Powerflute operates an integrated pulp and paper mill in Kuopio (Finland) with an annual production capacity of 285,000 tonnes of high-performance semi-chemical fluting.

Powerflute’s premium semi-chemical fluting is sold primarily for packaging fresh fruit and vegetables, but also other end-uses such as electronics, chemicals and pharmaceuticals. Around half of the Company’s production is sold in Europe, while the remainder is exported globally.

For the year ended 31 December 2017, the Company is expected to generate revenues of around €183 million and unaudited pro-forma adjusted EBITDA of around €42 million. Powerflute will be integrated into Mondi’s Packaging Paper Business Unit.

«The acquisition is credit positive for Mondi because it will acquire a competitive and profitable asset without materially compromising its strong capital structure» said Moody’s.

Moody’s Investors expect that Mondi will primarily finance the acquisition from available cash and internal cash flow generation. As of 30 June 2017, Mondi reported around €100 million of cash and cash equivalents and we expect it will have generated healthy free cash flows in the low hundred million of euros in the seasonally stronger second half of 2017.

Hence, Moody’s believe that if there is initially an increase in debt connected to the transaction depending on the exact timing of the closure, it will not be material, or will weigh on its Moody’s-adjusted leverage only temporarily owing to Mondi’s ability to generate strong operating cash flows. Even if Moody’s assumed Mondi’s post-acquisition debt increases by the total consideration of €365 million (as compared to debt at end-June 2017), Mondi’s Moody’s-adjusted pro-forma debt/EBITDA would deteriorate only to 1.6x from 1.4x for the 12 months to June 2017, which would still position Mondi solidly in the Baa1 rating category.

Powerflute produces Nordic semi-chemical fluting (NSCF), which is the strongest form of premium fluting. Powerflute generates strong EBITDA margins (around 23% expected for 2017, as reported by NPAC), which is slightly above Mondi’s reported EBITDA margin of around 20%, one of the strongest in the industry. Powerflute’s high profitability is reflective of its leadership position in a consolidated market with essentially only three players - Powerflute, Stora Enso Oyi (Ba2 positive) and BillerudKorsnas - with high barriers to entry for new incumbents given that building new capacity is costly and access to customers and high-quality birch is not easy to establish. In addition, NSCF has unique characteristics enjoying greater firmness and humidity resistance compared to other types of fluting. Based on birch wood, it is also free of bacteria and toxins, which makes it particularly well suited for the fairly stable food packaging markets. Its premium quality also allows for premium pricing.

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