POWERFLUTE OYJ
INTERIM DIVIDEND AND POTENTIAL ACQUISITION
Powerflute Oyj (“Powerflute”), which operates a paper mill in Kuopio, Finland
where it manufactures premium grade Nordic semi-chemical fluting, announces
today that it is to delay payment of its interim dividend of 1.681 Euro cents
per share.
In the Company's interim results announcement released on 6 August 2008, the
Board stated that it was its intention to pay the interim dividend by the end
of October 2008. However, the Company announced on 1 October that it had
entered into a conditional agreement to acquire the assets of Papierfabrik
Scheufelen GmbH & Co KG (“Scheufelen”), a manufacturer of coated woodfree
(“CWF”) papers based in Oberlenningen, Germany. The Board believes the
acquisition of Scheufelen will be materially earnings enhancing for Powerflute
and in view of the recent turmoil in financial markets, has decided to delay
the payment of the interim dividend until such time as financing for the
acquisition has been secured.
Update on the transaction
The Company is pleased to announce that it has now received the formal approval
of the secured lenders of Papierfabrik Scheufelen GmbH & Co KG for its
acquisition of the assets and business operations of Scheufelen. The
acquisition of Scheufelen remains subject to final approval by the Board of
Directors of Powerflute and to the successful conclusion of a financing
exercise.
Rationale for the transaction
The Board of Powerflute believes that recent announcements of restructuring
activity in the CWF sector will lead to a substantial improvement in the
balance between supply and demand and will create an environment in which CWF
producers can improve their margins to acceptable levels. Although the current
economic uncertainty may result in some short-term decline in demand, the CWF
sector would appear to be poised for cyclical recovery and the Board is
confident that market conditions will improve in the medium term.
Scheufelen is a well equipped and highly regarded participant in the CWF sector
with a strong position in certain robust, niche markets. As such, it is well
positioned to withstand any short-term reduction in demand and to take
advantage of any medium-term cyclical recovery. Powerflute's management team is
expected to contribute significantly to improving Scheufelen's operating
performance and margins.
Notwithstanding any change in market conditions, the Board of Powerflute is
confident that the performance of Scheufelen can be significantly improved as a
result of the restructuring outlined above and other measures to be implemented
once the business is under Powerflute ownership. Accordingly, the Board is
confident that the proposed acquisition will be materially earnings enhancing
for Powerflute in 2009.
Structure of proposed transaction, financing and impact on Powerflute
Scheufelen filed for insolvency protection on 17 July 2008 and since then has
been operating under the management of Dr. Jobst Wellensiek, who was initially
appointed as preliminary insolvency administrator (“Administrator”) and then
upon the opening of the formal insolvency proceedings on 1 October 2008 was
confirmed as Administrator by the Esslingen Local Court.
Under the terms of the proposed transaction, Powerflute will acquire all of the
goodwill, intellectual property, tangible fixed assets, inventories and
business operations of Scheufelen from the Administrator of the Scheufelen
estate. Powerflute will not acquire trade or other receivables and will not
assume any of the trade, financial or other liabilities.
Immediately prior to the commencement of insolvency proceedings, the net book
value of the tangible fixed assets to be acquired was approximately EUR 58
million. Powerflute will undertake a fair value accounting exercise in
accordance with the requirements of IFRS following completion of the
acquisition. Approximately 500 employees will transfer to a new company
established specifically for the purposes of the acquisition. The business will
continue to trade under the name “Papierfabrik Scheufelen” and will continue as
a producer of CWF papers.
The purchase consideration consists of an initial cash payment of EUR 25
million due to the insolvency estate on completion. Powerflute will then invest
up to a further EUR 20 million in working capital and capital projects during
2009. On the basis that the acquisition is financed entirely from debt,
Powerflute's net debt following completion of the transaction would be
approximately EUR 70 million.
Scheufelen
Scheufelen operates a single paper mill with total annual production capacity
of some 300,000 tonnes located in Oberlenningen, approximately 50 kilometres
from Stuttgart in Southern Germany.
Scheufelen's business is concentrated within a 500 kilometre radius of its
Oberlenningen base, in markets where it is able to achieve a competitive
advantage due to geographical proximity and responsiveness to customer
requirements. The majority of Scheufelen's output is sold to commercial
printers and paper merchants in Germany, Switzerland, Austria, France and
Italy. The principal CWF paper products of Scheufelen are marketed under the
BVS brand and represent more than 80% of sales. In addition, Scheufelen
manufactures and distributes a range of premium grade CWF papers. For the year
ended 31 December 2007, Scheufelen delivered 285,000 tonnes and achieved net
sales of EUR 211 million (unaudited).
Scheufelen's raw material and other manufacturing costs include expenditure on
hardwood and softwood pulp, chemicals and pigments (which are used in the
manufacture of paper and coatings) and energy. Wood pulp is an internationally
traded commodity whose prices are generally quoted in US Dollars and are linked
to quoted indices. The chemicals and pigments used by Scheufelen are also
internationally traded commodities. Scheufelen does not have any power
generation capabilities and all of its electricity and gas requirements are
purchased from external suppliers.
In recent years, Scheufelen's margins have been under pressure due to the
general oversupply of CWF papers in Europe and the impact of rising raw
materials, energy and other input costs. In the year ended 31 December 2007,
Scheufelen reported EBITDA of EUR 3.1 million (unaudited) and in the six months
immediately prior to filing for insolvency in July 2008, Scheufelen was loss
making at the EBITDA level.
The market
CWF papers are used in the production of high quality printed advertising and
promotional material. Production of CWF papers in Europe is dominated by six
major producers who between them represented approximately 85% of the total
annual production of more than 10 million tonnes before the capacity reductions
outlined below.
Demand for CWF papers in Europe is currently estimated to be approximately 7.7
million tonnes and is forecast to grow by approximately 1.4% per year, reaching
8.6 million tonnes by 2015 (source: Poyry Forest Industry Consulting GmbH). The
majority of the growth is forecast to occur in Eastern Europe.
During 2007 and 2008, several of the larger producers of CWF papers announced
rationalisation of their CWF capacity. On 29 September 2008, the market leader
Sappi announced that it would acquire the CWF businesses of M-Real and outlined
plans for further mill closures. Together, the announced capacity reductions
suggest the removal of approximately 1.2 million tonnes from the market before
the end of 2010.
Future prospects
The business and operations of Scheufelen will be substantially restructured by
the Administrator prior to completion of the acquisition by Powerflute. Amongst
other things, this will result in a reduction in the workforce to approximately
500 employees. The savings arising from the workforce restructuring and the
other improvement projects already underway are expected to be in excess of EUR
10 million per annum.
The performance of Scheufelen is also expected to benefit from the CWF capacity
reductions outlined above, from price increases in the CWF market announced in
October 2008 and from anticipated reductions in pulp and energy prices.
However, there can be no certainty regarding the eventual benefits, if any,
that may accrue from these items.
- Ends -
For additional information please contact:
Powerflute
Dermot Smurfit
Don Coates
c/o Financial Dynamics
Collins Stewart (Nominated Advisor)
Nick Ellis +44 20 7523 8350
Ohman (Certified Advisor)
Arja Vayrynen +358 (9) 8866 6021
Financial Dynamics
Billy Clegg +44 20 7831 3113
Georgina Bonham
INTERIM DIVIDEND AND POTENTIAL ACQUISITION
| Source: Powerflute Oyj