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Active Energy (LON:AEG) chief executive Richard Spinks said the company had reached a “turning point” following the installation and testing of a new high-volume hardwood production line at the Yuzhny Port facility in Ukraine.
“We have been aiming towards this for around two years. It has taken a bit longer than expected, but it is now working and we are very excited about it,” he told Proactive Investors.
The delay in commissioning had been flagged up, but the wait is expected to be worth it. The move to electric from diesel driven lines will reduce costs significantly, while output is expected to grow four-fold once new machinery is fully up and running.
Last year the AEG WoodFibre division, which exports its product to the US$2.5bn-a-year MDF market in Turkey, reported revenues of US$17.4mln, up from just US$1.6mln in 2013.
Speaking about the possible effect on margins, Spinks said: “We are not going to give a number, but the difference should be palpable.”
A further boost should be given by the installation of machinery that can process softwood.
Wood chip is just one arm of this burgeoning business. Recently it unveiled new technology that would make it easier and much more cost effective to burn biomass in traditional power stations.
AEG also has a forestry joint venture with the Métis Settlements of Alberta, Canada.
Two weeks ago Active Energy updated on its financial progress. It revealed an 11% rise in first half revenues to US$12mln while gross profits improved more than 98% to US$1.22mln. It posted a pre-tax loss of US$2mln.
The results also revealed the potential of the Ukrainian wood fibre business, which upped shipped volumes by 70%, while the company also said demand for wood-chip product remains above levels that it is currently able to satisfy.
Broker WH Ireland said AEG is now primed to move into profit in 2016.
Analyst Ian Berry, in a note, said: “2015 has proved a difficult year for AEG but nevertheless progress has been made in the core wood chip business, which should lead to a move into profit.
“We have assumed no benefit from the two JVs in our estimates but both have the potential to be game changing for the group subject to the necessary financing and approvals being put in place.”
Up 94% in the year to date, the shares marked time at 5.95p each in afternoon trade, valuing the business at £36mln.