17 December 2008
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES OF
AMERICA, AUSTRALIA, CANADA, THE REPUBLIC OF IRELAND OR JAPAN
POWERFLUTE OYJ
ACQUISITION AND PLACING
Introduction
Powerflute Oyj ("Powerflute"), is pleased to announce that its agreement to
acquire the assets of Papierfabrik Scheufelen GmbH & Co KG (“Scheufelen”)
announced on 1 October 2008 (the "Acquisition") has become unconditional. Total
consideration for the property, plant and equipment is €20m, with a further
anticipated investment of €25m in working capital. Completion of the
Acquisition is expected to take place by 31 December 2008.
The Acquisition is being financed through a combination of €40m of new term
debt and factoring facilities and a cash placing of 56,818,174 new Powerflute
shares (the "Placing Shares") with certain existing shareholders and new
institutional investors at a price of 16p (€ 0.176) per share (the "Placing
Price") to raise €10 million (before expenses) (the "Placing"). The Placing
Price represents a 3% premium to the average closing middle market price of
15.5p for the five business days preceding this announcement.
Highlights
• Scheufelen is a well equipped and highly regarded participant in the Coated
Wood Free (“CWF”) sector. The Powerflute Board (the “Board”) estimates the
replacement cost of Scheufelen's assets to be in excess of €300m
• Recent restructuring activity in the CWF sector has led to outright
reductions of capacity in Europe and the Board believes the opportunity for
improved margins in this market are good
• Scheufelen is benefiting from a significant price increase (€50 per tonne)
for its CWF product announced and implemented in October 2008
• The market prices of Scheufelen's principal raw materials (hardwood and
softwood pulp) have declined sharply in recent months. Energy costs are also
expected to be considerably below 2008 levels
• The prospects for immediate profit improvement within Scheufelen, following
cost reduction measures implemented in the last six months are very significant
• Placing of 56,818,174 Placing Shares at 16p (€0.176) per Placing Share to
raise €10 million (before expenses) arranged by Collins Stewart Europe Limited
("Collins Stewart")
• The Board believes that, having taken into account the new shares being
issued, the Acquisition will be materially earnings enhancing and value
creative for shareholders
Dr. Dermot F. Smurfit, Chairman of Powerflute, said:
“I am delighted that we are now able to declare the proposed acquisition of
Scheufelen unconditional. This acquisition is an excellent fit for our strategy
and will be transformational for Powerflute. We look forward to delivering a
material improvement to Scheufelen's profitability. Shareholders have been
highly supportive of this acquisition and I am pleased that our founder
shareholders committed additional funds early in the process to help ensure its
success. As a Board, we look forward to creating significant value for all our
shareholders through delivering on our plans for Scheufelen and Savon Sellu.”
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. 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 of approximately 19 per cent.
Overall, annualised improvements to EBITDA of approximately €20-25m have been
identified, made up of cost savings already implemented by the Administrator of
€7m, manufacturing efficiencies of €3-5m and a full year impact of €10-15m from
the price increase successfully adopted in October 2008. Accordingly, the Board
is confident that the 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 Acquisition, Powerflute will acquire all of the
goodwill, intellectual property, tangible fixed assets and business operations
of Scheufelen from the Administrator of the Scheufelen estate for consideration
of €20m and will also acquire inventories at their net realisable value.
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 €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 for the
property, plant and equipment of €20 million due to the insolvency estate on
completion. Powerflute will then invest up to €25 million in working capital
and capital projects during 2009. As part of the transaction, Powerflute has
entered into committed new debt facilities totalling €20m and has secured
committed factoring facilities of up to €30m to support the rebuilding of
Scheufelen's working capital position.
Powerflute's net debt, including utilisation of the debt factoring facility,
following completion of the transaction is expected to be approximately €65
million.
Proposed Board appointment
It is the current intention of the Board of Directors of Powerflute to propose
the appointment of Dr Ulrich Scheufelen as a director of Powerflute at the next
Annual General Meeting of the company which is expected to take place in April
2009.
Details of the Placing
Powerflute has agreed to raise approximately €10 million (before expenses) by
means of a Placing by Collins Stewart of new ordinary shares with certain
existing shareholders and new institutional shareholders. Pursuant to a
Placing Agreement dated 17 December 2008 (the "Placing Agreement") Collins
Stewart has agreed to procure placees for the Placing at the Placing Price,
such placees to comprise institutional investors and certain existing
shareholders (including certain of the Directors as described below). Collins
Stewart has not agreed to underwrite the Placing.
The Placing Shares will be issued credited as fully paid and will rank pari
passu in all respects with the existing Powerflute shares, including as to the
right to receive and retain all dividends and other distributions declared,
made or paid after Admission.
Application will be made to the London Stock Exchange for the Placing Shares to
be admitted to trading in AIM. It is expected that Admission will become
effective and that dealings in the Placing Shares will commence at 8.00 a.m.
(London time) on 24 December 2008 (or such later date as Collins Stewart and
Powerflute may agree, not being later than 31 December 2008).
If Powerflute has not allotted the Placing Shares by 23 December 2008, or such
later date as Colllins Stewart and Powerflute shall agree (not being later than
31 December 2008) the Placing Agreement shall terminate and the placing
proceeds shall be repaid to placees.
The Annual General Meeting of Powerflute Oyj held on 16 April 2008 authorised
the Board to resolve on an issue of up to 88,000,000 new shares, including an
issue in deviation from the shareholders' pre-emptive subscription right. Based
on this authorisation the Board has made the decision to issue the shares as
referred to above and, accordingly, the Placing is not subject to further
shareholder approval.
Following the introduction of the Prospectus Rules on 1 July 2005 and the
consequential increase in costs and the time required for AIM companies to
raise new equity capital on a pre-emptive basis, the Directors believe that the
Placing is the most cost effective and expeditious method of raising new equity
capital and do not consider that it would be practicable to complete a
pre-emptive share offering in the time available to be able to complete the
Acquisition. Accordingly, the Placing Shares have not been and will not be
offered generally to Powerflute shareholders, whether on a pre-emptive basis or
otherwise. In addition, the Placing Shares are not being made available to the
public and are not being offered in any jurisdiction where it would be unlawful
to do so.
The number of Powerflute Shares in issue at the date of this announcement is
88,000,000 and the number of Powerflute Shares in issue following allotment of
the Placing Shares will be 144,818,174.
Related Party Transaction
The participation of certain Directors and substantial shareholders in the
Placing is a Related Party Transaction under AIM Rule 13. The Independent
Directors, who have not participated in the placing, having consulted with
Collins Stewart Europe Limited, consider that the subscription in the Placing
for 25,543,452 Placing Shares in aggregate by Dr Dermot J. Smurfit, William D
Coates, Ian Halliday and Sir Michael Smurfit is fair and reasonable so far as
shareholders are concerned.
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 € 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 € 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.
Ends
For additional information please contact:
Powerflute
Dermot Smurfit
Don Coates
c/o Financial Dynamics
+44 20 7831 3113
Collins Stewart (Nominated Advisor)
Mark Dickenson
Piers Coombs
+44 20 7523 8350
Ohman (Certified Advisor)
Arja Vayrynen
+358 (9) 8866 6021
Financial Dynamics
Billy Clegg
Georgina Bonham
+44 20 7831 3113
Legal Notice
Collins Stewart, which is authorised and regulated in the United Kingdom by the
FSA, is acting for Powerflute as Nominated Adviser and Broker for the purposes
of the AIM Rules in connection with the Acquisition and the Placing and will
not be responsible to anyone other than Powerflute for providing the
protections afforded to customers of Collins Stewart or for providing advice in
relation to the Acquisition and the Placing and the other arrangements
described in this announcement.
The release, publication or distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published or
distributed should inform themselves about and observe such restrictions.
No offer, invitation or inducement to acquire shares or other securities in
Powerflute is being made by this announcement.
Certain statements contained in this announcement may constitute
forward-looking statements. Any such forward-looking statements involve risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Powerflute, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking statements
speak only as of the date of this announcement and there can be no assurance
that the results and events contemplated by such forward-looking statements
will, in fact, occur. Powerflute expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained herein, save as required to comply with any applicable
legal or regulatory obligations (including the AIM Rules), whether as a result
of new information, future events or otherwise . In addition, any reference in
this announcement to the price at which Powerflute shares have been bought or
sold in the past or the yield on Powerflute shares cannot be relied on as a
guide to future performance.
This announcement is not an invitation nor is it intended to be an inducement
to engage in investment activity for the purpose of section 21 of FSMA. The
Placing Shares are in any event being placed only with (i) persons who have
professional experience in matters relating to investments and who are
investment professionals within the meaning of Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United
Kingdom (the “Financial Promotion Order”) or (ii) persons who fall within
Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations
etc.”) of the Financial Promotion Order (all such persons together being
referred to as “relevant persons”). Any investment or investment activity to
which this announcement relates is available only to relevant persons and will
be engaged in only with relevant persons. Anyone other than a relevant person
must not rely on this announcement.
The Placing Shares have not been, and nor will they be, registered under the
United States Securities Act of 1933 as amended (the “Securities Act”) or
qualified for sale under the laws of any state of the United States or under
the applicable laws of any of Canada, Australia, the Republic of South Africa,
the Republic of Ireland or Japan and, subject to certain exceptions, may not be
offered or sold in the United States or to, or for the account or benefit of,
US persons (as such term is defined in Regulation S under the Securities Act)
or to any national or resident of Canada, Australia, the Republic of South
Africa, the Republic of Ireland or Japan.
Acquisition and Placing
| Source: Powerflute Oyj