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UPDATE - Active Energy's trading hit by Ukraine conflict; expects to break-even for full year



Active Energy Group (LON:AEG), which provides woodchip for MDF and biomass products, posted its first ever operating profit in its latest quarter but said profitability was hit by the conflict in Ukraine.

The three months to end September was the first period that showed the positive effects of its acquisition, announced in June, of Nikofeso - a Ukrainian wood processing and distribution group, the company said.

The company also highlighted that it had renegotiated its financing costs from the current level of US$5 per tonne of delivered product to a lowerUS$1 per tonne with effect from March 1 next year.

In the quarter, the group produced and traded more than 63,000 metric tonnes of wood chip compared to 54,802 in Q2 - most of which was shipped from Ukraine via the Black Sea to Turkish MDF manufacturers.

Revenues in the period increased to US$6.93mln compared to US$5.89 million in the second quarter.

The company had expected significantly higher volumes in Q3 and Q4 this year but due to Ukraine stopping coal and iron shipments from the east of the country, there were port delays for all exporters.

The firm's Ukrainian operations have now been relocated to a dedicated facility on the Black Sea and new high-volume wood chipping equipment is now fully operational.

Gross margin in the third quarter was US$1.15 million - a considerable improvement over the first half 2014 figure of around US$0.55 million.

As a result, the business has almost reversed the adjusted operating loss on continued operations in the first half of around US$500,000, which the board expects will enable its core operations to, for the first time, achieve a break-even result for the full year to Dec 31, 2014, it said.

The group is seeing continued strong demand from the Turkish MDF manufacturing sector and is to focus its production resources on this market for the foreseeable future, it said.

Chief executive Richard Spinks said: "We have already fixed the gross margin position, and with improved lower financing costs in place from 1st March 2015, the additional benefits are obvious.

"That having been said, it is critical that we improve our volumes of shipments and we are actively working on achieving this, something that I am confident we will achieve in 2015. All else being equal, this bodes well for the group's overall financial position."

House broker WH Ireland today repeated its 'buy' rating on the stock and target of 6p a share.

Analyst Ian Berry said that despite the disruption to shipments, the broker continues to expect the firm to experience "rapid growth in revenue and profit in FY15 as volume increases combine with improved efficiencies and current favourable exchange rates".

The broker forecasts a pre-tax profit of US$4.7mln for full year 2015 on revenues of US$53.1mln.

Growth will partly depend upon the continued success of the firm's new operations, stability in Ukraine, and the group continuing to successfully procure raw timber, noted Berry.

Speaking to Proactive, finance director Brian Evans-Jones described the renegotiation of financing costs as "very good news", which effectively allowed the firm to engage in a payback situation.

Active Energy shares eased 3.76% to 3.20p each.

Quick facts: Active Energy Group PLC

Price: 0.75 GBX

Market: LSE
Market Cap: £9.6 m

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