FY15 results came in slightly above the €53-55m EBITDA range flagged in a December IMS, with both divisions performing well and with favourable FX rates contributing a €7.7m y-o-y benefit also. Group PBT almost trebled with a higher mix-related tax rate diluting this to a c 250% uplift at the EPS level and Powerflute declared a doubling of the full-year dividend. Strong profitability fed into a strong cash performance and FY15 ended with net debt at €37.1m, c €24m down on the year before. Despite some noted headwinds, management anticipates another successful year in FY16.
Exhibit 1: Powerflute divisional & interim splits
€m |
H1 |
H2 |
2014 |
H1 |
H2 |
2015 |
|
% chg
y-o-y |
% chg
y-o-y |
|
|
|
|
|
|
|
|
H1 |
FY |
Group revenue |
72.7 |
77.4 |
150.1 |
179.7 |
177.5 |
357.2 |
|
147.2 |
137.9 |
Packaging Papers |
72.7 |
61.7 |
134.4 |
74.4 |
69.6 |
144.0 |
|
2.4 |
7.2 |
Cores & Coreboard |
|
15.8 |
15.8 |
105.3 |
107.9 |
213.2 |
|
N/M |
N/M |
|
|
|
|
|
|
|
|
|
|
Group EBITDA* |
10.5 |
11.5 |
22.0 |
26.5 |
29.8 |
56.4 |
|
152.2 |
156.2 |
Packaging Papers |
10.5 |
9.3 |
19.8 |
14.3 |
15.8 |
30.1 |
|
35.7 |
51.9 |
Cores & Coreboard |
|
2.2 |
2.2 |
12.3 |
14.0 |
26.3 |
|
N/M |
N/M |
Depreciation |
-2.8 |
-3.2 |
-5.9 |
-4.7 |
-4.5 |
-9.2 |
|
|
|
Amortisation |
-0.0 |
-0.1 |
-0.1 |
-0.3 |
-0.4 |
-0.7 |
|
|
|
Group operating profit* |
7.7 |
8.2 |
15.9 |
21.5 |
24.9 |
46.4 |
|
178.8 |
191.1 |
Source: Powerflute, Edison Investment Research. Note: *Includes associates but excludes non-recurring expenses, financial instrument gains/losses and share-based payments.
Packaging Papers (Savon Sellu): macro conditions were particularly favourable in FY15 with good demand in several segments, a favourable y-o-y FX hedge (progressive US dollar strength against the euro) and constrained competitive supply. This resulted in firm pricing for most of the year, on average c 4% ahead of FY14, being more pronounced in H2 as seasonal softening occurred much later and FX effects increased. In this context, record production and deliveries (273,000 +6.2% and 267,000 +3.1% respectively) were well timed and reflected a plant upgrade programme executed in recent years. The outcome was revenue growth of c 7%. Significantly, there was no obvious drag from the pulp mill upgrade and annual maintenance shutdown that took place in H2. The implicit improvement in profit per tonne was also facilitated by lower average unit costs from stable input prices, lower energy consumption offsetting modest wage inflation and a flat fixed-cost profile. We should caution that margin comparisons with the prior year are of limited applicability due to a larger (unspecified) allocation of central costs to Corenso in FY15. For the record, Savon Sellu achieved a 20.9% EBITDA margin in the year, with H2 exceeding that in H1 (22.7% and 19.2% respectively).
Cores & Coreboard (Corenso): Corenso’s material maiden full-year contribution was actually a slightly higher percentage of the group than at the half year stage, even with a strong Savon Sellu performance. Regional market conditions were mixed but generally reasonable overall; coreboard mill volumes grew in France and the US (but were lower in Finland), while core conversion operations experienced competitive pricing pressures to varying degrees in the North American, European and Chinese markets. On a l-f-l basis full year revenue increased by c 9%, primarily due to pricing and FX effects on modestly positive overall volumes (coreboard +1.3%, cores -1.0%). Excluding non-recurring costs, the EBITDA margin was 12.3% (after central costs), again showing improvement in H2. This is understood to be modestly ahead of the prior year on a l-f-l basis. Some €4m exceptional costs were separately identified, relating to restructuring (€1.6m, reducing headcount in German and US core operations) and the integration of Corenso (€2.4m, during a transition phase of support functions). Understandably, these actions took precedence and capex in the year was comparatively low as a result (€2.7m including €1.5m on plant & equipment and €1.2m on IT systems) compared to a normal anticipated run rate of €5-6m pa. The integration is understood to be substantially complete and no further non-recurring costs are expected in FY16.
Strong cash performance and net debt reduction
Powerflute ended FY15 with net debt of €37.1m following a cash inflow of c €24m in the year. The inclusion of Corenso profitability was the key driver in absolute terms and relative to the previous year. Underlying EBITDA increased by c €33m compared to FY14 and most of this was uplift was retained at the trading cash flow level (even after the €4m post-acquisition, non-recurring costs referred to earlier). Working capital was a modestly positive contributor to cash inflow in both years; Corenso does not appear to have introduced any major variability to year-end reporting. We believe that its working capital profile is more even than the seasonal swing seen in Savon Sellu and, hence, has the effect of reducing overall group variation during the year.
Further down the cash flow statement, increased cash tax, a minority dividend payment and raised capex also reflected the full-year effect of Corenso. Group capex came in at €11m (versus €5.7m in FY14) and was biased towards Savon Sellu and, in particular, the pulp plant project undertaken in H2. After these items, at free cash flow level Powerflute generated an inflow of €24.5m (almost €18m up y-o-y). In FY15, disposal proceeds (the sale of a stake in Kotkamills, announced in H1) and increased dividend payment almost offset each other, leaving the net cash inflow of c €24m as described earlier. (In the previous year, the €73m Corenso acquisition consideration was the prime driver of the group’s move into a net debt position at the end of FY14.) Overall, Powerflute delivered FY15 cash inflow some €8m higher than we had expected, predominantly driven by the EBITDA outperformance with other smaller variations largely offsetting each other.
Having integrated Corenso, the expectation is that capex will rise to €5-6m pa for this business, in line with that for Savon Sellu. There may be additional investment in core conversion capacity in China, although this may be made via a JV investment. The absence of integration costs will benefit FY16 cash flow, although the declared dividend increase in FY15 will result in additional cash outflow at or slightly above this level. Overall, we expect Powerflute to generate in excess of €20m cash inflow in the current year, leading to a further sharp reduction in net debt to c €16m, equivalent to less than one-third of EBITDA.
Estimates raised, but some caution versus FY15 conditions
Against our last published estimates in November, we have increased our expected EBITDA for FY16 and FY17 by 8.5% and 6.5% respectively, chiefly due to a stronger Corenso contribution. Factoring in lower net interest costs, these changes translate to good double-digit increases in our PBT and EPS estimates. That said, we have taken a cautious stance compared to the FY15 result – acknowledging the favourable market and FX conditions in that year. Hence, we expect a slightly lower outturn in FY16 – mainly the result of assuming slightly lower pricing in Savon Sellu – before incremental progress in FY17 and again in our new FY18 estimate.
Exhibit 2: Powerflute estimate revisions
|
EPS (c) |
PBT (€m) |
EBITDA (€m) |
|
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
2015 |
8.1 |
9.8 |
+21.0% |
33.6 |
39.7 |
+18.2% |
48.9 |
56.1 |
+14.7% |
2016e |
7.9 |
8.6 |
+8.9% |
32.8 |
36.0 |
+9.8% |
48.4 |
52.5 |
+8.5% |
2017e |
7.9 |
8.8 |
+11.4% |
32.9 |
36.6 |
+11.2% |
48.5 |
52.7 |
+8.7% |
2018e |
N/A |
9.0 |
N/A |
N/A |
37.3 |
N/A |
N/A |
53.0 |
N/A |
Source: Edison Investment Research
Powerflute’s doubling of the full year dividend was well ahead of our expectation (ie 3c declared, we had anticipated 2c). This was covered 3.5x by earnings. Having successfully integrated Corenso with both divisions performing well and a good group cash flow profile, we now assume c 5% annual dividend growth over our estimate horizon.
Exhibit 3: Financial summary
|
|
€'000s |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
Year end 31 December |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
Continuing |
Continuing |
Continuing |
Continuing |
Continuing |
Continuing |
Continuing |
Continuing |
Revenue |
|
|
310,577 |
121,474 |
113,083 |
129,367 |
150,135 |
357,204 |
362,136 |
369,257 |
376,575 |
EBITDA |
|
|
12,392 |
17,288 |
12,996 |
17,653 |
22,348 |
56,144 |
52,471 |
52,721 |
52,970 |
Operating Profit (before GW and except.) |
3,383 |
12,792 |
8,236 |
12,439 |
16,300 |
46,209 |
41,671 |
41,721 |
41,970 |
Other |
|
|
(31) |
(318) |
(659) |
(263) |
(690) |
(185) |
(396) |
(396) |
(396) |
Intangible Amortisation |
|
|
(2,432) |
(47) |
(22) |
(26) |
0 |
0 |
0 |
0 |
0 |
Operating Profit |
|
|
920 |
12,427 |
7,555 |
12,150 |
15,610 |
46,024 |
41,275 |
41,325 |
41,574 |
Net Interest |
|
|
(4,164) |
(1,910) |
(588) |
(892) |
(1,540) |
(4,342) |
(4,000) |
(3,500) |
(3,000) |
Other finance |
|
|
0 |
0 |
0 |
0 |
(739) |
(1,996) |
(1,231) |
(1,231) |
(1,231) |
Exceptionals |
|
|
(31,443) |
2,134 |
(627) |
(1,209) |
(4,763) |
(1,938) |
0 |
0 |
0 |
Profit Before Tax (norm) |
|
|
(812) |
10,564 |
6,989 |
11,284 |
13,331 |
39,686 |
36,044 |
36,594 |
37,343 |
Profit Before Tax (FRS 3) |
|
|
(34,687) |
12,651 |
6,340 |
10,049 |
8,568 |
37,748 |
36,044 |
36,594 |
37,343 |
Tax |
|
|
11,288 |
(2,594) |
(1,699) |
(1,963) |
(2,310) |
(10,523) |
(10,092) |
(10,246) |
(10,456) |
Minorities |
|
|
0 |
0 |
0 |
0 |
(119) |
(1,414) |
(1,414) |
(1,414) |
(1,414) |
Profit After Tax (norm) |
|
|
10,476 |
7,970 |
5,290 |
9,321 |
10,903 |
27,749 |
24,538 |
24,934 |
25,473 |
Profit After Tax (FRS 3) |
|
|
(23,399) |
10,057 |
4,641 |
8,086 |
6,140 |
25,811 |
24,538 |
24,934 |
25,473 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
176.1 |
289.8 |
286.8 |
286.6 |
284.1 |
284.1 |
284.1 |
284.1 |
284.1 |
EPS - normalised (c) |
|
|
0.5 |
2.8 |
1.8 |
3.3 |
3.8 |
9.8 |
8.6 |
8.8 |
9.0 |
EPS - FRS 3 (c) |
|
|
(13.3) |
3.5 |
1.6 |
2.8 |
2.2 |
9.1 |
8.6 |
8.8 |
9.0 |
Dividend per share (c) |
|
|
1.0 |
1.3 |
1.3 |
1.4 |
1.5 |
3.0 |
3.2 |
3.3 |
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin (%) |
|
|
4.0 |
14.2 |
11.5 |
13.6 |
14.9 |
15.7 |
14.5 |
14.3 |
14.1 |
Operating Margin (before GW and except.) (%) |
|
1.1 |
10.5 |
7.3 |
9.6 |
10.9 |
12.9 |
11.5 |
11.3 |
11.1 |
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
70,317 |
37,866 |
47,817 |
46,368 |
114,213 |
119,386 |
120,586 |
121,586 |
122,586 |
Intangible Assets |
|
|
4,848 |
77 |
80 |
385 |
7,317 |
6,911 |
6,225 |
5,539 |
4,853 |
Tangible Assets |
|
|
58,824 |
35,522 |
38,942 |
40,612 |
99,240 |
105,589 |
107,475 |
109,161 |
110,847 |
Investments |
|
|
6,645 |
2,267 |
8,795 |
5,371 |
7,656 |
6,886 |
6,886 |
6,886 |
6,886 |
Current Assets |
|
|
88,115 |
79,266 |
66,873 |
76,510 |
149,884 |
166,592 |
184,106 |
200,571 |
217,195 |
Stocks |
|
|
29,733 |
12,665 |
11,871 |
16,479 |
36,480 |
38,974 |
39,542 |
40,289 |
41,059 |
Debtors |
|
|
39,699 |
20,996 |
19,935 |
31,138 |
65,935 |
68,400 |
69,148 |
70,229 |
71,339 |
Cash |
|
|
18,683 |
45,605 |
35,067 |
28,893 |
47,469 |
59,218 |
75,416 |
90,053 |
104,797 |
Current Liabilities |
|
|
(69,692) |
(39,011) |
(48,610) |
(43,355) |
(67,525) |
(77,346) |
(84,553) |
(90,549) |
(96,622) |
Creditors |
|
|
(49,540) |
(27,970) |
(27,467) |
(31,809) |
(65,129) |
(73,128) |
(80,335) |
(86,331) |
(92,404) |
Short term borrowings |
|
|
(20,152) |
(11,041) |
(21,143) |
(11,546) |
(2,396) |
(4,218) |
(4,218) |
(4,218) |
(4,218) |
Long Term Liabilities |
|
|
(35,919) |
(19,589) |
(7,147) |
(16,248) |
(118,454) |
(106,774) |
(102,274) |
(97,774) |
(93,274) |
Long term borrowings |
|
|
(27,612) |
(15,500) |
(3,000) |
(12,205) |
(106,549) |
(92,078) |
(87,578) |
(83,078) |
(78,578) |
Other long term liabilities |
|
|
(8,307) |
(4,089) |
(4,147) |
(4,043) |
(11,905) |
(14,696) |
(14,696) |
(14,696) |
(14,696) |
Net Assets |
|
|
52,821 |
58,532 |
58,933 |
63,275 |
78,118 |
101,858 |
117,865 |
133,834 |
149,885 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
16,272 |
19,217 |
14,956 |
10,692 |
18,876 |
48,712 |
51,698 |
51,609 |
51,826 |
Net Interest |
|
|
(5,029) |
(2,441) |
(576) |
(838) |
(4,683) |
(4,342) |
(4,000) |
(3,500) |
(3,000) |
Tax |
|
|
(9) |
(4) |
(1,663) |
(4,613) |
(1,678) |
(6,267) |
(5,056) |
(6,592) |
(6,746) |
Capex |
|
|
(7,011) |
(7,689) |
(8,205) |
(7,215) |
(5,720) |
(11,028) |
(12,000) |
(12,000) |
(12,000) |
Acquisitions/disposals |
|
|
(662) |
31,513 |
(5,137) |
(60) |
(73,036) |
3,696 |
0 |
0 |
0 |
Financing |
|
|
19,607 |
(1,282) |
(1,735) |
0 |
0 |
0 |
0 |
0 |
0 |
Dividends |
|
|
0 |
(2,898) |
(3,768) |
(3,694) |
(3,836) |
(4,262) |
(8,695) |
(9,129) |
(9,586) |
Other |
|
|
0 |
0 |
0 |
0 |
0 |
(2,560) |
(1,250) |
(1,250) |
(1,250) |
Net Cash Flow |
|
|
23,168 |
36,416 |
(6,127) |
(5,728) |
(70,077) |
23,949 |
20,698 |
19,137 |
19,244 |
Opening net debt/(cash) |
|
|
52,095 |
29,081 |
(19,064) |
(10,924) |
(5,142) |
61,476 |
37,078 |
16,380 |
(2,757) |
HP finance leases initiated |
|
|
(347) |
(226) |
(106) |
(88) |
(37) |
(23) |
0 |
0 |
0 |
Other |
|
|
193 |
11,955 |
(1,907) |
34 |
3,496 |
472 |
0 |
0 |
0 |
Closing net debt/(cash) |
|
|
29,081 |
(19,064) |
(10,924) |
(5,142) |
61,476 |
37,078 |
16,380 |
(2,757) |
(22,001) |
Source: Company accounts, Edison Investment Research
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