- Active Energy Group has secured two significant high-volume wood chip supply contracts for 2015 and announced that it is expanding its Ukrainian production capabilities and introducing a new wood chip product line.

The group says these latest developments underline its transformation under the new management team that has been in place since mid-2013.

In that year, following the acquisition of its principal trading partner, AEG produced and shipped 50,000 metric tonnes of wood chip; in 2014 it increased that figure by over 300% and shipped a total of over 210,000 tonnes; and the new off-take contracts for 2015 are estimated to result in at least a doubling of year-on-year output to no less than 500,000 tonnes.

Under the two new supply contracts signed on 9 January 2015 with Yildiz Entegre, a leading MDF manufacturer in Turkey - which has a daily production capacity of c8,500m3, and exports its products to over 40 countries - with whom AEG has been working for over two years, the Group has agreed to deliver up to 300,000 metric tonnes of its hardwood wood chip, and up to a further 300,000 metric tonnes of its new line of softwood wood chip, during 2015.

Together, the two contracts are expected to generate revenues for the Group of over US$68 million, at an expected gross profit of over US$12 million.

The first delivery of over 30,000 metric tonnes of wood chip under the hardwood contract for 2015 will be loaded at AEG's Ukrainian Black Sea port facilities by the end of January onto two bulk cargo vessels: the 14,000-metric tonne MV 'Sider King', which the Group has been operating under an exclusive time charter arrangement since early-2014; and a new vessel, the 16,000-metric tonne MV 'Amar Meray T'.

Both vessels will, along with other ships utilised by the Group, continually service AEG's Turkish clients from its base at Yuzhny Port, near Odessa. To supplement its fixed price shipping arrangements, the Group is currently negotiating time charter agreements, to commence in May 2015, for an additional two bulk carrier vessels to handle shipments of its new softwood wood chip.

The group says that over the past year, AEG has made significant investments in increasing its production capabilities and streamlining its logistics operations, as well as working with its Turkish clients to perfect its Pine-based softwood wood chip offering, which requires specific processing techniques and equipment.

The greatly-improved operating margins that the group achieved in Q3:2014 (as detailed in the Trading Update released on 11 December 2014) have enabled it to make further investments in the necessary equipment, and test runs have proven that its softwood wood chip can both meet its clients stringent quality standards and the phytosanitary requirements of the Turkish authorities.

To satisfy the new supply contracts and expand its product range, AEG has agreed further raw material supply arrangements with its long-term partner, the Ukrainian State Forest Resources Agency (SAFRU), which include delivering timber logs by rail direct to the Group's facility at Yuzhny Port.

The new high-volume softwood chipping machinery scheduled to be operational in May 2015, will work alongside AEG's existing hardwood chipping facilities - which include modern log loaders and ancillary equipment - to more than double the Group's total Ukrainian production capacity.

New Softwood Wood Chip Product Line:

MDF is produced from a mixture of hardwood and softwood wood chip, combined with waxes and resins. Until now, AEG has only provided the hardwood feedstock, as Turkish phytosanitary (pest control) regulations require a quarantine period, which it has not been possible to achieve as the Group's speedy shipping routes across the Black Sea only take between two and five days.

However, after extensive research in partnership with its Turkish clients and further investment in the necessary equipment, AEG will commence manufacturing softwood wood chip from Pine logs in May 2015, substantially increasing its production volumes and broadening its industrial wood chip offering.

Supply negotiations with other major Turkish MDF manufacturers have reached an advanced stage, and the Group is confident of making additional announcements of further contract wins in the near future; although its immediate focus is on satisfying its obligations to Yildiz Entegre, and any other shipments will be on a Spot basis as and when production volumes allow.

As a result, Active Energy Group Plc is in a strong position to not merely achieve, but exceed, the forecast volumes of Black Sea shipments of over 350,000 metric tonnes announced on 4 June 2013 when the Group sought shareholder approval to acquire its principal trading partner, Nikofeso Holdings Limited.

At 8:46am: [LON:AEG] Active Energy Group share price was +1.08p at 4.23p

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