Re Contract

RNS Number : 6326Z

Active Energy Group PLC

10 February 2014

 



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

Announces Third Turkish MDF Supply Contract Win in 2014

and New Port and Logistics Operations Agreement to

Improve Efficiencies, Reduce Overheads and Increase Margins

Active Energy Group, the pan-European supplier of high-quality wood chip and associated timber products for MDF manufacturing and green energy Biomass power generation, is pleased to announce that on 7 February 2014 it concluded two important commercial developments for the Group:

·     Firstly, the Group has won another new contract to supply its high-grade MDF-quality wood chip to Kastamonu Entegre A.S., one of Turkey's leading MDF manufacturers. This follows the announcement on 13 January 2014 of two other supply contract wins with major Turkish MDF manufacturers.

·     AEG has also entered into an important full-service logistics agreement with TransInvest Service (TIS), designed to streamline its port and loading operations to handle the considerable uplift in demand being experienced for its MDF-quality wood chip. 

The benefits accruing to the Group from these new arrangements are expected to deliver significant improvements to its loading and delivery capabilities, while simultaneously improving operating efficiencies aimed at driving down processing costs.

Kastamonu Entegre MDF-Quality Wood Chip Supply Contract

Under the contract with Kastamonu Entegre, AEG has agreed to supply approximately 87,000 metric tonnes of high grade MDF-quality wood chip during 2014, which is expected to generate additional revenues of approximately US$9 million.

Last month, the Company announced that it had secured similar contracts with two other leading Turkish MDF manufacturers. Therefore, in the first six weeks of 2014, AEG has secured new contracts to supply approximately 315,000 metric tonnes of wood chip for MDF manufacturing, which is expected to generate approximately US$33 million in FY2014.

This further underlines the strength of demand from the Turkish MDF market, which primarily imports wood chip from across the Atlantic.  AEG has been successful in demonstrating to the major Turkish MDF manufacturers its ability to consistently manage regular, high-volume shipments across the Black Sea to Turkish ports and, as importantly, that the reduced shipping times and distances enable it to deliver fresher and higher-quality product.  Turkey is the leading producer of MDF in Europe and therefore represents an excellent opportunity for continuing growth.

TransInvest Service Port & Logistics Operations Agreement

The new full-service logistics agreement with TIS, owners of Yuzhny Port, the second largest port in Ukraine (which handled over 20 million tonnes of cargo shipments in 2013) will enable the Group to consolidate all of its MDF-quality wood chip production and shipping operations into a single dockside facility at Yuzhny Port, near Odessa on the Black Sea coast. 

Yuzhny Port offers AEG and its customers several key advantages over the Company's previous facilities at the Mykolaiv river ports.  Its deep-water berths are located directly on the Black Sea, eliminating the costs and delays necessitated by icebreaking during winter, removing the need for river channel navigation charges, pilotage and passage demurrage fees, and - most importantly - reducing shipping times by two days.  These factors alone are expected to have a beneficial impact on the Company's trading activities and gross margins.

Yuzhny also boasts one of the largest rail terminals in the region, which handles in excess of 1,500 cargo wagons each day.  Under the agreement with AEG, TIS has assumed responsibility for unloading all raw materials (cut logs) arriving by train from the Company's forestry suppliers, delivering them to the Company's exclusive dockside processing facilities within the port area, and preparing the wagons for re-use.  This relieves AEG of a number of time-consuming and labour-intensive tasks, while also insulating it from wagon demurrage fees, a virtuous combination which will further improve operating margins.

Finally, TIS will also handle all aspects of loading of the finished wood chip into AEG's bulk cargo vessels for export across the Black Sea to MDF manufacturing customers in Turkey, ensuring that the Company maximises its shipping volumes per delivery, whilst reducing costs and allowing it to focus on its procurement and production operations.

Richard Spinks, Active Energy Group CEO, commented: "Securing these important new relationships with internationally-renowned partners represents a major strategic development for AEG's business."

"The Group is on now track to produce and deliver approximately 475,000 tonnes of wood chip in 2014 for both the MDF manufacturing and Biomass fuel markets, a considerable uplift over the 80,000 tonnes that we achieved in the last six months of 2013 via our legacy port operations."

"The full-service logistics agreement with TransInvest Service - which, to support our activities, is further upgrading its facilities, including installing new loading equipment at our dedicated berth in Yuzhny Port - will ensure that we optimise the speed and efficiency of our operations and reduce our fixed overheads; enabling us to focus our finances, equipment and personnel resources on our core business activities."

"I am confident that combining our expertise in procurement and processing with the professionalism and proven experience of our new partners in high-volume cargo handling and shipping, the Company is ideally-positioned to grow even further, and I am delighted to be able to bring this news to our shareholders and the wider investor market."

Enquiries:

Active Energy Group plc
Richard Spinks, Chief Executive Officer                                                 Tel: [phone]

WH Ireland (Nominated Adviser and Broker)    
Chris Fielding                                                                                                    Tel: [phone]

Novella Communications
Tim Robertson / Ben Heath                                                                         Tel: [phone]

About Active Energy Group:

·   Company website: www.active-energy.com

·   Active Energy Group Plc, a London Stock Exchange-listed company (AIM: AEG), is a pan-European supplier of high quality woodchip and associated timber products for MDF manufacturing and green energy Biomass power generation.

·   The Group is led by a highly experienced and dedicated management team with a proven track record of working in the regions in which its operations are based.

·   In June 2013, AEG acquired its major trading partner and raised in excess of £3 million to facilitate future growth and expansion of its production and shipping facilities.

·   Ukraine, with its large forestry reserves and comprehensive road, rail and sea transport links, is an ideal location from which to source raw timber and supply MDF manufacturers and European Biomass energy producers.

·   Turkish MDF Market:

o  Turkey is the leading producer of MDF in Europe, producing an estimated 4.3 million m³ in 2012, in six plants around the country.

o  Currently, around 69% of the wood chip imported by Turkey comes from across the Atlantic; all of this volume was for production of wood-based panels, primarily MDF.  AEG has established relationships with all of the major players in the Turkish MDF market.

o  By contrast, high-quality woodchip from AEG's ports in Ukraine can be transported in approximately one-tenth of the time required for the US, Canadian and Latin American supply chain, representing cost-savings, client-side cashflow advantages and considerably fresher and higher-quality product.

·   European Biomass Market:

o  EU directives are greatly accelerating 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.

o  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 solid Biomass.

o  Bioenergy is expected to account for over 50% of EU renewable energy, according to a European Commission directive on National Renewable Energy Action Plans.

 

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