5 Aug 2013 07:00
5 August 2013
POWERFLUTE
INTERIM RESULTS 2013
Powerflute Oyj ("Powerflute" or the "Group") today announces its interim results for the six months ended 30 June 2013. Powerflute is quoted on the AIM market of the London Stock Exchange (Ticker: POWR).
HIGHLIGHTS
·; Revenue up 15% to €66.3 million (2012: €57.7 million)
·; Underlying EBITDA up 50% to €8.0 million (2012: €5.3 million)
·; Profit before tax up 140% to €5.2 million (2012: €2.1 million)
·; Basic earnings per share increased to 1.4 cents (2012: 0.5 cents)
·; Refinanced €20m bank facilities extending maturity to March 2016
·; Dividend of 1.3 cents per share paid in May 2013
·; Forward order book remains strong
Commenting on the results, Dermot Smurfit, Chairman of Powerflute, said:
"The Group performed well during the first half of the year, with volumes, revenues and profits all ahead of the same period of the prior year. This outcome reflects both favourable market conditions in the first half and the realisation of benefits from capital investment projects completed in 2012.
"Prices remained firm over the summer months despite the normal seasonal slowdown and we began the second half with a healthy forward order book. The Board expects that the current momentum will be maintained and that the Group will be cash generative during the second half.
"We believe there is still scope for further improvement in our existing businesses and we continue to explore opportunities to grow through targeted acquisitions. The Group remains in a strong financial position and is well placed to take advantage of opportunities as they arise."
- Ends-
For further information, please contact:
PowerfluteOyj Dermot Smurfit (Chairman) Marco Casiraghi (Chief Executive Officer) David Walton (Chief Financial Officer)
|
c/o Billy Clegg, FTI Consulting +44 20 7269 7157 |
Canaccord Genuity Limited Piers Coombs Peter Stewart
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+44 20 7523 8350 |
FTI Consulting Oliver Winters Georgina Goodhew
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+44 20 7831 3113 |
FTI Consulting (Ireland) Mark Kenny Jonathan Neilan
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+353 1 663 3686 |
About Powerflute
Powerflute is a paper and packaging group quoted on the AIM market of the London Stock Exchange (Ticker: POWR). Through its subsidiary Savon Sellu Oy, the Group operates a paper mill in Kuopio, Finland which produces a specialised form of semi-chemical fluting made from locally sourced birch. Corrugated boxes manufactured using Nordic semi-chemical fluting demonstrate 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.
Forward-looking information
This announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this announcement. The Group will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Group performed well during the first half of the year, with volumes, revenues and profits all ahead of the same period of the prior year.
Conditions were broadly favourable in most major markets during the period. Demand was healthy and average selling prices were higher than the prior year, although the benefit of this was partially offset by increased delivery and raw material expenses. The capital investment projects completed during 2012 are delivering the expected improvements in product performance, production capacity and manufacturing efficiency and we are now beginning to see the benefits of this in improved operational and financial performance.
We continue to focus on delivering packaging papers intended for use in demanding, high humidity conditions which offer users a combination of superior technical performance and cost effectiveness. The progress we have made in recent years has allowed us to consolidate our position and improve competitiveness in traditional markets, while at the same time expanding our presence in new markets in the Asia, South America and other high growth economies.
There is still scope for further improvement in our existing businesses and we continue to explore opportunities to grow through targeted acquisitions. The Group is currently expected to continue to perform well during the second half of the year, it remains in a strong financial position and is well placed to take advantage of opportunities as they arise.
Results
Revenue from continuing operations for the six months ended 30 June 2013 increased by €8.6 million (15%) to €66.3 million (2012: €57.7 million) due to a combination of increased volumes and higher average selling prices. Underlying EBITDA increased by €2.7 million (50%) to €8.0 million (2012: €5.3 million) and operating profit increased by €2.9 million (120%) to €5.5 million (2012: €2.5 million). Net finance expenses remained stable at €0.3 million (2012: €0.3 million expense), while profit before tax increased to €5.2 million (2012: €2.1 million).
The improved performance was attributable to a combination of increased volumes, higher average selling prices, relatively stable raw material and other input costs and improvements in manufacturing efficiency. Production volumes increased by 8% compared with the prior year to 129,000 tonnes (2012: 119,000 tonnes) and average selling prices were 6% higher.
The Group remains in a strong financial position despite a seasonal increase in net working capital during the first half of the year, payment of the dividend in May and advance payments made in connection with capital projects to be completed during the planned maintenance shutdown in September. Net cash at 30 June 2013 was €3.9 million (31 December 2012: €10.9 million) and we expect the Group to be cash generative during the second half.
Earnings per share and dividend
Basic earnings per share increased to 1.4 cents (2012: 0.5 cents).
During the period, the Group paid a final dividend for the year ended 31 December 2012 of 1.3 cents per share. The record date for the dividend was 3 May 2013 and the payment was made on 24 May 2013. The level of dividend is subject to approval by the Annual General Meeting of shareholders and the company does not make any payment on account or pay any interim dividend.
Operational Review
The Packaging Papers business experienced broadly favourable conditions throughout the first half and delivered a significantly improved financial and operational performance.
Demand for Nordic Semi-Chemical Fluting remained strong in most regions and we were able to consolidate our position in traditional European markets and further increase penetration into faster-growing, developing markets in South America, Asia and elsewhere. Good progress was made with margin improvement initiatives such as introducing greater diversity into the customer base, reducing exposure to Southern European markets where competition from other producers and from recycled grades is more intense, and introducing a value-based approach to selling which targets customers who are willing to pay a premium for the superior performance characteristics of our products.
Together, these actions helped to mitigate the impact of the normal seasonal slowdown in Europe and we experienced only limited pricing pressure during the second quarter. We enter the second half of the year with good price levels and the possibility of positive pricing momentum following announcements of increases by producers of competing and complementary grades.
We were able to take advantage of the favourable market conditions with a greatly improved production performance as output increased by 8% to 129,000 tonnes for the six months to June 2013 (2012: 119,000 tonnes). The projects completed during 2012 have addressed some of the challenges caused by the colder winter months and removed a number of production bottlenecks. Following resolution of some initial operational problems, the expected increase in capacity, improvements in product consistency and energy cost reductions are all being achieved.
Further modifications made to one of the two pulp production lines during a planned maintenance stop in May have delivered improved pulp yield and a further modest increase in nominal capacity. The replacement of the pulp washer planned for the September maintenance shutdown is on schedule and should further enhance our ability to maintain volumes and quality during the winter period.
The only negative trends experienced during the period were further increases in raw material and delivery costs, which offset some of the benefit of higher selling prices. Increasing economic activity, together with the continuing challenges of importing wood from Russia despite its recent entry into the WTO, contributed to a rise in demand for domestically sourced birch and this resulted in both availability challenges and higher prices. Through Harvestia, the Group's wood procurement organisation, we were able to secure the necessary volumes during the first half. However, in order to secure the volumes required for the second half it has been necessary to increase wood inventories at the mill and increase the level of forward commitments and advance payments to forest owners. This has negatively impacted on working capital and on the net cash position.
We continue to evaluate our minority investment in Kotkamills and to provide technical support and assistance to the management and majority owners. Good progress has been made in many areas to improve the efficiency and production performance of the mill. However, due to its exposure to the construction industry and to the publication paper sector the business continues to face a number of strategic challenges which will take some time to resolve.
Cash flow and borrowings
The Group started the period with a net cash surplus of €10.9 million, consisting of cash and short term deposits of €35.1 million and interest-bearing loans and borrowings of €24.2 million.
The net cash flow from operating activities was an outflow of €0.8 million (2012: €3.6 million inflow) consisting of:
·; €8.5 million inflow from trading activities (2012: €5.3 million inflow)
·; €6.0 million outflow due to increase in net working capital (2012: €1.6 million outflow)
·; €3.3 million outflow due to payment of corporate taxes for 2012 and 2013 (2012: nil)
The increase in net working capital was due to a combination of the higher level of operating activity, which resulted in an increase in trade receivables, and the recovery of wood inventories from a very low level at the end of the prior period to a higher than normal level of both inventories at the mill and advance payments to suppliers at the period end, considered necessary in order to secure availability of wood during the second half of the year.
The other applications of funds during the period were:
·; €3.7 million of dividend for the year ended 31 December 2012 (2012: €3.8 million)
·; €2.2 million of capital expenditure (2012: €2.1 million)
·; €0.3 million of net interest and similar costs
By 30 June 2013, the Group's net cash surplus had reduced by €7.0 million to €3.9 million, consisting of cash and short term deposits of €28.9 million and interest-bearing loans and borrowings of €25.0 million.
In March, the Group refinanced its working capital facilities of €20.0 million, extending their maturity until 31 March 2016. The principal terms and conditions and the covenants which apply to the new facilities were described in the 2012 Annual Report. The amortising term loans of €4.0 million were not affected by the refinancing and will continue to be repaid at the rate of €1.5 million per annum until 2016.
Treasury management and currency risk
The main functional currency of the Group is the Euro, but the Group has transactional and balance sheet exposure to a number of other currencies and in particular, to the US dollar. The exposure arises as approximately 30% of the Group's sales by volume and value and 5% of its expenses by value are denominated in US dollars.
It is the Group's policy to use forward exchange contracts to hedge a portion of its foreign currency exposure for a period of up to 12 months. At 30 June 2013, the Group had hedged 100% of its net exposure to the US dollar for the quarter ending 30 September 2013, 75% of its exposure for the quarter ending 31 December 2013, 25% of its exposure for the quarter ending 31 March 2014 and had no hedging in place for the quarter ending 30 June 2014. There was no hedging in place for any period beyond 30 June 2014.
Board and management
Juha Niemelä, who was appointed as a director in April 2005, has decided to reduce his business commitments and retired as a director of the Company at the Annual General Meeting held on 25 April 2013. The Board now consists of six directors.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group have not changed from those described on page 14 of the 2012 Annual Report, a copy of which is available for download from our website www.powerflute.com.
The Business Review and the notes to these interim financial statements include consideration of the uncertainties affecting the Group in the remaining six months of the year.
Outlook
The Group performed well during the first half of the year, with volumes, revenues and profits all ahead of the same period of the prior year. This outcome reflects both favourable market conditions in the first half and the realisation of benefits from capital investment projects completed in 2012. Prices remained firm over the summer months despite the normal seasonal slowdown and we began the second half with a healthy forward order book. The Group is currently expected to continue to perform well and to be cash generative during the second half.
We believe there is still scope for further improvement in our existing businesses and we continue to explore opportunities to grow through targeted acquisitions. The Group remains in a strong financial position and is well placed to take advantage of opportunities as they arise.
Dermot Smurfit
Chairman
Marco Casiraghi
Chief Executive
5 August 2013
INTERIM CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2013
Six months ended 30 June | Year ended 31 December | |||||||
2013 | 2012 | 2012 | ||||||
Note | € 000 | € 000 | € 000 | |||||
Continuing operations | ||||||||
Revenue | 7 | 66,267 | 57,675 | 113,083 | ||||
Other operating income | 217 | 148 | 171 | |||||
Changes in inventories of finished goods and work in progress | (867) | (1,114) | (11) | |||||
Raw materials and consumables used | (32,799) | (29,351) | (57,166) | |||||
Employee benefits expense | (9,008) | (8,061) | (16,239) | |||||
Other expenses | (15,822) | (14,462) | (28,084) | |||||
Share of profit/(loss) of a joint venture | 8 | 55 | (33) | (44) | ||||
Depreciation and amortization | (2,495) | (2,328) | (4,782) | |||||
Operating profit | 5,548 | 2,474 | 6,928 | |||||
Finance income | 203 | 433 | 668 | |||||
Finance expenses | (510) | (758) | (1,256) | |||||
Profit before tax from | 5,241 | 2,149 | 6,340 | |||||
continuing operations | ||||||||
Income tax | 10 | (1,323) | (595) | (1,699) | ||||
Profit for the period from continuing operations | 3,918 | 1,554 | 4,641 | |||||
Discontinued operations | ||||||||
Gain for the period after tax from discontinued operations | - | - | 725 | |||||
Profit for the period | 3,918 | 1,554 | 5,366 | |||||
Attributable to | ||||||||
- equity holders of the company | 3,918 | 1,554 | 5,366 | |||||
|
| |||||||
Earnings per share (cents per share) | ||||||||
Basic, for the period | 1.4 | 0.5 | 1.9 | |||||
Diluted, for the period | 1.3 | 0.5 | 1.8 | |||||
Earnings per share for continuing operations (cents per share) | ||||||||
Basic, from continuing operations | 1.4 | 0.5 | 1.6 | |||||
Diluted, from continuing operations | 1.3 | 0.5 | 1.6 | |||||
The notes on pages 12 to 21 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2013
Six months ended 30 June | Year ended 31 December | |||||||
2013 | 2012 | 2012 | ||||||
Note | € 000 | € 000 | € 000 | |||||
Profit for the period | 3,918 | 1,554 | 5,366 | |||||
Net movement on cash flow hedges | (339) | (257) | (102) | |||||
Income tax effect | 10 | 83 | 63 | 25 | ||||
Other comprehensive income/(loss) | 14 | (256) | (194) | (77) | ||||
for the period, net of tax | ||||||||
Total comprehensive income | 3,662 | 1,360 | 5,289 | |||||
for the period, net of tax | ||||||||
Attributable to | 3,662 | 1,360 | 5,289 | |||||
- equity holders of the company | ||||||||
The notes on pages 12 to 21 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2013
30 June 2013 | 30 June 2012 | As at 31 December 2012 | ||||||
Note | € 000 | € 000 | € 000 | |||||
ASSETS | ||||||||
Non-current assets | ||||||||
Property, plant and equipment | 13 | 38,646 | 35,108 | 38,942 | ||||
Intangible assets | 68 | 238 | 80 | |||||
Other non-current financial assets | 5,269 | - | 5,232 | |||||
Investment in a joint venture | 8 | 3,618 | 3,566 | 3,563 | ||||
Total non-current assets | 47,601 | 38,912 | 47,817 | |||||
Current assets | ||||||||
Inventories | 16,331 | 12,639 | 11,871 | |||||
Trade and other receivables | 24,916 | 21,424 | 19,495 | |||||
Derivative financial instruments | 14 | 233 | - | 440 | ||||
Current income tax receivables | 111 | - | - | |||||
Cash and short-term deposits | 28,868 | 39,517 | 35,067 | |||||
Total current assets | 70,459 | 73,580 | 66,873 | |||||
TOTAL ASSETS | 118,060 | 112,492 | 114,690 | |||||
EQUITY AND LIABILITIES | ||||||||
Equity attributable to equity holders of the parent | ||||||||
Issued share capital | 88 | 88 | 88 | |||||
Treasury shares | (1,735) | (1,537) | (1,735) | |||||
Hedging reserve | (455) | (316) | (199) | |||||
Reserve for invested non-restricted equity | 28,422 | 28,422 | 28,422 | |||||
Retained earnings | 32,772 | 28,211 | 32,357 | |||||
Total equity | 59,092 | 54,868 | 58,933 | |||||
Non-current liabilities | ||||||||
Interest-bearing loans and borrowings | 16 | 12,947 | 14,750 | 3,000 | ||||
Derivative financial instruments | 14 | 361 | 192 | 79 | ||||
Employee benefit liability | - | 50 | - | |||||
Deferred tax liabilities | 3,700 | 3,335 | 4,068 | |||||
Total non-current liabilities | 17,008 | 18,327 | 7,147 | |||||
Current liabilities | ||||||||
Trade and other payables | 28,806 | 22,534 | 24,876 | |||||
Interest-bearing loans and borrowings | 16 | 12,057 | 11,500 | 21,143 | ||||
Employee benefit liability | 56 | 23 | 61 | |||||
Derivative financial instruments | 14 | 241 | 786 | 185 | ||||
Provisions | 800 | 1,655 | 800 | |||||
Current income tax liabilities | - | 2,799 | 1,545 | |||||
Total current liabilities | 41,960 | 39,297 | 48,610 | |||||
Total liabilities | 58,968 | 57,624 | 55,757 | |||||
TOTAL EQUITY AND LIABILITIES | 118,060 | 112,492 | 114,690 | |||||
The notes on pages 12 to 21 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2013
Attributable to equity holders of the company | |||||||||
Share capital |
Treasury shares | Hedging reserve | Reserve for invested non-restricted equity | Retained earnings | Total equity | ||||
€ 000 |
€ 000 | € 000 | € 000 | € 000 | € 000 | ||||
As at 1 January 2013 | 88 | (1,735) | (199) | 28,422 | 32,357 | 58,933 | |||
Profit for the period | - | - | - | - | 3,918 | 3,918 | |||
Other comprehensive income/(loss) | - |
- | (256) | - | - | (256) | |||
Total comprehensive income/(loss) | - |
- | (256) | - | 3,918 | 3,662 | |||
Share based payments | - | - | - | 191 | 191 | ||||
Dividends paid | - | - | - | (3,694) | (3,694) | ||||
At 30 June 2013 | 88 | (1,735) | (455) | 28,422 | 32,772 | 59,092 | |||
As at 1 January 2012 | 88 | - | (122) | 28,422 | 30,144 | 58,532 | |||
Profit for the period | - | - | - | - | 1,554 | 1,554 | |||
Other comprehensive income/(loss) | - |
- | (194) | - | - | (194) | |||
Total comprehensive income/(loss) | - |
- | (194) | - | 1,554 | 1,360 | |||
Share based payments | - | - | - | - | 281 | 281 | |||
Purchase of own shares | - | (1,537) | (1,537) | ||||||
Dividends paid | - | - | - | - | (3,768) | (3,768) | |||
At 30 June 2012 | 88 | (1,537) | (316) | 28,422 | 28,211 | 54,868 | |||
The notes on pages 12 to 21 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2013
Six months ended 30 June | Year ended 31 December | |||||||||
2013 | 2012 | 2012 | ||||||||
Note | € 000 | € 000 | € 000 | |||||||
Operating activities | ||||||||||
Profit before tax from continuing operations | 5,241 | 2,149 | 6,340 | |||||||
Profit before tax from discontinued operations | - | - | 725 | |||||||
Profit before tax | 5,241 | 2,149 | 7,065 | |||||||
Non-cash: | ||||||||||
Depreciation of property, plant and equipment | 2,475 | 2,318 | 4,760 | |||||||
Amortisation of intangible assets | 20 | 10 | 22 | |||||||
Share-based payment expense | 191 | 281 | 615 | |||||||
Change in financial instruments | 206 | 279 | (720) | |||||||
Finance income | (203) | (433) | (668) | |||||||
Finance expense | 510 | 758 | 1,256 | |||||||
Share of (profit)/loss in a joint venture | (55) | 33 | 44 | |||||||
Movements in provisions, pensions and government grants | 58 | (126) | (813) | |||||||
Working capital adjustments: | ||||||||||
Change in trade and other receivables and prepayments | (5,458) | (428) | 1,501 | |||||||
Change in inventories | (4,460) | 26 | 794 | |||||||
Change in trade and other payables | 3,930 | (1,242) | 1,100 | |||||||
Income tax received/(paid) | (3,264) | - | (1,663) | |||||||
Net cash flows from operating activities | (809) | 3,625 | 13,293 | |||||||
Investing activities | ||||||||||
Proceeds from sale of property and equipment | - | - | 75 | |||||||
Purchase of property, plant and equipment | 13 | (2,187) | (2,075) | (8,280) | ||||||
Investment in a joint venture | - | (1,432) | (1,925) | |||||||
Investment in financial instruments | - | - | (1,662) | |||||||
Net proceeds from disposal of a subsidiary | (63) | (285) | (1,550) | |||||||
Interest received | 203 | 433 | 668 | |||||||
Net cash flows from investing activities | (2,047) | (3,359) | (12,674) | |||||||
Financing activities | ||||||||||
Purchase of own shares | - | (1,537) | (1,735) | |||||||
Proceeds from borrowings | 19,911 | 552 | 552 | |||||||
Repayment of borrowings | 16 | (19,012) | (750) | (2,857) | ||||||
Payment of finance lease liabilities | (65) | (105) | (105) | |||||||
Interest and similar costs paid | (483) | (746) | (1,244) | |||||||
Dividends paid | (3,694) | (3,768) | (3,768) | |||||||
Net cash flows from financing activities | (3,343) | (6,354) | (9,157) | |||||||
Net increase/(decrease) in cash and cash equivalents* | (6,199) | (6,088) | (8,538) | |||||||
Cash and cash equivalents at start of period | 35,067 | 43,605 | 43,605 | |||||||
Cash and cash equivalents at period end* | 28,868 | 37,517 | 35,067 | |||||||
*Cash and cash equivalents at 1 January and 30 June 2012 excludes €2,000,000 held in escrow, further details are presented in Note 18 of the 2012 Annual Report
The notes on pages 12 to 21 form an integral part of this condensed consolidated interim financial information
NOTESTO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Corporate Information
Powerflute Oyj is a public limited company incorporated and domiciled in Finland. The Company's shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange (Ticker: POWR). The address of the Company's registered office is Sorsasalo/Box 57, FI-70101 Kuopio, Finland.
The principal activities of the company and its subsidiaries are the manufacture of paper and packaging products and are described in more detail in Note 7.
The interim condensed consolidated financial statements for the six months ended 30 June 2013 were approved for issue by the Company's Board of Directors on 5 August 2013. These interim condensed consolidated financial statements have been reviewed, not audited.
2 Basis of preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2013 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2012.
3 Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2012, except for the adoption of new standards and interpretations as of 1 January 2013, noted below:
IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1
IAS 19 Employee Benefits (Revised 2011) (IAS 19R)
IFRS 7 Financial Instruments: Disclosures- Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7
IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
IFRS 11 Joint Arrangements and IAS 28Investment in Associates and Joint Ventures
IFRS 12 Disclosures of Interests in Other Entities
IFRS 13 Fair Value Measurement
Annual improvements to IFRS May 2012
The adoption of the new standards and interpretations mentioned above did not have any impact 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.
4 Significant accounting judgements, estimates and assumptions
The preparation of the interim condensed 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 these interim condensed consolidated financial statements, 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 2012.
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.
Taxation of gains arising on disposal of shares
During the year ended 31 December 2011, the Group sold a portion of its shareholding in Harvestia and sold its entire interest in the Graphic Papers businesses, realising a profit on both disposals. In preparing its financial statements for the year ended 31 December 2012 and 2011, the Group assumed that the resulting gains would be exempt from corporate taxes under the substantial shareholder exemptions normally available to industrial companies in Finland. Details of the assumptions made are set out in Note 3 to the financial statements for the year ended 31 December 2012.
During the year ended 31 December 2012, the Group was informed by Vero, the Finnish tax administration, that it is considered by the tax administration to be a venture capital company and not eligible to take advantage of the substantial shareholder exemptions. Accordingly, Vero considers that the gains arising on the share disposals should be subject to tax and has confirmed assessments for the year ended 31 December 2011 including €3,571,000 of taxes relating to the share transactions.
Following a detailed review of the facts and circumstances by the Group's advisers, including consideration of current tax regulations and official guidance on their implementation, recent case history and the treatment of other taxpayers in similar circumstances, the Group considers that it has strong and defensible arguments against the decision of Vero, which it intends to contest to the fullest extent possible.
While the taxes were paid to avoid the risk of interest and other penalties, the financial statements for the 12 months ended 31 December 2012 were prepared on the basis that the Group is an industrial company and that the gains arising on the disposals are exempt from corporate taxes. The taxes assessed by Vero and paid by the Group have not been recognised in the income statement. The taxes paid have been recorded as a non-current financial asset in the balance sheet and full provision has been made against the estimated future costs of the handling the dispute within the results of discontinued operations.
In the event that the Group does not prevail in its appeal against the assessment, then additional taxes of €3,571,000 would have 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 from continuing operations.
In view of this, the financial statements for the six months ended 30 June 2013 continue to be prepared on the basis that the Group is an industrial company and that the gains arising on the disposals will be exempt from corporate taxes.
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 2012 Annual Report. 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. A more detailed explanation of these risks and uncertainties is set out on page 14 of the Annual Report for the year ended 31 December 2012, a copy of which is available on the Group's website.
6 Seasonality of operations
Due to the seasonal nature of the Group's business activities, higher revenues, operating profits and cash generation are generally expected in the second half of the year, although this can be affected significantly by the timing of annual maintenance shutdowns which reduce production availability, or changes in market conditions which can impact on demand and average pricing levels. In the financial year ended 31 December 2012, 49% of revenue and 59% of EBITDA from trading activities was generated in the second half.
7 Segmental information
For management purposes, the Group is organised into business units based upon the products and services which it supplies. The Group has only one reportable operating segment:
·; Packaging Papers, which is involved in the production and sale of Nordic semi-chemical fluting for use in premium-grade corrugated-box applications.
No operating segments have been aggregated to form the above reportable operating segments. The costs of central functions, including the costs of corporate and other central services, are allocated to the reportable operating segments using cost allocation methodologies appropriate to each category of expense and consistent with the methods used in management reporting.
Management monitors the operating results of the 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 non-recurring or exceptional income or expenditure from the results of the operating segments. It also excludes the effects of equity-settled share-based payments and unrealised gains or losses on financial instruments. Interest income and expenditure are not allocated to segments. Transfer prices between operating segments are on an arm's-length basis in a manner similar to transactions with third parties.
Six months ended 30 June 2013 |
|
30 June 2013 | 30 June 2012 |
| |
€ 000 | € 000 |
| |||
Revenue |
| ||||
Third party | 66,267 | 57,675 |
| ||
Inter-segment | - | - |
| ||
Total revenue | 66,267 | 57,675 |
| ||
| |||||
Results |
| ||||
Segment EBITDA profit | 8,001 | 5,939 |
| ||
Expenses of aborted acquisition | - | (500) |
| ||
Unrealised gains/losses on financial instruments | 233 | (356) |
| ||
Expense of share-based payment schemes | (191) | (281) |
| ||
EBITDA | 8,043 | 4,802 |
| ||
Depreciation and amortisation | (2,495) | (2,328) |
| ||
Operating profit | 5,548 | 2,474 |
| ||
Finance income | 203 | 433 |
| ||
Finance expenses | (510) | (758) |
| ||
Profit before taxation | 5,241 | 2,149 |
| ||
|
|
30 June 2013 | 30 June 2012 | ||
€ 000 | € 000 | ||||
Segment assets | 118,060 | 112,492 | |||
The Group's share of the profit or loss of Harvestia is reported within the Packaging Papers segment. Segment operating profit does not include finance income and finance costs.
8 Investment in a joint venture
The Group has a 47,5% interest in Harvestia Oy ("Harvestia"), a wood procurement company based in Finland. Harvestia is a private limited company that is not listed on any public exchange.
The Group's investment in Harvestia is classified as a joint venture. Harvestia is accounted for using the equity method. The Group's share of the assets, liabilities, income and expenses of the joint venture at 30 June 2013 and at 31 December 2012 are as follows:
30 June | 31 Dec | |
2013 | 2012 | |
€ 000 | € 000 | |
Share of joint venture's statement of financial position: | ||
Current assets | 19,155 | 14,910 |
Non-current assets | 183 | 204 |
19,338 | 15,114 | |
Current liabilities | (16,174) | (12,131) |
Net assets | 3,164 | 2,983 |
Additional share of invested non-restricted shareholders' equity | 225 | 225 |
Total share of net assets | 3,389 | 3,208 |
30 June | 31 Dec | ||
2013 | 2012 | ||
€ 000 | € 000 | ||
Share of joint venture's revenue and profit: | |||
Revenue | 54,379 | 83,927 | |
Profit/(loss) for the year from continuing operations | 55 | (44) | |
Carrying amount of the investment | 3,618 | 3,563 | |
9 Impairments
As at 30 June 2013, the market capitalisation of the Group was significantly higher than the book value of its equity and no triggering events regarding the impairment of Group's assets were identified. Therefore, the Group has not performed any impairment testing on its assets or business units as per 30 June 2013.
10 Income tax
Income tax is recognized based upon management's best estimate of the weighted average annual income tax rate expected for the full financial year.
Major components of income tax in the interim consolidated income statement are:
Six months ended 30 June | ||
2013 | 2012 | |
€ 000 | € 000 | |
Current income tax | 1,561 | 1,136 |
Deferred income tax | (238) | (541) |
Income tax expense (gain) | 1,323 | 595 |
Income tax recognised in other comprehensive income | (83) | (63) |
Total income taxes from continuing operations | 1,240 | 532 |
11 Dividends
30 June 2013 | 30 June 2012 | |
€ 000 | € 000 | |
Dividends on ordinary shares declared and paid during the six-month period: | ||
Final dividend for 2012: 1.3 cents per share (2011: 1.3 cents per share) | 3,694 | 3,768
|
A dividend of 1.3 cents per share for the year ended 31 December 2012 was proposed by the directors and approved by shareholders at the Annual General Meeting held on 25 April 2013. The record date for the dividend was 3 May 2013 and payment was made on 24 May 2013.
12 Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the period 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 in accordance with the requirements of IAS 33 - Earnings per share, 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.
Six months ended 30 June | ||
2013 € 000 | 2012 € 000 | |
Net profit attributable to ordinary equity holders of the parent | 3,918 | 1,554 |
Thousands | Thousands | |
Weighted average number of shares for Basic Earnings per Share | 286,821 | 289,062 |
Effect of dilution: | ||
Share options | 7,167 | 8,435 |
Weighted average number of shares adjusted for dilution | 293,988 | 297,497 |
Authority to repurchase and repurchase of shares
On 25 April 2013, the Annual General Meeting granted authority to the Board of Directors to decide on the repurchase of up to 28,000,000 Powerflute's shares pursuant to Chapter 15, Section 5(2) of the Finnish Companies Act by using funds in the company's unrestricted equity. The proposed amount of shares corresponded to approximately 9.9 % of all shares and votes of the company then in issue. The authority remains effective until 30 June 2014 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.
Authority to issue new shares
On 25 April, 2013, the Annual General Meeting granted authority to the Board of Directors to resolve on the issuance of up to 60,000,000 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. This authority may be utilised in one or several issues. The Board of Directors may resolve to give either new shares or shares in the company's possession. The proposed amount of shares corresponded to approximately 21.1 % of all shares and votes of the Company then in issue. This authority provides the right to deviate from the shareholders' pre-emptive subscription right. The authority remains effective until 30 June 2014 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.
13 Property, plant and equipment
The Group acquired assets with a cost of €2,187,000 during the six months ended 30 June 2013 (2012: €2,075,000).
14 Financial Instruments
Cash flow hedges in other comprehensive income | |||
30 June 2013 | 30 June 2012 | ||
€ 000 | € 000 | ||
Net of tax: | |||
Gains/(losses) arising during the year | 195 | 60 | |
Reclassification adjustments for gains/(losses) included in the income statement | (451) | (254) | |
(256) | (194) | ||
As at 30 June 2013 | As at 30 June 2012 | ||||
Assets | Liabilities | Assets | Liabilities | ||
€ 000 | € 000 | € 000 | € 000 | ||
Commodity forward contracts | - | 602 | - | 418 | |
Foreign exchange forward contracts | 233 | - | - | 560 | |
Total | 233 | 602 | - | 978 | |
Less: non-current portion | |||||
Commodity forward contracts | - | 361 | - | 192 | |
Foreign exchange forward contracts | - | - | - | - | |
- | 361 | - | 192 | ||
Current Portion | 233 | 241 | - | 786 | |
Derivative financial instruments are recorded on the balance sheet at fair value.
The Group uses foreign exchange forward contracts to manage some of its transaction exposures. Currency forward contracts are not designated as cash flow, fair value or net investment hedges and are entered into for periods consistent with currency transaction exposures up to 12 months in advance.
Hedge accounting has been applied to commodity derivatives. Gains and losses arising on commodity derivatives are recognized in the hedging reserve in equity and are recognized in the income statement during the period or periods in which the hedged forecast transaction affects the income statement. This is generally within 12 to 24 months of the balance sheet date.
There have been no transfers between Levels 1-3 and the Group did not incur gains or losses recorded in the statement of comprehensive income with respect to Level 3 financial instruments.
15 Share-based payments
For the six months ended 30 June 2013, the Group has recognised €191,000 of share-based payment expense in the income statement (30 June 2012: €281,000).
16 Borrowings and loans
30 June 2013 | 30 June 2012 | 31 December 2012 | |
€ 000 | € 000 | € 000 | |
Non-current | 12,947 | 14,750 | 3,000 |
Current | 12,057 | 11,500 | 21,143 |
25,004 | 26,250 | 24,143 |
Movements in borrowings are analyzed as follows:
€ 000 | |||
Six months ended 30 June 2012 | |||
Opening amount as at 1 January 2012 | 26,541 | ||
Repayment of loans from financial institutions | (750) | ||
Change in other interest bearing liabilities | 459 | ||
Closing amount as at 30 June 2012 | 26,250 | ||
Six months ended 30 June 2013 | |||
Opening amount as at 1 January 2013 | 24,143 | ||
Repayment of loans from financial institutions | (19,050) | ||
Change in other interest bearing liabilities | 19,911 | ||
Closing amount as at 30 June 2013 | 25,004 |
17 Commitments and contingencies
Mortgages
The Group has pledged the assets and shares of its principal trading subsidiary Savon Sellu Oy as security for interest-bearing borrowing facilities provided by Nordea and Finnvera. In addition, it has pledged €1,500,000 to Danske Bank as security for a foreign exchange forward contract facility. The remainder of the Group's assets are unencumbered.
Contingent liabilities
The Group is contesting a decision by Vero, the Finnish tax administration, to impose income taxes on certain gains realised on the disposal of shares during the year ended 31 December 2011. Although the taxes of €3,571,000 have been paid in order to avoid penalties and interest, the amount has been treated as recoverable from Vero and recorded within trade and other receivables and not reflected in the income statement. In the event that the Group does not prevail in its appeal against the assessment, then additional taxes would have 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 from continuing operations. Further details are provided in note 4 and in the 2012 Annual Report.
18 Related Party Transactions
Certain of the Group's directors and members of its executive management team have significant beneficial and non-beneficial interests in the ordinary share capital of the Group. Full details of these interests are disclosed in the annual financial statements for the year ended 31 December 2012.
a) Transactions with related parties
Savon Sellu Oy, a subsidiary of Group, purchases a proportion of its raw materials from Harvestia Oy, a company in which the Group has a 47.5% interest. The goods are purchased on normal market terms.
There is a shareholder capital loan of €1,000,000, further details of which are provided in note 14 of the 2012 Annual Report. The principal amount of the loan, together with accrued interest, is due for repayment on 31 July 2013.
Transactions with related parties for the six months ended 30 June 2013 and 30 June 2012 were as follows:
Sales to related parties | Purchases from related parties | Amounts owed by related parties | Amounts owed to related parties | ||
€ 000 | € 000 | € 000 | € 000 | ||
Associated company Harvestia Oy | |||||
2013 | 10 | 17,685 | 4,637 | 8,279 | |
2012 | 48 | 14,244 | 2,371 | 2,687 | |
Shareholder loan | |||||
2013 | - | - | - | 1,573 | |
2012 | - | - | - | 1,521 |
b) Key management compensation
Key management compensation for the six months ended 30 June 2013 amounted to €910,000 (30 June 2012: €964,000) analysed as follows:
Six months ended 30 June | ||
2013 | 2012 | |
€ 000 | € 000 | |
Salaries, fees and other short term benefits | 719 | 683 |
Share-based payments | 191 | 281 |
910 | 964 | |
c) Directors' interest in employee share incentive plans
The share options held by executive members of the Board of Directors providing entitlement to purchase ordinary shares have the following expiry dates and exercise prices:
Number outstanding | |||||
Issue date | Expiry date | Exercise price | 30 June 2013 | 30 June 2012 | |
Thousands | Thousands | ||||
11 Jan 2010 | - | nil | - | 2,000 | |
5 Apr 2012 | 4 April 2019 | €0.01 | 8,469 | 8,469 | |
Further details of the share options awarded to directors of the Company are provided in Note 15 and in the Annual Report for the year ended 31 December 2012.
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
To the Board of Directors of Powerflute Oyj
Introduction
We have reviewed the accompanying condensed consolidated interim financial information of Powerflute Oyj ("Powerflute" or "the Company") for the six months ended 30 June 2013, consisting of the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Cash Flow Statement, together with related Notes 1 to 18.
The Board of Directors and the Managing Director are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 - Interim Financial Reporting. Our responsibility is to express a conclusion on the interim financial information based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34.
Helsinki, 5 August 2013
ERNST & YOUNG OYAuthorised Public Accountant Firm
Mikko Järventausta
Authorised Public Accountant
Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area.