Significant New Supply Contracts, Expanded Product

RNS Number : 8241B

Active Energy Group PLC

12 January 2015

 



Under Strict Embargo: 07:00am, Monday 12 January 2015

Active Energy Group Plc
("Active Energy Group" or the "Group" or the "Company" or "AEG")

Significant New Supply Contracts,
Expanded Production Capability and New Wood Chip Product Line

Active Energy Group Plc (AIM: AEG.L), the London Stock Exchange AIM-listed international supplier of industrial wood chip and timber, Biomass for Energy (BFE) fuel products, and forestry asset development services, is pleased to announce that it has secured two significant high-volume wood chip supply contracts for 2015; is further expanding its Ukrainian production capabilities; and is introducing a new wood chip product line.

These latest developments underline the Group's transformation under the new management team that has been in place since mid-2013.  In that year, following the acquisition of its principal trading partner, AEG produced and shipped 50,000 metric tonnes of wood chip; in 2014 it increased that figure by over 300% and shipped a total of over 210,000 tonnes; and the new off-take contracts for 2015 are estimated to result in at least a doubling of year-on-year output to no less than 500,000 tonnes.

New MDF Wood Chip Supply Contracts:

Under the two new supply contracts signed on 9 January 2015 with Yildiz Entegre, a leading MDF manufacturer in Turkey - which has a daily production capacity of c8,500m³, and exports its products to over 40 countries - with whom AEG has been working for over two years, the Group has agreed to deliver up to 300,000 metric tonnes of its hardwood wood chip, and up to a further 300,000 metric tonnes of its new line of softwood wood chip, during 2015.

Together, the two contracts are expected to generate revenues for the Group of over US$68 million, at an expected gross profit of over US$12 million.

The first delivery of over 30,000 metric tonnes of wood chip under the hardwood contract for 2015 will be loaded at AEG's Ukrainian Black Sea port facilities by the end of January onto two bulk cargo vessels: the 14,000-metric tonne MV Sider King, which the Group has been operating under an exclusive time charter arrangement since early-2014; and a new vessel, the 16,000-metric tonne MV Amar Meray T.

Both vessels will, along with other ships utilised by the Group, continually service AEG's Turkish clients from its base at Yuzhny Port, near Odessa.  To supplement its fixed price shipping arrangements, the Group is currently negotiating time charter agreements, to commence in May 2015, for an additional two bulk carrier vessels to handle shipments of its new softwood wood chip.

Expanded Production Capability:

Over the past year, AEG has made significant investments in increasing its production capabilities and streamlining its logistics operations, as well as working with its Turkish clients to perfect its Pine-based softwood wood chip offering, which requires specific processing techniques and equipment.

The greatly-improved operating margins that the Group achieved in Q3:2014 (as detailed in the Trading Update released on 11 December 2014) have enabled it to make further investments in the necessary equipment, and test runs have proven that its softwood wood chip can both meet its clients stringent quality standards and the phytosanitary requirements of the Turkish authorities. 

To satisfy the new supply contracts and expand its product range, AEG has agreed further raw material supply arrangements with its long-term partner, the Ukrainian State Forest Resources Agency (SAFRU), which include delivering timber logs by rail direct to the Group's facility at Yuzhny Port. 

The new high-volume softwood chipping machinery scheduled to be operational in May 2015, will work alongside AEG's existing hardwood chipping facilities - which include modern log loaders and ancillary equipment - to more than double the Group's total Ukrainian production capacity.

Over the past few months, the Group's local management team has been working with the owners of Yuzhny Port, TransInvest Service (TIS), to improve its rail wagon unloading procedures for incoming log deliveries, with AEG purchasing two new log loaders to accelerate the process; and the two parties have agreed to relocate the Group's processing and loading operations to an exclusive new berth, which will reduce vessel loading times and prevent other port users from impacting on its logistics and shipping activities.

New Softwood Wood Chip Product Line:

MDF is produced from a mixture of hardwood and softwood wood chip, combined with waxes and resins.  Until now, AEG has only provided the hardwood feedstock, as Turkish phytosanitary (pest control) regulations require a quarantine period, which it has not been possible to achieve as the Group's speedy shipping routes across the Black Sea only take between two and five days.

However, after extensive research in partnership with its Turkish clients and further investment in the necessary equipment, AEG will commence manufacturing softwood wood chip from Pine logs in May 2015, substantially increasing its production volumes and broadening its industrial wood chip offering.

Supply negotiations with other major Turkish MDF manufacturers have reached an advanced stage, and the Group is confident of making additional announcements of further contract wins in the near future; although its immediate focus is on satisfying its obligations to Yildiz Entegre, and any other shipments will be on a Spot basis as and when production volumes allow.

As a result, Active Energy Group Plc is in a strong position to not merely achieve, but exceed, the forecast volumes of Black Sea shipments of over 350,000 metric tonnes announced on 4 June 2013 when the Group sought shareholder approval to acquire its principal trading partner, Nikofeso Holdings Limited.

Commenting on this exceptional start to 2015, Richard Spinks, CEO of Active Energy Group Plc, said: "Despite the obvious challenges in Ukraine over the past year, the success of AEG's operational and executive management in transforming the Group's business since 2013 has been nothing short of remarkable.  Not so long ago, AEG was an insignificant player with little credibility and even less business activity.  Today, we are a leading force in the European wood chip market that customers can rely upon to consistently deliver bulk volumes of high-quality feedstock, at the agreed price and in the agreed time.

We are all extremely proud at having secured these new supply contracts with one of the Group's largest clients, which confirm our coming of age as a business and the strength of our position in our core market. The efforts of COO Matteo Girlanda and his operational team deserve particular praise, and I am extremely confident of the prospects for AEG's Black Sea operations for 2015 and beyond.

Global demand for wood chip continues to exceed supply, and all indications are that this situation will continue. Expanding our product offering to Turkey to include softwood is further evidence of our commitment to the long-term development of this vibrant and expanding business. Successfully relocating our production and loading facilities, increasing our fixed price shipping capacity, and chartering additional bulk cargo vessels at the right price will considerably enhance our ability to manufacture and deliver our products in a timely and cost-effective manner.

Improvements in the financing components of this area of the Group's business, including a significant reduction in interest charges per tonne from March 1^st 2015, will flow directly to the bottom line, further improving our margins. AEG has now successfully achieved its key goal of becoming a major European supplier of wood chip for MDF manufacturing, and I am certain that the management team has the operational and logistical expertise to continue to grow the business into the future."

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Contact Information & Editor's Notes

Enquiries:

Active Energy Group Plc
Richard Spinks, Chief Executive Officer                        [phone]           [e-mail]

Brian Evans-Jones, Finance Director                            [phone]      [e-mail]

6 Hillgrove Public Relations                                         
Richard Hillgrove/John Price                                          [phone]      [e-mail]

WH Ireland Ltd. (Nominated Adviser and Broker)                                           
Chris Fielding/Mark Leonard                                          [phone]

Active Energy Group:

·   Company Website: www.active-energy.com

·   Active Energy Group Plc, a London Stock Exchange AIM-listed company (AIM: AEG.L), is an international supplier of industrial wood chip and timber for MDF and OSB panel board manufacturing; Biomass for Energy (BFE) fuel products, including development of second generation fuel pellets and pelleting technologies; and global forestry asset development and management services.

·   The Group, headquartered in the United Kingdom, currently operates from four international locations:

o Ukraine, where it is the largest producer and exporter of wood chip for MDF manufacturing.

o Spain and Montenegro, from where it supplies BFE wood chip to European power plants.

o Canada, where it has entered into a landmark forestry joint venture - KAQUO Forestry & Natural Resources Development Corporation - with three indigenous Métis Settlements to commercialise in excess of 250,000 hectares of forestry/timberland assets.

·   The Group is led by a highly experienced and dedicated management team with a proven track record in the industries and regions in which it operates and from which its revenues are generated.

·   Ukraine and Canada, with their large forestry reserves and comprehensive road, rail and sea transport links, are ideal locations from which to source raw timber and manufacture wood chip and fuel pellets for supply to Biomass power plants and MDF/OSB producers.

Turkish MDF Market:

·   Turkey is the leading manufacturer of MDF in Europe, producing over 6 million m3 of high-quality boards and finished products per annum.  AEG maintains close relationships with all the major Turkish MDF producers, and works with them to develop its production capacity and product range.

·   Until recently, approximately 69% of US, Canadian and Latin American industrial wood chip exports were destined for Turkey; all of it for production of wood-based panels, primarily MDF.

·   AEG has successfully developed the first viable alternative to these traditional supply sources; delivering high-quality wood chip in approximately one-tenth of the transatlantic shipping time.

·   As well as providing fresher and superior wood chip to its clients, AEG's Black Sea production and shipping facilities provide them with significant cost-savings and cash flow advantages.

European Biomass for Energy (BFE) Market:

·   Biomass-generated power is expected to account for over 50% of European renewable energy, according to an EU directive on National Renewable Energy Action Plans.

·   EU directives and continued commissioning of new Biomass and CHP power plants across Europe continue to generate additional demand for Biomass fuel.

·   The European Renewable Energy Council (EREC) estimates that Biomass-based energy production will grow from 43TWh (Terawatt Hours) in 2005 to 250TWh in 2020.

·   Key NGO bodies such as the European Biomass Association and Eurelectric (the European Union of the Electricity Industry) advocate establishing harmonised, binding sustainability criteria for Biomass fuels.

 

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