free debt free basis of €72.3 million.

The principal sources and uses of cash during the year were as follows:

· €46.5 million net cash inflow from operating activities (2014: €23.4 million), before expenses related to the integration of Corenso and the disposal of Kotkamills

· €3.7 million proceeds from disposal of investment in Kotkamills Oy (2014: nil)

· €11.0 million capital expenditure (2014: €5.7 million)

· €4.3 million net cash interest expense (2014: €1.5 million)

· €4.3 million dividends (2014: €3.8 million)

· €4.0 million expenses related to the acquisition and integration of Corenso (2014: €9.3 million)

· €2.5 million dividends paid to non-controlling interests (2014: nil)

The net cash inflow from operating activities before expenses related to the acquisition and integration of Corenso of €46.5 million consisted of profits from trading activities after adjusting for non-cash items of €54.1 million (2014: €22.4 million) offset by an increase in net working capital of €1.3 million (2014: €2.6 million decrease) and payment of income taxes of €6.3 million (2014: €1.7 million).

At 31 December 2015, the Group had balance sheet net debt of €37.1 million (2014: €61.5 million) consisting of cash and cash equivalents of €59.2 million (2014: €47.5 million) and interest bearing loans and borrowings of €96.3 million (2014: €109.0 million), of which €4.2 million was due for repayment within one year (2014: €2.4 million).

Borrowings and liquidity risk

On 30 September 2014, the Group entered into a new three-year financing arrangement for the provision of up to €120.0 million of facilities for the purpose of financing the acquisition of Corenso and refinancing its existing borrowings. The facilities consisted of an amortising term loan of €80.0 million and a revolving credit facility of €40.0 million, both of which remain available to the Group throughout the period to 30 September 2017. The facilities are subject to normal banking covenants including the ratios of total net debt to equity, total net debt to EBITDA and EBITDA to interest expense.

The maturity profile of the Group's interest-bearing loans and borrowings at 31 December 2015 was as follows:

Other interest-bearing loans and borrowings include liabilities under revolving credit and invoice finance arrangements and are stated net of capitalised finance expenses of €2.2 million (2014: €3.1 million). While advances under certain of these facilities are classified as current liabilities due to their short-term nature, the facilities themselves remain available to the Group for a period in excess of one year.

At 31 December 2015, the Group had committed borrowing facilities of €119.0 million (2014: €122.2 million), of which it was utilising €98.6 million (2014: €112.2 million). At 31 December 2015, the Group had cash and short-term deposits of €59.2 million (2014: €47.4 million).

Foreign currency risk

The functional and reporting currency of the Group is the Euro. The Group sells and distributes its products in international markets and has transactional exposure to a number of other currencies and in particular, to the US Dollar, but also to the Chinese Yuan, Swedish Krone and British Pound.

In the year ended 31 December 2015, approximately 28% of the Group's sales by volume and value and up to 14% of its expenditure on raw materials, consumables and other expenses were denominated in US Dollars. The relative movement in the US Dollar against the Euro during 2015 when compared to 2014 was as follows:

· Movement in average exchange rate between 2014 and 2015 - 17% favourable

· Movement in exchange rate at balance sheet date between 2014 and 2015 - 10% favourable

It is the policy of the Group to hedge a portion of its foreign currency exposures for a maximum period of up to 12 months using forward exchange contracts. Where possible the Group takes advantage of natural hedges and only considers hedging the net exposure. Decisions on the implementation of the hedging policy are made by the senior management of the Group and are discussed with and reported to the Board on a regular basis. Amendment of the hedging policy itself is a matter reserved for the Board. The Group does not designate currency derivative contracts as hedges for the purpose of hedge accounting and does not engage in currency speculation.

Risks and uncertainties

The principal risks and uncertainties facing the business and the activities of the Group and the steps that are taken to mitigate these are summarised below.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report, as is the financial position of the Group, its cash flows, liquidity position and borrowing facilities. In addition, the financial statements include further information on the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk.

Relative to its size, the Group has considerable financial resources and long term contracts and relationships with its key customers and suppliers. As a consequence, the Directors consider that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making diligent enquiries, the Directors have a reasonable expectation that that Group has adequate resources to enable it to continue its activities for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements, and accordingly, continues to adopt the going concern basis in preparing the financial statements.

David Walton

Chief Financial Officer

8 March 2016

for the year ended 31 December 2015

for the year ended 31 December 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2015

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate information

Powerflute Oyj is a public limited company incorporated and domiciled in Finland. The address of the registered office is Sorsasalo/Box 57, FI-70101 Kuopio, Finland. The Company is listed on the Alternative Investment Market (AIM) of The London Stock Exchange. The principal activities of the Company and its subsidiaries are the manufacture of paper and packaging products.

The financial information included within this preliminary announcement does not constitute the Company's statutory financial statements or its consolidated financial statements for the years ended 31 December 2015 or 31 December 2014 within the meaning of the Finnish Companies Act, but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2014 have been delivered to the Finnish Trade Register and those for the year ended 31 December 2015 will be delivered to the Finnish Trade Register during April 2016. The consolidated financial statements will be published and made available to shareholders during April 2016. The auditor has reported on those financial statements and the reports were unqualified and did not draw attention to any matters by way of emphasis.

The consolidated financial statements of the Company and its preliminary announcement for the year ended 31 December 2015 were approved for issue by resolution of the Company's Board of Directors on 8 March 2016.

2. Basis of preparation and significant accounting policies

The consolidated financial statements of Powerflute Oyj and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the EU.

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group's consolidated financial statements for the year ended 31 December 2014, except for the adoption of new standards and interpretations as of 1 January 2015, noted below:

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

Annual Improvements 2010-2012 Cycle

Annual Improvements 2011-2013 Cycle

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

The adoption of the new standards and interpretations referred to above does not have a material impact on the on the accounting policies, financial position or performance of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in euros and all values are rounded to the nearest thousand (€000) except when otherwise indicated.

4. Significant accounting judgements, estimates and assumptions

The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

In preparing the consolidated financial statements for the year ended 31 December 2015, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014.

Key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, where a different opinion could result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

5. Principal risks and uncertainties

The principal risks and uncertainties faced by the continuing operations of the Group have not changed from those described in the 2014 Annual Report, a copy of which is available on the Group's website. Changes in the macroeconomic environment, competition, technology, people and financial conditions all have the potential to adversely impact on the Group's operating and financial performance.

6. Segmental information

For management purposes, the Group is organised into business units based upon the products and services which it supplies. The Group currently has two reportable operating segments:

§ Packaging Papers, which is involved in the production and sale of Nordic semi-chemical fluting for use in premium-grade corrugated-box applications and operates a fluting mill in Kuopio, Finland.

§ Coreboard and Cores, which is involved in the manufacture of high performance coreboard and cores, with coreboard mills in the Europe and the United States and a network of core producing facilities in Europe, the United States and China.

No operating segments have been aggregated to form the above reportable operating segments.

The joint ventures and associated companies in which the Group has an interest form an integral part of its principal operating activities and the Group's share of the profits or losses of such joint ventures and associated companies are reported within the relevant operating segment.

Until the acquisition of Corenso group in December 2014, the Group had only one reportable operating segment within continuing operations.

Management monitors the operating results of business units separately for the purpose of making decisions about resource allocation and performance assessment. The principal measure used to monitor and evaluate segmental performance is earnings before interest, tax, depreciation and amortisation ("EBITDA"). The measurement basis for Segment EBITDA excludes the effects of equity-settled share-based payments and unrealised gains or losses on financial instruments. The costs of central functions, including the costs of corporate and other central services, are allocated to the reportable operating segments using appropriate cost allocation methodologies. Interest income and expenditure are not allocated to operating segments.

Transfer prices between operating segments are on an arm's-length basis in a manner similar to transactions with third parties.

Adjustments, eliminations and unallocated items

Inter-segment revenues are eliminated on consolidation and eliminations are shown within the Not Allocated section. Revenues arising from intra-segment trading activities during the year ended 31 December 2015 amounted to €52,000 (2014: nil). Segment operating profit does not include acquisition-related expenses or income, or finance income and finance costs, which are reported separately within Not Allocated.

Geographical information

Management considers the principal geographic segments based on customer location to be Finland, other countries in the EU, other countries in Europe and the rest of the world.

In the year ended 31 December 2015, the Group had no customers who each individually represented more than 10% of its revenues from continuing operations.

In the year ended 31 December 2014, the Group had two customers who each individually represented more than 10% of its revenues from continuing operations. Together, these customers accounted for revenues of €42,727,000 for the Packaging Papers segment, all of which was reported within revenues from "Other countries in the EU".

7. Disposal of available for sale asset

At 31 December 2014, the Group held a 10.0% interest in Kotkamills Oy ("Kotkamills"), an integrated forest products business located in Kotka in Eastern Finland. In February 2015, the Group entered into a conditional agreement for the sale of its investment in Kotkamills Oy for cash consideration of €3,724,000. Accordingly, the fair value of this investment was reassessed and the Group recorded a gain of €2,046,000 in the statement of comprehensive income with respect to Level 3 financial instruments as at 31 December 2014. The transaction was successfully completed on 24 March 2015 and the realised gain has been recorded in the consolidated statement of profit or loss for the twelve months ended 31 December 2015.

8. Income tax

Consolidated income statement

The major components of income tax for the years ended 31 December 2015 and 2014 are:

A reconciliation between the tax expense/(income) and the product of accounting profit multiplied by the domestic tax rate in Finland of 20% for the year ended 31 December 2015 (2014: 20.0%) is as follows:

In calculating income tax and deferred tax for the years ended 31 December 2015 and 2014, the Group has assumed that it is able to take advantage of participation or substantial shareholder exemptions and that gains arising on share disposals will be exempt from corporate taxes.

9. Dividends paid and proposed

A dividend of 1.50 cents per share was proposed for the year ended 31 December 2014 and following approval by shareholders at the Annual General Meeting held in May 2015, an amount of €4,262,000 was paid during the year ended 31 December 2015. The dividend proposed for the year ended 31 December 2013 was 1.35 cents per share and a total of €3,836,000 was paid in the year ended 31 December 2014.

The directors intend to propose a dividend of 3.00 cents per share for the year ended 31 December 2015 at the Annual General Meeting to be held in May 2016.

10. Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

The weighted average number of shares takes into account the weighted average effect of changes in treasury share transactions during the period.

Authority to repurchase shares and to issue new shares

On 28 May 2015, the Annual General Meeting granted authority to the Board of Directors to decide on the repurchase of up to 28,000,000 of the company's shares pursuant to Chapter 15, Section 5(2) of the Finnish Companies Act by using funds in the company's unrestricted equity and on the issuance of up to 28,000,000 shares through a share issue or granting of options or other special rights granting entitlement to shares pursuant to Chapter 10, Section 1 of the Finnish Companies Act. In each case, the proposed amount of shares corresponded to approximately 9.7% of all shares and votes of the company then in issue. The authorities remain effective until 30 June 2016 unless revoked or amended before this date by a General Meeting of Shareholders, and replaces any previous similar authorities granted to the Board of Directors.

11. Financial assets and financial liabilities

Financial assets and financial liabilities

The financial assets and financial liabilities of the Group at 31 December 2015 and 31 December 2014 may be summarised as follows: