POWR.L Regulatory News (POWR)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, HONG KONG, JAPAN, SINGAPORE, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES IN THE UNITED STATES, AUSTRALIA, CANADA, HONG KONG, JAPAN, SINGAPORE, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS NOT A PROSPECTUS OR ADMISSION DOCUMENT. COPIES OF THE ADMISSION DOCUMENT PUBLISHED TODAY AND ANY LISTING PROSPECTUS IN RESPECT OF THE PROPOSED ISSUANCE OF NOTES REFERRED TO HEREIN (TO BE PUBLISHED IN DUE COURSE) WILL BE AVAILABLE FROM POWERFLUTE'S REGISTERED OFFICE AND WEBSITE: www.powerflute.com.

30 September 2014

Powerflute Oyj

Proposed acquisition of Corenso

The Board of Powerflute Oyj ("Powerflute" or the "Company"), the paper and packaging group, announces today that it has entered into a conditional agreement with Stora Enso Oyj ("Stora Enso") to acquire Corenso, an international cores and coreboard producer (the "Acquisition"). The adjusted enterprise value for the Acquisition on a cash and debt free basis is expected to be €81 million. The Acquisition remains subject to, amongst other things, Powerflute shareholder approval.

The Acquisition would constitute a reverse takeover under the AIM Rules, requiring an EGM scheduled to be held on 4 November 2014 with Closing and Re-admission expected to take place on 28 November 2014.

Transaction highlights:

· Corenso operates 12 cores plants across Europe, the United States and China and three coreboard mills in Finland, France and the United States

· In the six months ended 30 June 2014, Corenso generated revenues of €97 million, EBITDA of €11 million and operating profit of €8 million

· Acquisition will be financed from existing cash resources and new debt facilities of €120 million consisting of:

o €80 million proposed bond issuance, to be launched shortly and expected to be completed before Closing, and underwritten by an €80m bridge facility; and

o €40 million revolving credit facility

· Stora Enso will continue to be the largest single customer of Corenso and has entered into a core supply agreement for an initial period of five years

· Separation from Stora Enso, and integration with Powerflute, will be supported by Transitional Service Agreements for all key services

Impact on Powerflute:

· Proposed transaction is firmly aligned with Powerflute's strategy and offers significant opportunities to improve performance and deliver growth

· Acquisition will materially increase the scale of Powerflute, with combined EBITDA generated in the six months ended 30 June 2014 in excess of €20 million

· Acquisition is expected to be immediately earnings enhancing

Powerflute also today announces its interim results for the six months ended 30 June 2014 which are notified separately.

Dermot Smurfit, Chairman of Powerflute, commented:

"The Acquisition represents a significant development for both Powerflute and Corenso and provides an excellent opportunity for Powerflute to deploy its considerable operational expertise and market knowledge to deliver value for shareholders. Corenso is one of the world's leading producers of high performance cores and core board and we look forward to working with the management and employees of the business to enhance performance and to further expand its presence in both existing and new markets. Following completion of the Acquisition, Powerflute will be a significantly larger business which we believe will provide us with a strong foundation from which to pursue further acquisition opportunities within the sector in due course."

A combined Admission Document and Circular is being sent to the Company's shareholders today and will be available on the Investor Relations section of the Company's website at www.powerflute.com

For further information, please contact:

1. Introduction

Powerflute Oyj ("Powerflute" or the "Company"), the paper and packaging group, announces today that it has entered into a conditional agreement (the "Acquisition Agreement") with Stora Enso Oyj (the "Seller") to acquire the shares and assets of Corenso United Oy Ltd, Corenso United (Deutschland) GmbH & Co KG, Corenso Edam B.V., Corenso France SAS, Corenso (UK) Ltd., Corenso Poland sp. z o.o. and their respective subsidiaries and affiliated companies (collectively, "Corenso" and, together with Powerflute and its subsidiaries, the "Enlarged Group") for an expected adjusted enterprise valuation of €81 million (the "Acquisition").

Corenso is an international cores and coreboard producer based in Finland, employing over 900 people across ten countries. It is currently operated as two separate business units within the Seller's packaging division.

The enterprise valuation attributed to Corenso for the purposes of the Acquisition, on a cash and debt free basis, is €90 million, less an adjustment to reflect the value attributed to minority interests in certain joint venture companies. Powerflute currently expects that this adjusted enterprise valuation at completion of the Acquisition ("Closing") will be approximately €81 million.

The consideration payable for Corenso will be determined by further adjustments to take account of the presence of any net cash or net debt and to reflect any difference between an agreed target for net working capital and the actual value of net working capital at Closing. By way of illustration, the net cash position of Corenso at 30 June 2014 was approximately €11 million and the difference between the agreed target net working capital and actual net working capital position at this date was not material. Further details of the calculation of the adjusted enterprise valuation and the consideration payable are set out below.

The consideration payable will be funded using existing cash resources and the net proceeds of a proposed issuance of €80 million of notes and/or funds available from an €80 million bridge facility provided under a senior secured facilities agreement entered into earlier today. Any additional amounts payable in respect of either net cash acquired or differences between the agreed target net working capital and actual net working capital will be funded using a €40 million revolving credit facility also provided under the senior secured facilities agreement.

The Acquisition constitutes a reverse takeover under the AIM Rules for Companies (the "AIM Rules") and, therefore, Closing is conditional on, amongst other things, receiving the approval of Shareholders. This approval will be sought at the EGM, to be held on 4 November 2014 at the premises of Hannes Snellman Attorneys, Eteläesplanadi 20, Helsinki, Finland. Reception of persons who have registered for the meeting and the distribution of voting tickets will commence at 8.00 a.m.

If the Resolution is duly passed at the EGM, and all other conditions precedent (other than re-admission of the Company's Ordinary Shares to trading on AIM ("Re-admission")) under the Acquisition Agreement are satisfied on a timely basis, then Powerflute intends to submit an application for Re-admission in accordance with the AIM Rules. Powerflute currently expects Closing and Re-admission to take place simultaneously on 28 November 2014 (being the last business day of the calendar month in which Powerflute currently expects the conditions precedent under the Acquisition Agreement and the criteria for Re-admission will be satisfied), but they may occur prior to or after this date.

Irrevocable undertakings to vote in favour of the Resolution have been received from the Directors and Shareholders in respect of 131,435,420 Ordinary Shares, representing approximately 46.26 per cent. of Powerflute's issued share capital.

2. Background to and reasons for the Acquisition

In line with Powerflute's strategy, the Directors seek to create value for Shareholders and other stakeholders through: (i) the continuing growth and development of Powerflute's existing businesses; (ii) the acquisition and improvement of under-performing or non-core businesses in the paper and packaging and related market segments; and (iii) maintaining a focus on operational cash generation and long-term strategy to realise returns on invested capital.

In particular, Powerflute focuses its acquisition strategy on businesses with strong fundamentals whose performance can be improved through a combination of management focus and targeted investment. Such businesses, though they may be under-performing, will typically have the following characteristics:

· operations in the specialty paper and packaging market segment;

· an established position in attractive markets;

· no major short-term capital needs; and

· the reasons for any underperformance are clearly discernible and capable of being thoroughly understood.

Powerflute seeks not only to improve the management discipline and leadership effectiveness of its acquired companies, but also to invest in product development and production capabilities, and to foster an entrepreneurial culture that encourages sustainable growth and margin improvement.

Key attractions of Corenso

Powerflute believes Corenso is an established business with a high-quality and diverse product portfolio. Corenso's management believes that it has a leading market presence and estimates that, in 2013, Corenso was the third largest producer of cores both globally and in Europe (in each case, based on volume). In particular, Corenso has an existing global network in China, which Powerflute believes represents a high-growth market and a significant opportunity. Powerflute also believes that Corenso has an attractive business infrastructure with high-quality assets and a blue chip customer base. In addition, Corenso has an experienced management team with significant industry expertise.

The Directors believe that the Acquisition is strongly aligned with Powerflute's strategy and, therefore, is in the best interests of Powerflute and Shareholders as a whole. The strong fundamentals of the cores and coreboard markets, together with Corenso's attractive infrastructure and competitive position and its development and expansion potential, particularly in emerging markets and new growth segments, represent an attractive investment to Powerflute.

The consideration is being funded by existing cash resources and new debt facilities, and on this basis the Directors believe the Acquisition will be immediately earnings enhancing.

Financial highlights

Below is a summary of Corenso's financial performance for the years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2013 and 2014.

Corenso's historic financial performance has been materially affected by certain significant factors. Certain of these factors arise as a result of the Acquisition and accordingly, will continue to be relevant following Closing. Consequently, Powerflute considers that the performance and the trends exhibited in Corenso's historical financial information for the years ended 31 December 2011, 2012 and 2013 and for the six months ended 30 June 2014 are not entirely representative of the anticipated future performance of the business.

Corenso's performance for the year ended 31 December 2012 was a significant improvement on the prior year due to a combination of factors. More favourable market conditions and lower recycled paper ("RCP") prices in China resulted in an improvement in profitability in this region. In North America, the recently upgraded coreboard mill continued to improve capacity utilisation and operating effectiveness resulting in an increase in volumes available for sale and an improvement in contribution margins, which together resulted in strong growth in profits. In Europe, restructuring and cost reductions in a number of markets and favourable raw material prices all contributed to improved profitability.

In early 2013, Corenso was unable to reach agreement on the terms for extension of a supply agreement with one of its major customers. Due to transitional supply arrangements, the full effects of this loss did not impact Corenso's financial performance until the latter part of 2013. Although new business was won during 2013, this was not sufficient to fully offset the adverse impact of the loss of such a major customer on 2013 revenue.

Corenso's operating profit performance for the year ended 31 December 2013 reflected the continuation of the relatively benign conditions experienced in most major markets, with healthy demand and favourable raw material prices contributing to strong performances in North America and China, and the benefits of operational restructuring which largely offset the adverse impact of the loss of a major customer.

The principal factors which have resulted in the reduction in profitability evident in the financial information for the six months ended 30 June 2014 are revised internal pricing policies between Corenso and the Seller (who represented approximately 18 per cent. of Corenso's total cores sales in 2013) and the return to more normal market conditions in North America and China after last year's exceptionally favourable market conditions and relatively low raw material prices.

In other markets, Corenso's revenues and profitability have remained broadly stable throughout the six-month period ended 30 June 2014.

Powerflute believes that Corenso's historical financial information for the six months ended 30 June 2014 is representative of the current underlying performance of the business. In particular, it reflects the full impact of the customer loss referred to above, the pricing levels applied on sales of cores to the Seller are broadly consistent with those agreed for the purposes of the Core Supply Agreement and the impact of less favourable market conditions in North America and China are reflected in the performance of the relevant businesses.

Following Closing, Corenso will continue to purchase certain raw materials and services from the Seller under the Raw Materials Supply Agreement and Transitional Service Agreements. The charges for these raw materials and services are expected to be slightly higher than the equivalent costs reflected in the historical financial information for the six months ended 30 June 2014. In addition, Corenso will incur certain other expenses as a standalone business and such costs are not currently reflected in the historical financial information.

Growth strategy for Corenso

Powerflute intends to foster an entrepreneurial culture within Corenso that enables and incentivises sustainable growth and margin improvement by working with Corenso's existing management team to develop priority programmes to take advantage of profit improvement opportunities. Powerflute believes there are a number of such opportunities to improve the performance of Corenso and ultimately to deliver value for Shareholders. Powerflute has performed a detailed analysis of the operations and trading performance of Corenso at each location and has identified a range of organic initiatives relating to driving sales, pricing, customer targeting and customer mix, each with the ultimate aim of enhancing profitability. Powerflute believes there are also a number of efficiency improvements capable of being achieved through operational restructuring and with limited capital expenditure.

Powerflute will also seek to exploit the opportunities presented by the significant operating platform of Corenso, which has established operations in ten countries, including in attractive markets such as China and the United States. Powerflute intends to leverage Corenso's existing platform to take advantage of further opportunities in these markets.

3. Financing the Acquisition

The Acquisition will be financed using the proceeds of a proposed issuance of up to €80 million of notes, existing cash resources and new debt. Powerflute, Nordea Bank Finland plc ("Nordea") and Varma Mutual Pension Insurance Company ("Varma") have entered into a senior secured facility agreement on 30 September 2014 under which Nordea and Varma have agreed to provide to Powerflute certain facilities (the "New Facilities Agreement"). The facilities to be provided or arranged under the New Facilities Agreement are: (i) a €80 million bridge facility, which may, if the proceeds of any issuance of notes amount to less than €80 million, be used as an alternative or co-funding source for the Acquisition; and (ii) a €40 million revolving credit facility, which may be used for refinancing, general corporate and general working capital purposes, each as described below.

Proposed issuance of notes

Powerflute currently intends to fund all of the Acquisition using the proceeds of the proposed issuance of up to €80 million of senior secured notes (the "Notes"). Any Notes issued are expected to bear interest at a rate of up to 6.0 per cent. per annum and to have a term of five years, first callable after three years. Any Notes issued are also expected to be subject to additional terms and conditions. Powerflute intends to offer any Notes to institutional investors and expects that any issuance of Notes will occur in October, prior to Closing.

Powerflute intends to apply for any Notes issued to be listed on NASDAQ OMX Helsinki. The final terms and conditions of any Notes issued will be disclosed in the prospectus expected to be published in connection with such contemplated listing.

Bridge Facility

As an alternative, if no Notes are issued or in the event that the gross proceeds of any issuance of Notes amount to less than €80 million, Powerflute may elect to fund part or all of the Acquisition using a senior secured bridge facility of up to €80 million (the "Bridge Facility"). If utilised and the first and second extension options are exercised, the Bridge Facility will have a term of up to three years and will bear an interest rate based on EURIBOR and a margin with two step-up increases first after six and then after twelve months.

Revolving Credit Facility

Powerflute will also be provided with a €40 million senior secured revolving credit facility (the "Revolving Credit Facility"), which it may use for general corporate and general working capital purposes, and to refinance Powerflute's existing credit facilities of €20 million with Nordea. If the Bridge Facility is utilised and extended, the Revolving Credit Facility will have a term of up to three years. Otherwise, the Revolving Credit Facility will have a term of up to five years. It will bear an interest rate based on EURIBOR, subject to a margin ratchet.

Security

Powerflute's obligations under any Notes issued, the New Facilities Agreement and any Hedging Agreements (as defined in the final terms and conditions of any Notes issued) will rank pari passu with each other and will be secured by, amongst other things, a first priority pledge of, or charge over, the shares of certain members of the Enlarged Group and first priority real estate mortgages over certain owned real estate. In addition, certain guarantees of Powerflute's obligations will be given by members of the Enlarged Group.

Key terms and conditions

Under the terms and conditions of any Notes issued and the New Facilities Agreement, the Enlarged Group will be subject to debt, interest cover and leverage ratio tests, as well as restrictive debt covenants that may, amongst other things, limit the Enlarged Group's ability to:

· incur or guarantee additional indebtedness;

· make certain payments, including dividends or other distributions;

· sell, lease or transfer certain assets, including capital stock of restricted subsidiaries;

· engage in certain transactions with affiliates;

· enter into unrelated businesses or engage in prohibited activities;

· consolidate or merge with other entities, or sell all or substantially all of its assets; and

· impair the collateral securing its debt.

4. Principal terms of the Acquisition

Acquisition Agreement

Pursuant to the Acquisition Agreement, the enterprise valuation attributed to Corenso for the purposes of the Acquisition, on a cash and debt free basis, is €90 million, less an adjustment to reflect the value attributed to minority interests in certain joint venture companies. Powerflute currently expects that this adjusted enterprise valuation at completion of the Acquisition ("Closing") will be approximately €81 million.

The consideration payable for Corenso will be determined by further adjustments to take account of the presence of any net cash or net debt and to reflect any difference between an agreed target for net working capital and the actual value of net working capital at Closing. By way of illustration, the net cash position of Corenso at 30 June 2014 was approximately €11 million and the difference between the agreed target net working capital and actual net working capital position at this date was not material.

The "Preliminary Consideration" payable at Closing will be Corenso's cash and debt free enterprise value of €90 million adjusted by bona fide estimates of:

· the valuation of minority interests in the joint venture companies Hangzhou Corenso Hualun Paper Core Co. Ltd. and Corenso Tolosana S.A. not held by Corenso at the date of Closing, to be determined according to a basis already agreed between Powerflute and the Seller;

· Corenso's estimated value of net cash or net debt at the date of Closing; and

· the difference between Corenso's estimated net working capital at the date of Closing and a target working capital amount already agreed between Powerflute and the Seller.

The Preliminary Consideration will subsequently be adjusted to reflect the difference (if any) between:

· the estimated and actual valuation of the minority interests in the joint venture companies at the date of Closing;

· Corenso's estimated and actual net debt at the date of Closing; and

· the difference between Corenso's actual net working capital at the date of Closing and the estimated net working capital used in calculating the Preliminary Consideration.

The Acquisition Agreement includes a formal dispute resolution mechanism that incorporates reasonable time periods for the parties to identify and resolve disputes that may arise in connection with the calculation of the adjustments to the Preliminary Consideration, as described above, and provides for referral to an independent expert or arbitrator in the event that it is not possible for the parties to resolve any such disputes.

Closing is conditional upon:

· passing of the Resolution at the EGM necessary to approve the purchase of Corenso;

· completion of mandatory works council processes;

· Powerflute entering into the New Facilities Agreement (which condition has already been satisfied);

· funds being available under the New Facilities Agreement on the date of Closing;

· receipt of a an estoppel and consent certificate regarding a change of control relating primarily to certain land lease agreements;

· no material breach of any warranties occurring which leads to a material adverse effect and which is not remedied within 30 days from the Seller becoming aware of such breach; and

· Re-admission.

Under the Acquisition Agreement, Closing is to occur on the last business day of the calendar month in which each of the above conditions precedent have been satisfied or waived, or such other date as may be agreed in writing by Powerflute and the Seller, not being later than 30 January 2015 (the "Long-Stop Date"). Each party to the Acquisition Agreement is required to use its reasonable best efforts to cause all necessary actions to be taken to have the conditions precedent for Closing satisfied as promptly as practicable. If Closing does not occur by the Long-Stop Date, then either party (subject to it having complied with its obligations under the Acquisition Agreement) may terminate the Acquisition Agreement without prejudice to any remedies available to such party under the Acquisition Agreement or under law.

The Acquisition Agreement contains warranties from the Seller in relation to Corenso, its business, assets and liabilities, and certain indemnities from the Seller and the Company.

The Seller has also agreed to a three-year non-compete obligation with respect to Corenso's business activities as at the date of Closing, subject to certain exceptions, and the Seller and Powerflute have agreed to a mutual two-year non-solicitation obligation in respect of certain key employees.

Assuming that the Resolution is duly passed at the EGM, and all other conditions precedent (other than Re-admission) under the Acquisition Agreement are satisfied on a timely basis, Powerflute expects that Closing and Re-admission to take place simultaneously on 28 November 2014 (being the last business day of the calendar month in which Powerflute currently expects such conditions precedent and the criteria for Re-admission will be satisfied), but they may occur prior to or after this date. There can be no assurance that the conditions precedent under the Acquisition Agreement or the criteria for Re-admission will be satisfied, or that Closing and Re-admission will take place, by 28 November 2014, or at all.

Core Supply Agreement

The Seller has historically been a significant customer and source of revenue to Corenso. Accordingly, the Seller and one of the members of Corenso's group have agreed to enter into a core supply agreement at Closing under which the Seller has agreed that, for the five-year period from the date of Closing, it and certain of its subsidiaries will continue to purchase its cores primarily from Corenso on market-based terms (the "Core Supply Agreement"). Powerflute believes this arrangement provides assurance regarding future revenues of Corenso from its current leading customer.

Raw Materials Supply Agreement

Corenso and the Seller have agreed to enter into a raw materials supply agreement at Closing under which the Seller has agreed to supply to Corenso, for the five-year period from the date of Closing, subject to seasonal variations, both semi-chemical fluting paper waste suitable for use as fibre raw material and corrugated clippings waste from certain of the Seller's corrugated plants (the "Raw Materials Supply Agreement"). Powerflute believes this arrangement secures an important aspect of the Corenso supply chain and will assist in the effective separation of Corenso from the Seller's group.

Transitional Service Agreements

Corenso is integrated with and reliant on certain systems and services currently provided by the Seller. Therefore, in addition to the Acquisition Agreement, Powerflute and/or Corenso have agreed to enter into various agreements with the Seller at Closing to ensure the continued and uninterrupted operation of Corenso's business for a transitional period following Closing.

Under these transitional service agreements, the Seller has agreed to continue to provide certain services to Corenso during the 12-month period from the date of Closing (or, in the case of the provision of information technology services only, up to 24 months from the date of Closing) (collectively, the "Transitional Service Agreements").

The Transitional Service Agreements cover the provision of, amongst other things:

(i) sales and marketing services in Germany, Switzerland, Austria, Czech Republic, Slovakia, Hungary, South Korea, Israel and Jordan concerning coreboard produced at Corenso's European mills;

(ii) purchasing services;

(iii) payroll services in Finland, Sweden and Germany;

(iv) logistics and warehousing services;

(v) information technology ("IT") services;

(vi) finance delivery services in Finland, Sweden, Germany, the Netherlands and France;

(vii) electricity at Corenso's Finnish cores plants (Imatra and Loviisa) and coreboard mill (Pori);

(viii) credit management services;

(ix) cash management services in Finland, Sweden, Germany, the Netherlands and France; and

(x) accounting and IT services to Corenso Poland

(collectively, the "Transitional Services").

Powerflute believes the Transitional Service Agreements secure certain key aspects of the Corenso infrastructure for the benefit of Powerflute in the period immediately following Closing. During the period covered by the Transitional Service Agreements, Powerflute will seek to implement the necessary measures to ensure Corenso's efficient and effective migration to operating on a standalone basis within Powerflute's group.

5. Information on the Seller

Stora Enso Oyj is a global paper and packaging company based in Finland. It offers solutions based on renewable materials to customers that include publishers, printing houses and paper merchants, as well as the packaging, joinery and construction industries. The Seller's main market is Europe, but it has an expanding presence in Asia and South America, and operations in over 35 countries.

6. Current trading and prospects for the Enlarged Group

Powerflute

Powerflute performed strongly during the first half of 2014 with volumes, revenues and profits from operating activities all well ahead of the same period of the prior year. The trading environment continued to be broadly favourable, with healthy demand in most major markets, some further improvement in selling prices and stable raw material and other input costs. Powerflute was able to capitalise on these conditions with another strong operational performance and this was reflected in a further improvement in EBITDA generated from operating activities.

Order intake during the third quarter has been healthy and despite the impact of normal seasonal factors and some weakness in recycled containerboard, average pricing levels have been maintained in most major markets. Accordingly, Powerflute's outlook for the second half of the year remains broadly positive.

Corenso

Corenso experienced a reduction in profitability for the six months ended 30 June 2014, compared with the same period in the prior year. This reduction was primarily due to the loss of a major customer in early 2013 and the implementation of price reductions on volumes supplied to the Seller with effect from February 2014. In addition, Corenso's businesses in North America and China performed exceptionally well during the year ended 31 December 2013 due to a combination of favourable market conditions and relatively low raw material prices and both businesses have experienced a return to more normal market conditions during the six months ended 30 June 2014.

Powerflute considers Corenso's financial performance during the six months ended 30 June 2014 to be representative of the current underlying performance of the business. In particular, it reflects the full impact of the customer loss referred to above and a return to more normal market conditions in North America and China, and the pricing levels applied on sales of cores to the Seller are consistent with those agreed under the Core Supply Agreement.

The effective tax rate for the six months ended 30 June 2014 was 33 per cent. and subject to its ability to retain and utilise tax losses and credits, Powerflute expects that the effective tax rate will continue to be in the range of 25 to 35 per cent.

7. Dividends and dividend policy

In accordance with the Finnish Companies Act, Shareholders decide on the distribution of dividends at an annual general meeting of Shareholders ("Annual General Meeting"). Dividends on Ordinary Shares are generally declared once a year and paid only after an Annual General Meeting has adopted Powerflute's financial statements and approved the amount of the dividend, if any.

Powerflute's aim is to pay dividends to Shareholders when it has the capacity to do so. The amount of future dividend payments proposed to Shareholders, if any, will depend on Powerflute's operating profit, future prospects, financial condition and capital requirements, any financing required to grow operations, overall business conditions and other factors deemed relevant by the Directors.

For each of the years ended 31 December 2011 and 2012, Powerflute paid a dividend of 1.30 cents per share, in total €3.8 million and €3.7 million, respectively. For the year ended 31 December 2013, Powerflute paid a dividend of 1.35 cents per share, in total €3.8 million.

Dividends paid out by Powerflute to date are not necessarily an indication of Powerflute's future dividend payments.

8. Extraordinary General Meeting

The EGM has been convened to be held on 4 November 2014 at 9.00 a.m. to resolve whether to approve the Acquisition. Passage of the Resolution requires approval by a simple majority of the Ordinary Shares and votes represented at the EGM.

If the Resolution is duly passed at the EGM, and all other conditions precedent (other than Re-admission) under the Acquisition Agreement are satisfied on a timely basis, then Powerflute intends to submit an application for Re-admission in accordance with the AIM Rules. Powerflute currently expects Closing and Re-admission to take place simultaneously on 28 November 2014 (being the last business day of the calendar month in which Powerflute currently expects the conditions precedent under the Acquisition Agreement and the criteria for Re-admission will be satisfied), but they may occur prior to or after this date. If Shareholder approval is not given, the Acquisition will not complete and trading in the Ordinary Shares on AIM will continue as normal.

9. Irrevocable Undertakings

Powerflute has received irrevocable undertakings to vote in favour of the Resolution from Shareholders, not including the Directors, who in aggregate hold 25.46 per cent. of the Ordinary Shares in issue. The Directors collectively hold 20.80 per cent. of the Ordinary Shares in issue and each Director has also given an irrevocable undertaking to vote in favour of the Resolution. Accordingly, Powerflute has received irrevocable undertakings to vote in favour of the Resolution which in aggregate represent 46.26 per cent. of the Ordinary Shares in issue. In addition, Henderson Global Investors Limited has indicated to Powerflute that it intends to vote in favour of the Resolution.

10. Recommendation and Directors' intentions

The Directors believe that the Acquisition is in the best interests of Powerflute and Shareholders as a whole and, therefore, unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at the EGM as they have undertaken to do in respect of their own beneficial holdings of Ordinary Shares.

11. Further information

The Admission Document is being sent to Shareholders today and will be available on the Investor Relations section of the Company's website at www.powerflute.com.

FORWARD-LOOKING STATEMENTS

Certain information contained in this announcement constitutes "forward‐looking statements", which can generally be identified by the use of terms such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue," "target" or "believe" (or the negatives thereof) or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or actual performance of the Company and its group of companies from time to time may differ materially from any opinions, forecasts or estimates reflected or contemplated in this announcement. All projections, estimations, forecasts, budgets and the like are illustrative exercises involving significant elements of judgment and analysis, which may or may not prove to be correct. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. As a result, you should not rely on such forward‐looking statements in making any decision. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward‐looking statements. Forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date such forward-looking statements are made.

IMPORTANT NOTICE

This announcement is for informational purposes only, does not constitute a prospectus or admission document and has not been approved by the Financial Conduct Authority or any other regulator. This announcement does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to sell, purchase or subscribe for or a solicitation of an offer to sell, purchase or subscribe for any securities in the Company, or any other entity, nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment by or with the Company, Numis Securities Limited ("Numis"), or any of their respective directors, officers, partners, employees, agents, advisers or affiliates for any purpose. This announcement does not constitute a recommendation regarding any securities in the Company.

This Announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is made by Numis as to, and no liability whatsoever is accepted by Numis in respect of, any of the contents of this announcement.

Numis, which is authorised and regulated in the United Kingdom by the FCA, is acting as nominated adviser to Powerflute and no one else in connection with the Acquisition and Re-admission, and will not regard any other person as its client or be responsible to anyone other than Powerflute for providing the protections afforded to clients of Numis or for providing advice in relation to the Acquisition and Re-admission or any matter referred to herein. Numis's responsibilities as Powerflute's nominated adviser under the AIM Rules are owed solely to the London Stock Exchange and are not owed to Powerflute, to any Director or to any other persons.

The distribution of this announcement and the related material concerning the proposed issuance of the notes (the "Notes") is prohibited by law in certain countries. The Notes are not being offered to the public either inside or outside of Finland. Persons resident outside of Finland may receive this release and the related note documentation only in compliance with applicable exemptions or restrictions. Persons into whose possession this release and the related documentation on the Notes may come are required to inform themselves about and comply with such restrictions.

This announcement and the related documentation concerning the Notes may not be distributed or published in any country or jurisdiction if to do so would constitute a violation of the relevant laws of such jurisdiction or would require actions under the laws of a state or jurisdiction other than Finland, including the United States, Australia, Canada, Hong Kong, Japan, Singapore and South Africa. The information contained herein shall not constitute an offer to sell or tender, or a solicitation of an offer to buy or sell the Notes to any persons in any jurisdiction in which such offer, solicitation or sale or tender would be unlawful. Powerflute's representatives assume no legal responsibility for such violations, regardless of whether the parties contemplating investing in or divesting the Notes are aware of these restrictions or not.

The Notes have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority or under applicable securities laws of any state or other jurisdiction of the United States. The Notes may not be offered, sold, pledged or otherwise transferred, directly or indirectly, within the United States except in "offshore transactions" as defined in and in accordance with Regulation S under the Securities Act or otherwise pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities laws.