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UPDATE - Active Energy Group hit by short-term problems

Demand from its customers in Turkey remains extremely high but a couple of one-off issues mean full-year profits will be significantly below expectations.

Active Energy is the largest producer and exporter of processed wood products for the Turkish MDF market.


Active Energy Group (LON:AEG) is bracing itself for a tough second half to the year as a result of market pressures and now-resolved production issues.

Full-year profits could well be significantly below current market expectations, the Ukraine-focused supplier of wood fibre productions for medium density fibreboard (MDF) and biomass power producers warned.

The company said that while half-year results should be roughly in line with management’s expectations, market pressures and production issues have affected the outlook for the second half of the year.

The market pressures were triggered by a change in the law in Ukraine, banning the export of unprocessed wood from the country, causing a spike in the price of local timber. The pressures have now eased, and prices have returned to pre-spike levels, but the period of artificially high prices has had an adverse impact on Active Energy’s margins in July and August.

“The spike happened, but as of this week we’re actually paying the cheapest rates we’ve paid in two years,” chief executive officer Richard Spinks revealed in an interview with Proactive Investors, emphasising that the raw material price increase was a blip. If the rumoured end to the moratorium on exports of Bulgarian timber is lifted, then prices could drop even further.

Meanwhile, and as previously announced by the company, the company has suffered delays in new production facilities coming online.

Active Energy said the existing equipment has not been operating at full capacity over the last six weeks due to mechanical breakdowns, but a major overhaul of the equipment appears to have rectified the problems.

The company has been using mobile equipment, and even though these are the biggest mobile machines money can buy it still puts a strain on them when processing hardwood, Spinks explained.

Very soon, the company will be installing stationary machines, “which will chew logs until the cows come home,” Spinks predicted.

The group said production and shipping levels at its Ukraine operations were broadly in line with expectations in the first half of the year, rising to 103,733 tonnes from 61,185 tonnes in the first six months of last year, and demand for hardwood and softwood wood chip from the group’s Turkish MDF manufacturing customers remains “extremely high”, Active Energy said.

"Whilst raw material market conditions and recent production issues will inevitably impact upon the profitability of the group's Ukrainian operations in the second half of 2015, my co-directors and I remain very optimistic about the long-term prospects for this area of AEG's business," Spinks told investors.

"Demand from the Turkish MDF manufacturing sector, which is the largest in Europe, continues to grow, and the group has in the past three years established an excellent reputation for the quality, speed and cost-effectiveness of its Black Sea wood chip supply route. Once our new production facilities are fully operational we will be in an even stronger position to satisfy our existing customers’ requirements and expand upon our already considerable market share," Spinks added.

 Shares in AEG tumbled as low as 4.78p at one stage but by late afternoon had recovered to 5.75p, down 0.5p on the day.

Quick facts: Active Energy Group PLC

Price: 0.65 GBX

Market: LSE
Market Cap: £7.86 m

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