29th Jul 2009 09:45
29 July 2009
POWERFLUTE OYJ
INTERIM REPORT
for the six months ended 30 June 2009
Powerflute Oyj (the "Company" or "Powerflute"), the packaging group with established positions in Nordic semi-chemical fluting and coated woodfree papers, today announced results for the six months ended 30 June, 2009. Powerflute is listed on the AIM market of the London Stock Exchange (Ticker: POWR) and on the First North list, the alternative market of the OMX Nordic Exchange Stockholm AB (Ticker POW1V)
Financial Highlights
|
Revenue increased to €120.4m (H1 2008: €55.6m) |
|
|
Underlying EBITDA was €5.6m (H1 2008: €7.3m), including €8.0m from Scheufelen |
|
|
Operating profit was €33.9m including a gain of €34.7m on acquisition of Scheufelen |
|
|
Profit before tax was €31.4m (H1 2008: €3.6m profit) |
|
|
Basic EPS of 22.2 cents per share including impact of gain on acquisition of Scheufelen |
|
|
Underlying loss per share of 1.8 cents (H1 2008: profit 2.9 cents per share) |
|
|
Net debt increased to €50.1m (€41.6m at 31 December 2008) |
|
|
Net asset value per share was €0.40 |
|
|
Operating Highlights |
|
|
Papierfabrik Scheufelen ("Scheufelen") performed in line with expectations despite extremely challenging market conditions validating the decision to proceed with the acquisition |
|
|
Trading in Savon Sellu has been weak throughout the period due to volume and price erosion and this significantly impacted the Group's results in the first half |
|
|
Decisive action has been taken in both businesses to manage the impact of the economic downturn with annualised savings of €15.0m in Scheufelen and €6.0m in Savon Sellu expected |
|
|
Dermot Smurfit (Chairman) will continue to act as Chief Executive until a replacement is found |
|
|
Outlook for Scheufelen remains positive as the benefit of post-acquisition improvement initiatives are realised, while prices and volumes at Savon Sellu are showing some signs of stabilisation |
|
Powerflute Chairman, Dermot Smurfit commented:
"The Group's recent acquisition, Scheufelen the manufacturer of coated woodfree papers, has shown extraordinary resilience in this difficult operating environment and performed in line with our expectations. However, our Nordic semi-chemical fluting business, Savon Sellu, suffered from very weak demand and considerable price erosion and this significantly impacted the Group's performance in the first half.
"Although market conditions remain challenging, the outlook for Scheufelen remains positive and we expect performance to continue to improve as the benefit of post-acquisition improvement initiatives are realised. There are early signs of a return to price stability and increasing volumes at Savon Sellu and we expect there to be some limited improvement in performance during the second half.
"There will continue to be a strong focus on tight cost controls, cash management, and operational development throughout the second half. This, together with the strong support we enjoy from our banks, means the Group is well positioned to withstand the challenges it currently faces and to benefit from any market recovery."
Contacts
For additional information please contact:
|
Powerflute OYJ Dermot Smurfit (Chairman) David Walton (Chief Financial Officer) |
c/o Billy Clegg, Financial Dynamics +44 (0)20 7269 7157 |
|
|
Collins Stewart Europe Ltd: Piers Coombs |
+44 (0)20 7523 8319 |
|
|
E.Öhman J:or Fondkommission AB: Ms Arja Väyrynen |
+358 9 8866 6029 |
|
|
Financial Dynamics: Billy Clegg Georgina Bonham |
+44 (0)20 7831 3113 |
|
|
K Capital Source Mark Kenny Jonathan Neilan |
+353 (1) 631 5500 |
About Powerflute
Powerflute Oyj ("the Company" or "Powerflute") is a packaging group with established positions in Nordic semi-chemical fluting and coated woodfree papers.
Through its subsidiary Savon Sellu Oy, the Group operates a paper mill in Kuopio, Finland which produces a specialised form of semi-chemical fluting made from birchwood sourced principally in Finland and Russia. Corrugated boxes manufactured using Nordic semi-chemical fluting demonstrate exceptional strength and moisture resistance and are extensively used for transportation of fruit and vegetables, high-value industrial goods such as electrical appliances and automotive components. The Kuopio mill has the capacity to produce up to 300,000 tonnes per annum and is one of three suppliers of Nordic semi-chemical fluting in Europe.
Through its recently acquired subsidiary Papierfabrik Scheufelen, the Group operates a paper mill in Lenningen, Germany which produces a range of coated woodfree papers from mixed hardwood and softwood pulps. Coated woodfree papers are used in the production of printed promotional material such as brochures, leaflets and other point of sale materials for producers and distributors of premium branded goods. The Lenningen mill has the capacity to produce up to 300,000 tonnes per annum and supplies the majority of its products into the European market where total demand has historically been in excess of 7.7 million tonnes per annum.
CHAIRMAN'S STATEMENT
GROUP RESULTS
Market conditions have continued to be extremely challenging across all paper grades throughout much of the first half of 2009 and both of the Group's businesses were adversely affected by weak demand and intense pressure on pricing levels.
Following the acquisition of Papierfabrik Scheufelen ("Scheufelen"), a manufacturer of coated woodfree papers based in Germany, on 1 January 2009, the Group's revenues for the six months ended 30 June 2009 more than doubled to €120.4m (2008 - €55.6m). Operating profit for the period was €33.9m (2008 - €4.6m), but this included a gain of €34.7m recognised on the acquisition of Scheufelen. Profit before tax was €31.4m (2008 - €3.6m profit).
Underlying EBITDA was €5.6m (2008 - €7.3m). This included an EBITDA profit of €8.0m from Scheufelen which performed in line with expectations despite encountering very challenging market conditions. In contrast, the Group's Nordic semi-chemical fluting business experienced very weak demand and suffered considerable price erosion during the first half. This resulted in an EBITDA loss of €0.5m (2008 - profit €8.9m) at Savon Sellu and significantly impacted the Group's results for the period.
Following a strong performance in the first half, the outlook for Scheufelen remains positive. Although market conditions continue to be challenging, we expect performance to continue to improve as the benefit of post-acquisition improvement initiatives are realised and to be in line with our initial expectations. There are early signs of a return to price stability and increasing volumes at Savon Sellu and we expect there to be some limited improvement in performance during the second half.
Notwithstanding the challenges faced by the Group during the first half, we continue to be cash generative and our lenders remain strongly supportive.
GRAPHIC PAPERS
The Group completed the acquisition of Scheufelen on 1 January 2009. We are pleased to report that despite very challenging trading conditions during the first half, Scheufelen has performed in line with our expectations and reported EBITDA of €8.0m on sales of €84.7m for the six months ended 30 June 2009.
The resilience shown during the period reflects both the underlying strength of the Scheufelen business and the immediate, pro-active steps taken by our management to achieve a rapid turnaround following the acquisition. The improvement initiatives outlined at the time of the acquisition, including the reduction of the workforce to 500 employees and the planned reductions in raw material costs, have all been realised and we are on target to achieve the forecast annualised savings of €15.0m.
During the period we implemented a rolling programme of curtailments to effectively match supply with demand and maintain inventory at acceptable levels. With less than 15 days finished goods inventory on hand, Scheufelen is performing considerably better than the sector average in this regard. Towards the end of the period, we began to see the benefits of initiatives to reduce waste and improve efficiency and we are confident of making further progress in the second half.
PACKAGING PAPERS
The performance of our Nordic semi-chemical fluting business, Savon Sellu, during the first half was very disappointing. EBITDA from operating activities reduced to a loss of €0.5m (2008 - EBITDA profit €8.9m) on sales down by 36% to €35.7m (2008 - €55.6m).
During the period, the market for Nordic semi-chemical fluting was adversely affected by the very difficult conditions in the market for recycled grades of fluting, where overcapacity and weak demand resulted in exceptionally low prices. Substitution of these inferior grades in certain applications, together with competitor activity, resulted in both volume and price erosion in the markets for Nordic semi-chemical fluting, particularly towards the end of the period.
In response to the challenging market conditions we have worked closely with our customers, suppliers and workforce to achieve savings wherever possible. We have implemented a program of rolling shutdowns and short-time working with the support of our employees and we are targeting further annualised savings in excess of €6.0m through a combination of more effective purchasing of raw materials, operational improvement initiatives and downsizing.
ACQUISITIONS
The Group completed the acquisition of the business and assets of Scheufelen on 1 January 2009 and the results of Scheufelen have been consolidated into those of the Group for the period ended 30 June 2009.
The total acquisition cost was €34.7m, comprising €18.5m for the property, plant and equipment, €10.6m for the inventory, €2.8 for other items and €2.8m of transaction related costs. The acquisition was funded by an increase in the Group's borrowings and from the proceeds from a share placing.
A provisional Purchase Price Allocation exercise has been undertaken, the results of which are reflected in the financial statements presented for the period ended 30 June 2009. The total fair value of the net assets acquired is currently estimated to be €84.3m, comprising intangible assets of €14.4m, property, plant and equipment of €59.3m, inventories of €13.2m, other receivables of €0.1m and provisions for liabilities and charges of €2.7m. Certain of the valuations are still subject to further investigation and review and accordingly the final determination of fair value of the assets may change.
The Group remains committed to its strategy of acquiring attractively priced "orphan assets" which have the potential to be significantly earnings enhancing and to create value for shareholders. The difficult economic environment and the challenges faced by many of the companies in our sector have contributed to a marked increase in acquisition opportunities in recent months and we continue to evaluate opportunities as they are presented to us.
TAXATION
The tax gain of €0.7m (2008 - tax charge €1.0m) is based upon the expected annual tax rates of 26% in Finland and 30% in Germany (2008 - 29%) on profit before taxation.
EARNINGS PER SHARE AND DIVIDENDS
Basic earnings per share for the six months ended 30 June 2009 was 22.2 cents per share (2008 - 2.9 cents per share). However, this included the impact of the gain arising on acquisition of Scheufelen. On an underlying basis, the loss per share for the period was 1.8 cents. In view of the uncertain economic environment, the Board did not propose the payment of a dividend for the year ended 31 December 2008 to the Annual General Meeting and does not intend to make any payment on account or propose any interim dividend for the year ending 31 December 2009.
CASH FLOW
The Group started the year with net debt of €41.6m, comprising bank and other borrowings of €51.5m offset by cash and cash equivalents of €9.9m.
During the first half of 2009, the Group generated €1.7m of cash flow from operating activities (2008 - €10.4m) after an increase in net working capital of €4.2m. The principal uses of funds were payment of deferred consideration relating to the Scheufelen acquisition €5.1m, loan repayments of €3.4m and interest and other financing costs of €2.5m. Capital expenditure for the six months ended 30 June 2009 was €2.3m (2008 - €5.0m).
Net debt at 30 June 2009 was €50.1m, comprising bank and other borrowings of €53.0m offset by cash and cash equivalents of €2.9m.
LIQUIDITY AND COVENANTS
Notwithstanding the challenges faced by the Group during the first half, we continue to be cash generative and our lenders remain strongly supportive. There have been no material changes to any of the Group's bank facilities since 31 December 2008, other than as a result of scheduled repayments. The maturity profile of the Group's bank debt remains as set out in the 2008 Annual Report.
TREASURY MANAGEMENT AND CURRENCY RISK
The main functional currency of the Group is the Euro. The Group has transactional and balance sheet exposures to the US dollar. The transactional exposure arises as approximately 15% of the Group's sales by volume and value and approximately 25% of its raw material and consumable purchases are denominated in US dollars. The balance sheet exposure arises in connection with the assets and liabilities arising from these transactions.
BOARD AND MANAGEMENT
As previously announced, the Board was strengthened during the period by the addition of Dr Ulrich Scheufelen and David Walton, whose appointments were confirmed at the Annual General Meeting of shareholders held in Kuopio on 28 April 2009. Dr. Scheufelen, who was previously a member of the advisory board and the principal shareholder of Scheufelen, joined the Board as a Non-Executive Director. David Walton was appointed as the Group's Chief Financial Officer on 1 January 2009.
On 15 June 2009, Don Coates resigned from his position as Chief Executive Officer and as a Director to seek new opportunities outside the Group. The Board has initiated a search for a successor and will update the market as soon as is practicable. However, until such time as an appointment is made Dermot Smurfit will continue to act as Chief Executive.
CURRENT TRADING AND FUTURE PROSPECTS
Following a strong performance in the first half, the outlook for Scheufelen remains positive. Although market conditions continue to be challenging, we expect performance to continue to improve as the benefit of post-acquisition improvement initiatives are realised and to be in line with our initial expectations. There are early signs of a return to price stability and increasing volumes at Savon Sellu and we expect some limited improvement in performance during the second half.
There will continue to be a strong focus on tight cost controls, cash management, and operational development throughout the second half. This, together with the strong support we enjoy from our banks, means the Group is well positioned to withstand the challenges it currently faces and to benefit from any market recovery.
Dermot Smurfit
Chairman and Chief Executive
29 July 2009
INTERIM CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2009
|
Six months ended 30 June |
Year ended 31 December |
|||||||
|
2009 |
|
2008 |
|
2008 |
||||
|
Note |
€ 000 |
€ 000 |
€ 000 |
|||||
|
Revenue |
5 |
120,407 |
55,555 |
108,027 |
||||
|
Other operating income |
110 |
200 |
337 |
|||||
|
Changes in inventories of finished goods and work in progress |
(1,360) |
2,868 |
700 |
|||||
|
Raw materials and consumables used |
(71,468) |
(30,448) |
(57,471) |
|||||
|
Employee benefits expense |
(18,646) |
(6,954) |
(13,837) |
|||||
|
Other expenses |
(23,364) |
(13,890) |
(25,924) |
|||||
|
Share of losses of associates |
(41) |
- |
(434) |
|||||
|
Gain recognised on acquisition |
4 |
34,726 |
- |
- |
||||
|
Depreciation and amortisation |
(6,496) |
(2,703) |
(5,403) |
|||||
|
Operating Profit |
6 |
33,868 |
4,628 |
5,995 |
||||
|
Finance income |
19 |
76 |
130 |
|||||
|
Finance expenses |
(2,450) |
(1,154) |
(2,539) |
|||||
|
Profit before taxation |
31,437 |
3,550 |
3,586 |
|||||
|
Income tax expense |
7 |
731 |
(1,010) |
(1,045) |
||||
|
Profit for the period |
32,168 |
2,540 |
2,541 |
|||||
|
Attributable to |
||||||||
|
- equity holders of the company |
32,168 |
2,540 |
2,541 |
|||||
|
Earnings per share (cents per share) |
||||||||
|
Basic |
22.2 |
2.9 |
2.8 |
|||||
|
Diluted |
22.2 |
2.9 |
2.8 |
|||||
The notes on pages 12 to 20 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2009
|
Six months ended 30 June |
Year ended 31 December |
|||||||
|
2009 |
|
2008 |
|
2008 |
||||
|
Note |
€ 000 |
€ 000 |
€ 000 |
|||||
|
Profit for the period |
32,168 |
2,540 |
2,541 |
|||||
|
Net (loss) / gain on cash flow hedges |
669 |
2,309 |
(1,500) |
|||||
|
Income tax |
(174) |
(600) |
390 |
|||||
|
Other comprehensive income (loss) |
10 |
495 |
1,709 |
(1,110) |
||||
|
for the period, net of tax |
||||||||
|
Total comprehensive income |
32,663 |
4,249 |
1,431 |
|||||
|
for the period, net of tax |
||||||||
|
Attributable to |
32,663 |
4,249 |
1,431 |
|||||
|
- equity holders of the company |
||||||||
The notes on pages 12 to 20 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2009
|
30 June 2009 |
|
30 June 2008 |
As at 31 December 2008 |
|||||
|
Note |
€ 000 |
€ 000 |
€ 000 |
|||||
|
ASSETS |
||||||||
|
Non-current assets |
||||||||
|
Property, plant and equipment |
9 |
91,337 |
34,443 |
33,946 |
||||
|
Intangible assets |
14,283 |
3,233 |
2,175 |
|||||
|
Investment in an associate |
4 |
1,079 |
194 |
610 |
||||
|
Prepayments for acquisition |
- |
- |
25,295 |
|||||
|
Derivative financial instruments |
10 |
- |
1,067 |
- |
||||
|
Deferred income tax asset |
1,730 |
|
128 |
|
1,106 |
|||
|
Total non-current assets |
108,429 |
|
39,065 |
|
63,132 |
|||
|
Current assets |
||||||||
|
Inventories |
23,033 |
13,960 |
12,901 |
|||||
|
Trade and other receivables |
26,787 |
19,096 |
18,805 |
|||||
|
Derivative financial instruments |
10 |
- |
1,242 |
510 |
||||
|
Current income tax asset |
126 |
- |
- |
|||||
|
Cash and short-term deposits |
2,945 |
|
5,955 |
|
9,896 |
|||
|
Total current assets |
52,891 |
|
40,253 |
|
42,112 |
|||
|
TOTAL ASSETS |
161,320 |
|
79,318 |
|
105,244 |
|||
|
EQUITY AND LIABILITIES |
||||||||
|
Equity attributable to equity holders of the parent |
||||||||
|
Issued share capital |
88 |
88 |
88 |
|||||
|
Hedging reserve |
(615) |
1,709 |
(1,110) |
|||||
|
Reserve for invested non-restricted equity |
9,602 |
- |
9,602 |
|||||
|
Retained earnings |
49,251 |
16,997 |
17,223 |
|||||
|
Total equity |
58,326 |
|
18,794 |
|
25,803 |
|||
|
Non-current liabilities |
||||||||
|
Interest-bearing loans and borrowings |
12 |
42,724 |
26,148 |
44,449 |
||||
|
Provisions |
1,300 |
- |
- |
|||||
|
Employee benefit liability |
- |
309 |
- |
|||||
|
Derivative financial instruments |
10 |
186 |
- |
765 |
||||
|
Other liabilities |
235 |
- |
- |
|||||
|
Deferred income tax liabilities |
17,636 |
|
5,145 |
|
5,756 |
|||
|
Total non-current liabilities |
62,081 |
|
31,602 |
|
50,970 |
|||
|
Current liabilities |
||||||||
|
Trade and other payables |
26,595 |
20,313 |
20,551 |
|||||
|
Interest-bearing loans and borrowings |
12 |
10,302 |
4,164 |
7,064 |
||||
|
Employee benefit liability |
121 |
- |
121 |
|||||
|
Derivative financial instruments |
10 |
714 |
- |
735 |
||||
|
Current income tax liabilities |
3,181 |
|
4,445 |
|
- |
|||
|
Total current liabilities |
40,913 |
|
28,922 |
|
28,471 |
|||
|
Total liabilities |
102,994 |
|
60,524 |
|
79,441 |
|||
|
TOTAL EQUITY AND LIABILITIES |
161,320 |
|
79,318 |
|
105,244 |
|||
The notes on pages 12 to 20 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2009
|
Attributable to equity holders of the company |
||||||||
|
Share capital |
Hedging reserve |
Reserve for invested non-restricted equity |
Retained earnings |
Total equity |
||||
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
€ 000 |
||||
|
As at 1 January 2009 |
88 |
(1,110) |
9,602 |
17,223 |
25,803 |
|||
|
Profit for the period |
- |
- |
- |
32,168 |
32,168 |
|||
|
Other comprehensive income(loss) |
- |
495 |
- |
- |
495 |
|||
|
Total comprehensive income |
- |
495 |
- |
32,168 |
32,663 |
|||
|
Share based payments |
- |
- |
- |
(140) |
(140) |
|||
|
At 30 June 2009 |
88 |
(615) |
9,602 |
49,251 |
58,326 |
|||
|
As at 1 January 2008 |
88 |
- |
- |
17,085 |
17,173 |
|||
|
Profit for the period |
- |
- |
- |
2,540 |
2,540 |
|||
|
Other comprehensive income(loss) |
- |
1,709 |
- |
- |
1,709 |
|||
|
Total comprehensive income |
- |
1,709 |
- |
2,540 |
4,249 |
|||
|
Share based payments |
- |
- |
- |
334 |
334 |
|||
|
Dividends relating to 2007 paid in April 2008 |
- |
- |
- |
(2,962) |
(2,962) |
|||
|
At 30 June 2008 |
88 |
1,709 |
- |
16,997 |
18,794 |
|||
The notes on pages 12 to 20 form an integral part of this condensed consolidated interim financial information
INTERIM CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2009
|
Six months ended 30 June |
Year ended 31 December |
|||||||||
|
2009 |
2008 |
2008 |
||||||||
|
Note |
€ 000 |
€ 000 |
€ 000 |
|||||||
|
Operating activities |
||||||||||
|
Profit before tax from continuing operations |
31,437 |
3,550 |
3,586 |
|||||||
|
Non-cash: |
||||||||||
|
Depreciation of property, plant and equipment |
5,120 |
1,750 |
3,305 |
|||||||
|
Amortisation of intangible assets |
1,376 |
953 |
2,098 |
|||||||
|
Gain recognized on acquisition |
4 |
(34,726) |
- |
- |
||||||
|
Share-based payment expense |
(140) |
334 |
559 |
|||||||
|
Change in financial instruments |
237 |
- |
306 |
|||||||
|
Finance income |
(19) |
(76) |
(130) |
|||||||
|
Finance expense |
2,450 |
1,154 |
2,539 |
|||||||
|
Share of net loss in associate |
41 |
- |
434 |
|||||||
|
Movements in provisions, pensions and government grants |
- |
- |
(188) |
|||||||
|
Working capital adjustments: |
||||||||||
|
Change in trade and other receivables |
(8,128) |
7,319 |
6,794 |
|||||||
|
Change in inventories |
3,051 |
(4,971) |
(3,912) |
|||||||
|
Change in trade and other payables |
903 |
404 |
(1,711) |
|||||||
|
Income tax paid |
105 |
- |
(3,962) |
|||||||
|
Net cash flows from operating activities |
1,707 |
10,417 |
9,718 |
|||||||
|
Cash flows from investing activities |
||||||||||
|
Purchase of property, plant and equipment |
9 |
(2,276) |
(4,970) |
(6,119) |
||||||
|
Investment in an associate |
4 |
(397) |
(194) |
(1,044) |
||||||
|
Prepayments for acquisition |
4 |
- |
- |
(22,950) |
||||||
|
Acquisition of a subsidiary |
4 |
(5,061) |
- |
- |
||||||
|
Interest received |
19 |
76 |
130 |
|||||||
|
Net cash flows from investing activities |
(7,715) |
(5,088) |
(29,983) |
|||||||
|
Cash flows from financing activities |
||||||||||
|
Proceeds from issue of shares |
- |
- |
10,000 |
|||||||
|
Transaction costs of issue of shares |
- |
- |
(398) |
|||||||
|
Proceeds from borrowings |
5,033 |
- |
23,415 |
|||||||
|
Repayment of borrowings |
12 |
(3,375) |
(2,000) |
(4,000) |
||||||
|
Payment of finance lease liabilities |
(151) |
(98) |
(251) |
|||||||
|
Interest and similar costs paid |
(2,450) |
(1,099) |
(2,428) |
|||||||
|
Dividends paid |
13 |
- |
(2,962) |
(2,962) |
||||||
|
Net cash flows from financing activities |
(943) |
(6,159) |
23,376 |
|||||||
|
Net decrease in cash and cash equivalents |
(6,951) |
(830) |
3,111 |
|||||||
|
Cash and cash equivalents at start of period |
9,896 |
6,785 |
6,785 |
|||||||
|
Cash and cash equivalents at period end |
2,945 |
5,955 |
9,896 |
|||||||
The notes on pages 12 to 20 form an integral part of this condensed consolidated interim financial information
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Powerflute Oyj is a public limited company incorporated and domiciled in Finland. The address of the registered office is Sorsasalo/Box 57, FI-70101 Kuopio, Finland. The Company has a primary listing on the Alternative Investment Market of The London Stock Exchange and a secondary listing on First North, the alternative market of the OMX Nordic Exchange Stockholm AB.
This condensed consolidated interim financial information was approved for issue by resolution of the Company's Board of Directors on 29 July 2009.
This condensed consolidated interim financial information has been reviewed, not audited.
The principal activities of the company and its subsidiaries ("the Group") are described in Note 5.
2. Basis of preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2009 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2008.
3. Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008, except for the adoption of new Standards and Interpretations as of 1 January 2009, noted below:
IFRS 8 Operating Segments
This standard requires disclosure of information about the Group's operating segments. The Group had only one business segment until 31 December 2008. From 1 January 2009, the Group had three business segments, which are presented in Note 5.
IAS 1 Revised Presentations of Financial Statements
The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognized income and expense, either in one single statement or in two linked statements.
Other standards adopted with effect from 1 January 2009 (IFRS 2 Share-based Payment- Vesting Conditions and Cancellations, IFRS 7 Financial Instruments: Disclosures, IAS 23 Borrowing Costs (Revised), IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation, IFRIC 13 Customer Loyalty Programmes, IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement, IFRIC 16 Hedges of a Net Investment in a Foreign Operation, annual improvements in 2008) did not have any impact on the accounting policies, financial position or performance of the Group.
4. Business Combinations
Acquisition of Papierfabrik Scheufelen
On 1 January 2009, the Group acquired the business and assets of Papierfabrik Scheufelen, a manufacturer of coated woodfree papers based in Lenningen, Germany. The acquisition has been accounted for using the purchase method of accounting. The purchase price allocation of the tangible and intangible assets is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase. The interim condensed consolidated financial statements include the results of Papierfabrik Scheufelen from the acquisition date.
The preliminary fair value of the identifiable assets and liabilities of Papierfabrik Scheufelen as at the date of acquisition were:
|
Fair value recognized on acquisition |
Previous carrying value |
|
|
€ 000 |
€ 000 |
|
|
Property plant and equipment |
59,318 |
73,000 |
|
Intangible assets |
14,401 |
|
|
Inventories |
13,183 |
10,600 |
|
Other receivables |
98 |
|
|
87,000 |
||
|
Provisions and liabilities |
(2,669) |
|
|
84,331 |
||
|
Deferred taxes |
(15,349) |
|
|
Net assets acquired |
68,982 |
|
|
Consideration paid |
28,050 |
|
|
Consideration accrued |
3,900 |
|
|
Costs directly attributable to the acquisition |
2,773 |
|
|
Net acquisition cost |
34,723 |
|
|
Gain on acquisition |
34,259 |
|
|
Deferred taxes recognised in prior period |
467 |
|
|
Gain recognised on acquisition |
34,726 |
The previous carrying value stated above is the unaudited net book value at which the assets acquired were recorded in the accounting records of Papierfabrik Scheufelen immediately prior to their acquisition by Powerflute. The Group's investment in Scheufelen at 31 December 2008 was € 25,295,000 which was recognised in the financial statements as a prepayment for acquisition within non-current assets.
The excess of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over their cost amounted to € 34,726,000 which has been reported within operating profit as a gain recognised on acquisition.
Papierfabrik Scheufelen filed for insolvency protection in July 2008. In October 2008, following a competitive sale process during which the business was actively marketed for sale by an Administrator appointed by the creditors of Scheufelen, Powerflute reached agreement to acquire the business and assets of Scheufelen, but not the liabilities. The total acquisition cost was € 34.7m. It is our understanding that no other serious bidders emerged during the sale process and that the principal alternative to acceptance of the Powerflute offer was cessation of the business and sale of the assets.
On 29 February 2008, the Group entered into an agreement with Myllykoski Corporation for the establishment of a wood procurement joint venture to be known as Harvestia Oy ("Harvestia") in which the Group holds a 33% interest. In April 2009, the Group made a further investment of € 308,000 in Harvestia's reserve for invested non-restricted equity. The joint venture is accounted for using the equity method and at 30 June 2009 the carrying value of the investment was € 1,079,000 (30 June 2008 - € 194,000, 31 December 2008 - € 610,000).
5. Segmental information
For management purposes, the Group is organized into business units based upon the products and services which it supplies. There are currently three reportable operating segments: Graphic Papers, Packaging Papers and Central. Graphic Papers is involved in the production and sale of coated woodfree papers for use in premium-quality printing applications. Packaging Papers is involved in the production and sale of Nordic semi-chemical fluting for use in premium-grade corrugated-box applications. Central includes the cost of corporate and other central services. No operating segments have been aggregated to form the above reportable operating segments.
Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. The principal measure used to monitor and evaluate segmental performance is earnings before interest, tax, depreciation and amortisation ("EBITDA").
Transfer prices between operating segments are on an arm's-length basis in a manner similar to transactions with third parties.
|
Six months ended 30 June 2009 |
Graphic Papers |
Packaging Papers |
Central |
Adjustments and eliminations |
Total |
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
€ 000 |
|
|
Revenue |
|||||
|
Third party |
84,719 |
35,688 |
- |
- |
120,407 |
|
Inter-segment |
- |
- |
- |
- |
- |
|
Total revenue |
84,719 |
35,688 |
- |
- |
120,407 |
|
Results |
|||||
|
Segment EBITDA profit/(loss) |
8,046 |
(505) |
(1,903) |
- |
5,638 |
|
Gain on acquisition |
34,726 |
||||
|
Depreciation and amortisation |
(6,496) |
||||
|
Operating profit |
33,868 |
||||
|
Finance income |
19 |
||||
|
Finance expenses |
(2,450) |
||||
|
Profit before taxation |
31,437 |
|
Six months ended 30 June 2008 |
Graphic Papers |
Packaging Papers |
Central |
Adjustments and eliminations |
Total |
|
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
€ 000 |
||
|
Revenue |
||||||
|
Third party |
- |
55,555 |
- |
- |
55,555 |
|
|
Inter-segment |
- |
- |
- |
- |
- |
|
|
Total revenue |
- |
55,555 |
- |
- |
55,555 |
|
|
Results |
||||||
|
Segment EBITDA profit/(loss) |
- |
8,939 |
(1,608) |
- |
7,331 |
|
|
Depreciation and amortisation |
(2,703) |
|||||
|
Operating profit |
4,628 |
|||||
|
Finance income |
76 |
|||||
|
Finance expenses |
(1,154) |
|||||
|
Profit before taxation |
3,550 |
|||||
|
Segment assets |
Graphic Papers |
Packaging Papers |
Central |
Adjustments and eliminations |
Total |
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
€ 000 |
|
|
At 30 June 2009 |
98,350 |
81,247 |
- |
(18,277) |
161,320 |
|
At 31 December 2008 |
25,295 |
79,949 |
- |
- |
105,244 |
6. Operating profit
The following items of unusual nature, size or incidence have been recognized in operating profit during the period:
|
Six months ended 30 June |
||
|
2009 |
2008 |
|
|
€ 000 |
€ 000 |
|
|
Gain on acquisition |
34,726 |
- |
|
Costs associated with landfill remediation |
- |
392 |
7. Income tax expense
Income tax is recognized based upon management's best estimate of the weighted average annual income tax rate expected for the full financial year.
Major components of income tax expense in the interim consolidated income statement are:
|
Six months ended 30 June |
||
|
2009 |
2008 |
|
|
€ 000 |
€ 000 |
|
|
Current income tax |
3,181 |
1,636 |
|
Deferred income tax |
(3,912) |
(626) |
|
Income tax expense (gain) |
(731) |
1,010 |
8. Earnings per share
Basic earnings per share is calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated in accordance with the requirements of IAS 33 - Earnings per share, by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all the dilutive ordinary shares into ordinary shares.
|
Six months ended 30 June |
||
|
2009 |
2008 |
|
|
€ 000 |
€ 000 |
|
|
Net profit attributable to ordinary equity holders of the parent |
32,168 |
2,540 |
|
Thousands |
Thousands |
|
|
Weighted average number of shares for Basic Earnings per Share |
144,818 |
88,000 |
|
Effect of dilution: |
||
|
Share options |
- |
- |
|
Weighted average number of shares adjusted for dilution |
144,818 |
88,000 |
On 28 April 2009, the Annual General Meeting granted authority to the Board of Directors to decide on the repurchase of up to a maximum of 14,000,000 of the Company's own shares pursuant to Chapter 15, Section 5(2) of the Finnish Companies Act by using funds in the unrestricted shareholders' equity. The proposed amount of shares corresponds to approximately 9.7% of all shares and votes of the Company. The authority is effective until 30 June 2010.
The Annual General Meeting also granted authority to the Board of Directors to resolve on the issue of up to 40,000,000 new ordinary shares through a share issue or granting of options or other special rights of entitlement to shares pursuant to Chapter 10, Section 1 of the Finnish Companies Act. The Board was granted the authority to use up to a maximum of 10,000,000 of the new ordinary shares available for issue under this authority for the purposes of setting up a new share-based incentive scheme for the personnel of the group or for the Company's directors. The authority is effective until 30 June 2010.
9. Property, plant and equipment
In addition to the acquisition of Papierfabrik Scheufelen (see Note 4), the Group acquired assets with a cost of € 2,276,000 during the six months ended 30 June 2009 (2008: € 4,970,488).
10. Derivative Financial Instruments
|
Cash flow hedges in other comprehensive income |
|||
|
30 June 2009 |
30 June 2008 |
||
|
€ 000 |
€ 000 |
||
|
Net of tax: |
|||
|
Gains/(losses) arising during the year |
547 |
1,709 |
|
|
Less reclassification adjustments for gains/(losses) included in the income statement |
(52) |
- |
|
|
495 |
1,709 |
||
|
As at 30 June 2009 |
As at 30 June 2008 |
||||
|
Assets |
Liabilities |
Assets |
Liabilities |
||
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
||
|
Forward foreign exchange contracts |
- |
- |
- |
- |
|
|
Commodity derivatives |
- |
900 |
2,309 |
- |
|
|
Total |
- |
900 |
2,309 |
- |
|
|
Less: non-current portion |
|||||
|
Forward foreign exchange contracts |
- |
- |
- |
- |
|
|
Commodity derivatives |
- |
186 |
1,067 |
- |
|
|
- |
186 |
1,067 |
- |
||
|
Current Portion |
- |
714 |
1,242 |
- |
|
Derivative financial instruments are recorded on the balance sheet at fair value.
Hedge accounting has been applied to commodity derivatives. Gains and losses arising on commodity derivatives are recognized in the hedging reserve in equity and are recognized in the income statement during the period or periods in which the hedged forecast transaction affects the income statement. This is generally within 12 to 36 months of the balance sheet date.
11. Share-based payments
On 15 June 2009, Don Coates resigned from his position as Chief Executive Officer and as a Director of Powerflute Oyj. Under the rules of the Powerflute Stock Option Plan ("PSOP"), Mr Coates is obliged to surrender his entitlement to share options. This has been accounted for as a cancellation in accordance with IFRS 2 Share-based Payments and the resulting gain of € 449,000 has been recognised in full during the period ended 30 June 2009. The net gain resulting from all share-based payments amounted to € 140,000.
12. Borrowings and loans
|
As at |
|||
|
30 June 2009 |
30 June 2008 |
31 December 2008 |
|
|
€ 000 |
€ 000 |
€ 000 |
|
|
Non-current |
42,724 |
26,148 |
44,449 |
|
Current |
10,302 |
4,164 |
7,064 |
|
53,026 |
30,312 |
51,513 |
|
Movements in borrowings are analysed as follows:
|
€ 000 |
|||
|
Six months ended 30 June 2008 |
|||
|
Opening amount as at 1 January 2008 |
32,356 |
||
|
Repayment of loans from financial institutions |
(2,000) |
||
|
Change in other interest bearing liabilities |
(44) |
||
|
Closing amount as at 30 June 2008 |
30,312 |
||
|
Six months ended 30 June 2009 |
|||
|
Opening amount as at 1 January 2009 |
51,513 |
||
|
Repayment of loans from financial institutions |
(3,375) |
||
|
Change in other interest bearing liabilities |
4,888 |
||
|
Closing amount as at 30 June 2009 |
53,026 |
The Group has sufficient working capital and financing facilities to service its operating activities and to meet its requirements for capital investment in continuing activities.
13. Dividends
There were no dividends paid related to the period 31 December 2008. A dividend of € 2,962,000 that related to the period to 31 December 2007 was paid in April 2008.
14. Related Party Transactions
Certain of the Group's directors and members of its executive management team have significant beneficial and non-beneficial interests in the ordinary share capital of the Group. Full details of these interests are disclosed in the annual financial statements for the year ended 31 December 2008.
a) Transactions with related parties
Savon Sellu Oy, a subsidiary of Group, purchases a proportion of its raw materials from Harvestia Oy. The goods are purchased on normal market terms.
|
Sales to related parties |
Purchases from related parties |
Amounts owed by related parties |
Amounts owed to related parties |
||
|
€ 000 |
€ 000 |
€ 000 |
€ 000 |
||
|
Joint venture Harvestia Oy |
|||||
|
2009 |
3 |
7,504 |
550 |
1,370 |
|
|
2008 |
- |
- |
- |
- |
b) Key management compensation
Key management compensation for the six months ended 30 June 2009 amounted to € 1,335,000 (2008 - € 1,109,000) analysed as follows:
|
Six months ended 30 June |
||
|
2009 |
2008 |
|
|
€ 000 |
€ 000 |
|
|
Salaries and other short term benefits |
928 |
421 |
|
Directors' fees |
190 |
123 |
|
Other fees and benefits |
357 |
231 |
|
Share-based payments |
(140) |
334 |
|
1,335 |
1,109 |
|
c) Directors' interest in employee share incentive plans
The share options held by executive members of the Board of Directors providing entitlement to purchase ordinary shares have the following expiry dates and exercise prices:
|
Number outstanding |
|||||
|
Issue date |
Expiry date |
Exercise price |
30 June 2009 |
30 June 2008 |
|
|
Thousands |
Thousands |
||||
|
3 May 2007 |
31 May 2012 |
£1.10 |
2,640 |
4,400 |
|
15. Events occurring after the balance sheet date
There were no material events occurring after the balance sheet date.
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
Introduction
We have reviewed the accompanying condensed consolidated interim financial information of Powerflute Oyj ("Powerflute" or "the Company") for the six months ended 30 June 2009, consisting of the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Cash Flow Statement, together with related Notes 1 to 15. We have read the other information contained in the interim financial information and considered whether it contains any apparent misstatements or material inconsistencies.
This report is made solely to the Company. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The interim financial information is the responsibility of and has been approved by the Directors of Powerflute. The Directors are responsible for preparing the interim financial information in accordance with IAS 34 - Interim Financial Reporting and using accounting policies consistent with those applied in preparing the preceding annual financial statements except where any changes and the reasons for them are disclosed. Our responsibility is to express a conclusion on the interim financial information based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34.
Without qualifying our conclusion we draw attention to Note 4 to the financial statements. The purchase price allocation of tangible and intangible assets is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase.
ERNST & YOUNG OY Authorised Public Accountants 29 July 2009
Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area.
Related Shares:
POWR.L