Alpha Prospects Limited

Alpha Investment AEG Update
April 10, 2014

Active Energy announces
Relocation and Restructuring of Ukraine Operations
Expansion into Montenegro and Spain

Alpha Prospects Plc, the investment management company listed on the GXG Exchange, focussed on companies with fast growth and/or recovery prospects, announces that Active Energy Group (AEG), in which Alpha invested £150,000 in 2010, has today informed the market of several key commercial developments.

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, announced that:

— Further to its announcement on 10 February 2014, AEG has now successfully completed the relocation of its Ukrainian MDF wood chip operations into a single dockside facility at Yuzhny Port, near Odessa, in the south-west of the country.

— It is establishing a new processing and logistics operation in Montenegro and has signed a supply agreement with a well-established local partner, NK Energija DOO, which will enable AEG to ship BFE wood chip to its Italian power plant customers in less time and at less cost than has previously been possible from Ukraine.

— Having completed successful trials, AEG has also established a procurement and shipping centre in Spain, to source finished BFE wood chip for onward delivery to power plants in Italy.

Crucially, these arrangements have the potential to substantially reduce AEG’s overall reliance on the Ukraine as its primary source of BFE feedstock, and the company expects that these new sources are capable of being scaled-up pursuant to success of the trial cargoes. In addition, these arrangements are intended to improve operating margins and ensure a stable and flexible supply channel for the Group’s Biomass fuel business.

To enable this expansion of its operations, AEG has obtained unsecured working capital facilities of up to US$2 million from its largest shareholder.

AEG has also agreed with its Turkish MDF customers to reduce deliveries whilst the current uncertainties in Ukraine continue. The mutually-agreed supply contract revisions reflect both AEG’s and its Turkish customers’ intention to maintain and, in due course, re-build the Black Sea trade in MDF-quality wood chip, while in the meantime working together to alleviate the Group’s risk profile. The Directors of AEG are immensely grateful for this level of cooperation from the Group’s key MDF customers.

In summary, these initiatives have enabled AEG to scale back its Ukrainian operations while maintaining its Black Sea shipping channels, with the concomitant effect of reducing Ukrainian stock levels, working capital requirements, and aggregate ‘country risk’.

The Directors of AEG believe that these developments will enable AEG to:

(a) Enhance the scope, volume and profitability of its BFE wood chip operations;

(b) Reduce its operating overheads;

(c) Mitigate the scale of risks currently inherent in its Ukrainian business;

(d) Protect the long-term potential of its important Black Sea trade; and

(e) Deliver operational, service and financial improvements across all spheres of activity.

Relocation and Restructuring of Ukraine MDF Wood Chip Operations

The relocation of AEG’s Ukrainian operations to Yuzhny Port, directly located on the Black Sea coast, is expected to have a positive impact on the Company’s trading activities and gross margins.

The port owners, TransInvest Service (TIS), have assumed responsibility for all MDF wood chip logistical tasks on behalf of AEG – including receiving raw materials on rail wagons, port handling, and loading finished product into bulk cargo vessels – leaving the company to focus on procurement and production. This new arrangement has already resulted in the successful despatch from Yuzhny to a Black Sea port of a first volume shipment of wood chip to the Turkish MDF manufacturing customers.

AEG is currently expecting to despatch only single cargoes of between 6,000 and 13,500 tonnes each from Yuzhny thereby reducing volumes and risk, and intends to do so for the foreseeable future. However, it is ready to speedily resume shipping larger volumes when the political situation and trading environment in Ukraine is stabilised.

Montenegrin BFE Wood Chip Processing and Logistics Agreement

AEG has entered into a limited supply agreement with NK Energija DOO (‘NK’), the largest exporter of wood chip in Montenegro, under which NK will provide AEG with finished BFE wood chip. It is anticipated that this will result in deliveries up to 13,000 tonnes per calendar month of high-quality material for the remainder of calendar year 2014.

The agreement will enable AEG to supply BFE wood chip fuel to its Italian power plant customers from Montenegro instead of from Ukraine, reducing shipping times from five days to just one, an 80% time saving; this will considerably enhance the company’s ability to provide Biomass fuel feedstock on a fast turnaround basis.

The first shipment of a three-cargo trial was despatched on 4 April 2014 from the Port of Bar, Montenegro’s main sea port on the Adriatic coast, and discharged at Crotone port in Southern Italy one day later. A further two deliveries are expected to be completed before the end of May 2014.

Montenegro, an independent nation since 2006, is an official candidate for membership of the European Union, enjoys a stable democracy and growing economy, and is classified by the World Bank as a middle-income country. Some 46.5% of its land area is forested, and it has an extensive coast on the Adriatic Sea, making it an ideal location from which to supply AEG’s Southern European markets.

NK has access to significant quantities of raw timber feedstock, employs a skilled workforce, and has established a proven forest-to-port logistics infrastructure. It has historically shipped an average of 60,000 tonnes of wood chip per annum, its capacity having only been limited by working capital constraints.

Partnering with AEG will allow NK to substantially increase its production and shipping volumes by utilising AEG’s experience and industry presence, and from its planned internal investment in upgrading its manufacturing and logistics operations to meet the demands being placed upon it by AEG.

Spanish Procurement and Shipping Centre

In order to secure a stable and flexible supply chain for its expanding BFE fuel business, AEG has also established a procurement and shipping centre in Spain.

Headed by a seasoned industry professional, the Spanish operation is currently focused on securing supplies of high-quality finished BFE wood chip from across the Iberian Peninsula, and handling the logistics and shipping to the Group’s Italian power plant customers.

Supply agreements with two of Spain’s largest forestry operators are currently being concluded, which are expected to provide AEG with a stable feedstock supply of in excess of 150,000 tonnes per annum.

Since February 2014, the new Spanish venture has successfully loaded and despatched two vessels of circa 4,500 tonnes each and a further two shipments are expected to be despatched in April 2014.

The Directors of AEG are optimistic that these developments herald a very positive outlook for this important and fast-growing area of business.

Additional Working Capital Finance

Gravendonck Foundation, Active Energy Group Plc’s largest shareholder, which holds some 27.40% of the Company’s issued share capital, has offered to provide an undated unsecured loan facility of up to US$2 million at an APR of 15% per annum. To date, the company has drawn down US$1 million of this facility, which is being utilised to establish and roll-out its new operations in Spain and Montenegro.

The directors of AEG, having consulted with the AEG’s nominated adviser, consider the terms of this facility to be fair and reasonable insofar as the Group’s shareholders are concerned.

Trading Prospects

The directors of AEG believe that AEG’s expansion into Southern Europe will enable it to significantly enhance the volume and profitability of its BFE wood chip operations. Based on results to date, they anticipate that annual shipments of up to 250,000 tonnes of wood chip could be achieved for Biomass fuel from its new Spanish and Montenegrin facilities, at improved margins compared to those experienced previously from its Ukraine-originated BFE shipments.

In consideration of the above-noted operational developments underlying the reduced volumes out of Ukraine, the company now expects to ship an aggregate total of 350,000 tonnes of wood chip for MDF and BFE in the current financial year.

Richard Spinks, Active Energy Group CEO, commented:

“The Group’s Ukrainian operations have clearly been affected by the situation in the region. However, our successful efforts over the last six to nine months to develop alternative sources of supply, processing and shipping for our BFE wood chip business have enabled AEG to expand into Spain and Montenegro, developments which we expect to be advantageous for the company.

“We have also taken steps to limit the potential impact of any disruption to our Ukrainian MDF wood chip activities, while continuing to despatch material across the Black Sea to our customers in Turkey. In addition, our Yuzhny Port logistics arrangements with TIS are already reaping dividends; with vessels being loaded both significantly more quickly and more efficiently than before. This has enabled AEG to focus on its core skills, including raw materials sourcing, production and sales.

Lower operating overheads and superior logistics at reduced cost in Ukraine, combined with shorter shipping distances from our new Spanish and Montenegrin facilities, and the current exchange rate weakness in the Ukrainian Hrvynia (UAH) are all expected to improve the profitability of the business � although the company cannot speculate on how long the favourable currency conditions will last.

“My co-directors and I believe that the outlook for AEG in 2014 is positive, and we are delighted with the progress and efforts made by our teams across all of the regions in which we operate.”


Alpha Prospects PLC
Christopher Foster
+44 20 7518 4300
+44 (0) 7525 688 741

Lothbury Financial Services
Michael Padley
+44 20 3440 7620

Editors’ Note

About Active Energy Group:

Active Energy Group plc, a London Stock Exchange-listed company (AIM: AEG), is an established supplier of wood chip and other products for Biomass for Energy fuel (BFE) and MDF manufacturing.

The Group is led by a highly experienced and dedicated management team with a proven track record of working in the industries and regions from which its revenues are generated.

In June 2013, AEG acquired its major trading partner and raised in excess of GBP3 million to facilitate future growth and expansion of its international production and shipping facilities.

The Group currently operates from Ukraine, where it is the largest producer and exporter of MDF-quality wood chip; as well as Spain and Montenegro, from where it provides BFE Biomass wood chip fuel to power plants in Italy.

European Biomass for Energy (BFE) Market:

Biomass-fuelled power is expected to account for over 50% of European renewable energy, according to an EU directive on National Renewable Energy Action Plans.

EU directives and continued commissioning of new Biomass and CHP power plants in Europe continue to generate additional demand for Biomass fuel, with little visibility on where that fuel will be sourced.

Turkish MDF Market:

Turkey is one of the world’s largest MDF producers, manufacturing circa 4.3 million m3 of finished materials in 2012. Currently almost 70% of its wood chip raw materials are sourced from the US, Canada and Latin America. AEG has established relationships with the major Turkish MDF manufacturers, and supplies high-quality wood chip from its Black Sea processing and shipping facilities in approximately one-tenth of the time of transatlantic suppliers; providing significant cost savings and cash-flow advantages, as well as considerably fresher and better quality products, to its customers.

About Alpha Prospects

The Company’s strategy is to make investments in companies with fast growth and /or recovery prospects. Typically the companies in which Alpha Prospects will invest are in the small and micro-cap sector and the Company’s interest in its investments is proactive. Currently Alpha has 9 investments.


Alpha Prospects
Christopher Foster
+44 (0) 7525 688 741

Lothbury Financial Services
Michael Padley
+44 20 3290 0707

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