POWR.L Regulatory News (POWR)

6 Sep 2007 07:01

Powerflute Oyj06 September 2007 6th September 2007 POWERFLUTE OYJ Interim results for the six months ended 30 June 2007 Powerflute Oyj (the "Company" or "Powerflute"), which operates a paper mill inFinland, and manufactures high quality nordic semi-chem fluting, is pleased toannounce maiden interim results as a public company listed on the AIM market ofthe London Stock Exchange. Highlights • Turnover up 17 per cent. to • 55.888 million (H1 2006: €47.707 million) • Operating profit on ordinary activities before tax up 58 per cent. to €6.986 million (H1 2006: • 4.418 million) • EBITDA on ordinary activities up 41 per cent. to €9.500 million (H1 2006: €6.737 million) • EBITDA margin 17.0 per cent. (H1 2006:14.1 per cent.) • EPS based on ordinary activities 4.52 cents per share (H1 2006: 3.13) an increase of 44 per cent.Basic EPS of 2.04 cents per share (H1 2006:3.13) • Shipments up 10 per cent. to 132,000 tonnes, ahead of the market • AIM IPO successfully completed in May 2007 • Outlook for H2 2007 positive with continued improvement in performance of existing business • The growing containerboard sector is enjoying good growth and with no significant new capacity gives a healthy outlook for 2008 Commenting on the announcement Powerflute's Chairman Dermot Smurfit said: "During the period, Powerflute has continued to benefit from our excellentmanagement team and our strong position in the Nordic Semi-Chemical Fluting ("SCF") market. As such our existing business is performing well and the outlookfor the second half is positive. "We recently looked at a significant acquisition prospect but decided not toproceed. We continue to review a number of suitable acquisition opportunities ofunder-performing or orphan assets arising from the structural changes in theforest products industry. A significant increase in shareholder value remainsour primary criteria." For additional information please contact: Powerflute OYJDermot Smurfit (Chairman) C/O Billy CleggDon Coates (Chief Executive Officer) +44 (0)20 7269 7157 Collins Stewart Europe Ltd:Nick Ellis +44 (0)20 7523 8350Philip P. Roe Financial Dynamics:Billy Clegg +44 (0)20 7269 7157Ekaterina Alferova +44 (0)20 7269 7257 A copy of this announcement has been placed on the Company's websitewww.powerflute.com. A copy of an investor presentation in relation to theinterim results will also be available on the website in due course. Copies ofthe announcement will not be dispatched to shareholders. INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Introduction Powerflute is pleased to announce its maiden interim results as a listed companyfollowing the Company's IPO on the AIM market of the London Stock Exchange on 11May 2007. The Group has a clear strategy to create shareholder value. Organically we willcontinue to develop the existing business through consolidating our strongposition in the Nordic Semi-Chemical Fluting ("SCF") market, improvingoperational efficiencies and maintaining strong customer relationships. Thiswill be significantly enhanced by the acquisition of under-performing or orphanassets in the forest products business, focussing on cashflow and returns oninvestment. Any such acquisition would be likely to have a significant debtcomponent with the aim of achieving higher returns on equity. At the time of the IPO, we placed 44,000,000 shares representing 50 per cent. ofthe Company's issued share capital with institutional shareholders primarily inthe UK, Finland and Ireland. We take this opportunity to welcome the newshareholders to the Company and thank them for their support. Market The Savon Sellu Mill operated by Powerflute is one of only three producers inthe world of the speciality containerboard product Nordic Semi Chemical Fluting(SCF). Together these three produce approximately 900,000 tonnes of SCF in amarket estimated to be growing at approximately 2 to 3 per cent. per annum. The global market for containerboard was strong in the first half of 2007 asgood industrial growth in Europe and the developing economies supported thedemand for corrugated packaging. SCF has benefited from this, as well as betterdemand from the produce sector worldwide. As a consequence, pricing has been strong in all markets with increases achievedeverywhere. Powerflute, through its Savon Sellu Mill, achieved good growth in H12007, with shipments up 10 per cent. to 132,000 tonnes, ahead of the market,strengthening its position as a leading supplier of SCF. Average turnover priceswere up 9 per cent. for the same period, in spite of the negative impact of theweak US$. Operational performance Much work has been put in to improve the efficiency of the mill in the period asin previous periods. As a result, production volumes were up 7 per cent. over H12006. The improved production was achieved in spite of additional maintenancedowntime. The mill is still operating below its capacity of 300,000 tonnes. Although average wood prices were up 6 per cent., overall unit production costswere down 1 per cent. year on year. Wood supply, particularly of birch, wastight during the period due to shortages following the unseasonably shortwinter, when most of the harvesting takes place. There was also some uncertaintyahead of the implementation of the Russian wood tariff from 1 July 2007. Workingclosely with our long-term supplier, Metsaliitto Co-operative, we were able tomaintain supplies to meet production requirements. Investment Our plans to invest to replace the headbox and short circulation of the papermachine have recently been finalised, with an agreement signed with Vaahto Pulpand Paper Machinery in August 2007. The project spend of approximately €5million will be spread over 2007 and 2008, and will result in improvements inproduct quality and output, ensuring our position as a quality leader in the SCFbusiness and supporting our growth targets. Management and Employees Powerflute employs 192 permanent employees in its mill (H1 2006: 194). Trainingprogrammes are in place to improve management processes at the mill. Inaddition, incentivisation schemes have been put in place to improveproductivity. The senior management changes in the last year have settled down well and we areconfident we have a strong team who can take the business forward. We would liketo thank all our employees for their continued efforts to improve theperformance of the business. Financial Review For the six months ended 30 June (unaudited) 2007 2006 • 000 • 000 Turnover 55,888 47,707 +17 % EBITDA from ordinary activities 9,500 6,737EBITDA margin 17 % 14 % Depreciation and amortisation (2,514) (2,319)Operating profit from ordinary activities 6,986 4,418 +58 % Financial expenses, net (1,539) (848)Profit before tax from ordinary activities 5,447 3,570 Income tax expense from ordinary activities (1,470) (815) Profit for the period from ordinary activities 3,977 2,755 One off income 586 - One off costs (3,535) - Income tax from one off items 767 - Reported profit for the period 1,795 2,755 Earnings per Share from ordinary activities (cents) 4.52 3.13 +44 % Reported Earnings per Share (cents) 2.04 3.13 Turnover The Group has achieved an increase in turnover of some 17 per cent. due tosignificant sales volume and price increases. EBITDA on ordinary activities A 41 per cent. increase in EBITDA from ordinary activities from €6.737 millionto €9.500 million reflects increase in turnover and improved utilisation of theasset base. Operating profit The operating profit on ordinary activities before tax has increased from €4.418million to €6.986 million representing an increase of 58 per cent. over theperiod. One off items Other expenses include one off costs associated with the IPO of €2.835 million,the costs of an aborted transaction incurred since 30 June 2007 of €0.700million, and a gain on a property disposal of €0.586 million Earnings per share EPS from ordinary activities were 4.52 cents per share (H1 2006: 3.13)representing an increase of 44 per cent. Reported EPS were 2.04 cents per share(H1 2006: 3.13). Dividend As indicated in the Admission Document dated 4 May 2007, no dividend will bepayable for the financial period ended 30 June 2007. The Board intends that, inthe absence of unforeseeable circumstances, the Company will pay a finaldividend for the financial period ending 31 December 2007. Balance Sheet The net debt at 30 June 2007 was €27.615 million. Current trading and outlook Since the IPO, we have evaluated a number of acquisition candidates and in oneinstance have incurred due diligence costs for what would have been asignificant acquisition for the Group, before declining to proceed. We continueto be confident that the current environment of industry restructuring in theface of changing economic fundamentals will allow us to successfully consummatean acquisition within the next year. Significant increases in shareholder valuewill be our primary criteria. Trading since the period end has been good, with strong demand, allowing us toannounce further price increases at the end of June, effective from July 2007onwards. SCF and recycled containerboard price increases have been announced bythe industry since then, improving the prospects for a successful implementationof this round of price increases. Due to the tight supply situation for wood, exacerbated by the implementation oftariffs on the export of Russian wood, further cost increases have been incurredsince the half-year end. We are confident that we can recover these costincreases. In common with the rest of the industry we currently have low levelsof wood stock. Maintaining adequate wood supply in the second half will be achallenge until wood harvest conditions return towards winter norms. Overall, the outlook for H2 2007 is positive for continued improvement inperformance of the existing business. The containerboard sector is enjoying goodgrowth and with no significant new capacity in the immediate future, theprospects for 2008 look healthy. Dermot Smurfit Chairman Don Coates Chief Executive Officer 6 September 2007 INDEPENDENT REPORT ON REVIEW OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS TO THEDIRECTORS OF POWERFLUTE OYJ Introduction We have reviewed the accompanying interim consolidated financial statements ofPowerflute Oyj (the "Company") as at June 30, 2007, comprised of the interimconsolidated balance sheet at 30 June 2007 and the related interim consolidatedstatements of income, changes in equity and cash flows for the six-month periodthen ended and explanatory notes. We have read the other information containedin the Interim Report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. The report is made solely to the Company. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our report, or for the conclusions we have formed. Responsibilities The Directors of Powerflute Oyj are responsible for preparation and presentationof these interim consolidated financial statements in accordance with accountingpolicies and presentation applied in preparing the preceding annual accountspresented in the Powerflute Oyj's AIM admission document dated 4 May 2007. Ourresponsibility is to express a conclusion on these interim consolidatedfinancial statements based on our review. Scope of review We conducted our review in accordance with the International Standard on ReviewEngagements 2410, "Review of Interim Financial Information Performed by theIndependent Auditor of the Entity." A review of interim financial informationconsists of making inquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing and consequently does not enable us toobtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an auditopinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the accompanying interim consolidated financial statements are notprepared, in all material respects, in accordance with the accounting policiesand presentation applied in preparing the preceding annual accounts presented inthe Powerflute Oyj's AIM admission document dated 4 May 2007. 6 September 2007 ERNST & YOUNG OY Authorised Public Accountants Notes: A review does not provide assurance on the maintenance and integrity ofthe website, including controls used to achieve this, and in particular onwhether any changes may have occurred to the financial information since firstpublished. These matters are the responsibility of the directors but no controlprocedures can provide absolute assurance in this area. INTERIM CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2007 For the six Year ended months ended 31 December 30 June 2007 2006 2006 Unaudited Unaudited Audited Notes • 000 • 000 • 000 Sales 55,888 47,707 98,302 Other operating income 5 699 179 455 Changes in inventories of finished 237 396 1,652 goods and work in progress Raw materials and consumables used (26,568) (24,182) (49,455) Employee benefits expense (7,096) (6,998) (14,316) Depreciation and amortisation (2,514) (2,319) (4,805) Other expenses 5 (16,609) (10,365) (24,206)Operating profit 4,037 4,418 7,627 Finance income 81 29 68 Finance expenses (1,620) (877) (2,305)Profit before tax 2,498 3,570 5,390 Income tax expense 6 (703) (815) (1,373)Profit for the period 1,795 2,755 4,017 Attributable to equity holders of the 1,795 2,755 4,017parent Earnings per Share (cents) 2.04 3.13 4.56 basic and diluted, for profit for the period attributable to ordinary equity holders of the parent INTERIM CONSOLIDATED BALANCE SHEET at 30 June 2007 30 June 2007 30 June 2006 31 December 2006 Unaudited Unaudited Audited Notes • 000 • 000 • 000ASSETS Non-current assets Property, plant and equipment 28,733 27,568 28,368 Intangible assets 5,313 7,191 6,352 Deferred tax asset 794 553 760 34,840 35,312 35,480 Current assets Inventories 10,134 8,589 10,946 Trade and other receivables 23,383 19,006 20,482 Derivative financial 11 63 1,775 - instruments Cash and short-term deposits 6,747 6,648 8,158 40,327 36,018 39,586 Assets classified as held for sale 0 2,294 2,294 TOTAL ASSETS 75,167 73,624 77,360 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital 88 40 88 Share premium - 1,968 - Retained earnings 9,674 17,679 5,788 Profit for the period 1,795 2,755 4,017Total equity 11,557 22,442 9,893 Non-current liabilities Interest-bearing loans and 9 32,206 25,053 37,504 borrowings Employee benefit liability 670 307 326 Deferred tax liability 5,077 6,690 6,052 37,953 32,050 43,882 Current liabilities Trade and other payables 21,812 17,213 17,085 Interest-bearing loans and 9 2,156 1,050 4,086 borrowings Derivative financial 11 136 - 140 instruments Income tax payable 1,553 869 2,274 25,657 19,132 23,585Total liabilities 63,610 51,182 67,467 TOTAL EQUITY AND LIABILITIES 75,167 73,624 77,360 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2007 Attributable to equity holders of the parent Issued capital Share premium Retained Total earnings equity • 000 • 000 • 000 • 000 At 1 January 2007, restated 88 - 9,550 9,638Share-based payment 124 124Profit for the period - - 1,795 1,795At 30 June 2007 (unaudited) 88 0 11,469 11,557 Attributable to equity holders of the parent Issued capital Share Retained Total earnings equity premium • 000 • 000 • 000 • 000 At 1 January 2006 40 1,968 17,679 19,687Profit for the period - - 2,755 2,755At 30 June 2006 (unaudited) 40 1,968 20,434 22,442 INTERIM CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2007 For the six months ended Year ended 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited Notes • 000 • 000 • 000Operating activities Profit before tax from continuing operations 2,498 3,570 5,390 Non-cash: Depreciation of property, plant and 1,475 1,282 2,732 equipment Amortisation of intangible assets 1,039 1,037 2,073 Share-based payment expense 8 124 - - Gain on disposal of property, plant and 7 (586) - - equipment Finance income (81) (29) (68) Finance expense 1,620 877 2,305 Movements in provisions, pensions and - - 19 government grants Working capital adjustments: Change in trade and other receivables (2,964) (1,451) (1,152) Change in inventories 812 534 (1,823) Change in trade and other payables 4,523 2,809 3,267 Income tax paid (2,324) - -Net cash flows from operating activities 6,136 8,629 12,743 Investing activities Purchase of property, plant and equipment 7 (1,411) (718) (2,957) Purchase of intangible assets - - (18) Proceeds from sale of property, plant and 7 2,880 - - equipment Interest received 81 29 65Net cash flows received / used in investing 1,550 (689) (2,910)activities Financing activities Proceeds from share issue 1,000 Payment of finance lease liabilities (77) (28) (68) Proceeds from borrowings, net - - 12,542 Repayment of borrowings 9 (7,600) (2,800) - Interest and similar costs paid (1,420) (801) (2,675) Payment to shareholders of Savon Sellu Oy - - (14,811)Net cash flows used in financing activities (9,097) (3,629) (4,012) Net decrease / increase in cash and cash (1,411) 4,311 5,821equivalentsCash and cash equivalents at the beginning of 8,158 2,337 2,337periodCash and cash equivalents at 30 June 6,747 6,648 8,158 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1) Corporate Information The interim consolidated financial statements of Powerflute Oyj ("the Company")for the six months ended 30 June 2007 have been authorised for issue inaccordance with a resolution of the directors. Powerflute Oyj is a publiclimited company incorporated and domiciled in Finland. The address of theregistered office is Sorsasalo Box 57, FI-70101 Kuopio, Finland. The principal activities of the Group are to produce superior qualitysemi-chemical fluting. The Group's products are sold globally, the main marketbeing Europe. 2) Basis of preparation and accounting policies 2.1 Basis of preparation The interim consolidated financial statements for the six months ended 30 June2007 have been prepared observing the recognition and valuation principles ofIFRS standards, but all the requirements of IAS 34 were not complied with. The interim consolidated financial statements do not include all the informationand disclosures required in the annual financial statements, and should be readin conjunction with the Group's annual financial statements as at 31 December2006 expressed in the Admission Document. 2.2 Significant accounting policies The accounting policies adopted in the preparation of the interim consolidatedfinancial statements are consistent with those followed in the preparation ofthe Group's annual financial statements for the year ended 31 December 2006,except for the following new changes in IFRS standards and IFRIC interpretationsadopted on 1 January 2007, which have no effect on the financial position orperformance of the Group: • IFRS 7 Financial Instruments Disclosures • Amendment to IAS 1 Presentation of Financial Statements - Capital Disclosures • IFRIC 9 Reassessment of Embedded Derivatives • IFRIC 10 Interim Financial Reporting and Impairment 3) Business combinations Business combination in 2006 On 31 July 2006 Powerflute Oyj acquired 100 % of the voting shares of SavonSellu Oy. At the time of the acquisition both companies were held by the sameshareholders. The business combination was a corporate restructuring of existingoperations and involved a refinancing of the new Group. As a businesscombination between parties under common control the combination has beenaccounted for in accordance with the pooling of interest method. Under thepooling of interest method the entities are combined from the beginning of thefinancial year in which the combination took place. The consolidated incomestatement reflects the results of the combined entities for the full year andthe consolidated balance sheet the assets and liabilities at their carryingvalues. The excess of the cost of acquisition over the share capital of theacquired entity is recognised in consolidated shareholders' equity. No goodwillis recognised. Application of the pooling of interest method: • 000 Cost of the shares in Powerflute Oyj 14,811Less the share capital of Powerflute Oyj (40)Excess of the cost of shares over the acquired share capital 14,771Recognised in the consolidated share premium (2,880)Recognised in the consolidated retained earnings (11,891) 4) Segment information The Group has only one business segment. 5) Other operating income and expenses Other operating income and expenses for the six months ended 30 June 2007include the following one off items: Other operating income includes a gain on a property disposal of • 586,000, seealso note 7. Other expenses include the costs associated with the IPO and the costs of anaborted transaction totaling • 3,535,000. 6) Income tax For the six months ended 30 JuneThe major components of income tax expense in the interim 2007 2006consolidated income statement are: Unaudited Unaudited • 000 • 000 Current income tax Current income tax charge (1,542) (869)Deferred income tax Relating to origination and reversal of temporary differences 839 54 Income tax expense (703) (815) 7) Property, plant and equipment Acquisitions and disposals During the six months ended 30 June 2007, the Group acquired assets with a costof • 1,411,341 (2006: • 718,099). Assets with a net book value of • 2,294,000 were disposed by the Group duringthe six month period ended 30 June 2007 resulting in a net gain on disposal of •586,000. 8) Share-based payment On 3 May 2007, 5,280,000 share options were granted to senior executives underthe Powerflute Stock Option Scheme. The exercise price of the options of 0,16EUR is equal to the market price of the shares on the date of grant. The fair value of the options granted is estimated at the date of grant using aBlack & Scholes pricing model, taking into account the terms and conditions uponwhich the options were granted. The contractual life of each option granted isfive years. There are no cash settlement options. The fair value of optionsgranted during the six months ended 30 June 2007 was estimated on the date ofgrant at €124,000 using the following assumptions: Dividend yield (%) - dividend prognosis not available yet and has not been usedExpected volatility (%) 26.6Risk - free interest rate (%) 4.18Expected life (years) 4.08Weighted average share price (•) 0.31 9. Interest-bearing loans and borrowings Repayment of debt During the six months ended 30 June 2007 the Group repaid €5,600,000 securedloans to bank and €2,000,000 unsecured capital loans to shareholders. 10) Related Party Transactions The following table provides the total amount of transactions which have beenentered into with related parties during the six months ended 30 June 2007 and2006. For the six months ended 30 June 2007 2006 UnauditedCompensation of key management personnel of the Group • 000 • 000 Short term employee benefits 783 700 Directors' fees 145 72 Other fees 130 265 1,058 1,037 Other fees include consultancy fees paid to Directors or payments for servicesrendered from companies in which Directors have personal interests. Shareholder capital loan As at 30 June 2007 2006 Unaudited • 000 • 000 1,000 3,000 11. Financial instruments Set out below are hedges with changes in value, as at 30 June 2007 and 2006. Fair values of derivative financial instruments As at 30 June 2007 2006 Unaudited • 000 • 000 Forward foreign exchange contracts (136) 800 Utilities derivatives 63 975 (73) 1,775 The carrying values are considered to approximate the fair values, because thematurity of derivatives is less than one year. Derivatives have been made for hedging purposes but hedge accounting has notbeen applied. Changes in the fair value of derivative contracts are recognisedin the income statement under sales and other operating expenses. The values offinancial derivatives are presented under derivative financial instruments asassets when the fair value is positive and as liability when the fair value isnegative. This information is provided by RNS The company news service from the London Stock Exchange