Disposal of Graphic Papers businesses

3 May 2011

POWERFLUTE OYJ

Disposal of Graphic Papers businesses

Powerflute Oyj (“Powerflute” or the “Group”), today announces that it has agreed to dispose of its interests in the Papierfabrik Scheufelen group of companies (together “Scheufelen”) which represent the Group’s entire interest in coated woodfree papers and the whole of the Graphic Papers business segment, to Paper Excellence BV (“Paper Excellence”), a privately owned pulp and paper producer, for total consideration of €38.5m, comprising cash consideration of €32.5m payable in two instalments (€25.0m at completion and €7.5m on 31 October 2011) and the assumption of €6.0m of debt by Paper Excellence.

Transaction Highlights

• Disposal of Scheufelen for total consideration of €38.5m, comprising cash consideration of €32.5m and the assumption of €6.0m of debt by the purchaser
• Cash consideration of €32.5m represents a significant return on Powerflute’s cash investment in Scheufelen
• Transformational for Powerflute, improving capital structure from indebtedness of €29.1m at 31 December 2010 to a net cash position
• Demonstrates Powerflute’s ability to transform underperforming assets and deliver substantial value for shareholders

The Scheufelen companies, which represent the whole of the Graphic Papers business segment, were acquired in January 2009 and during two years of ownership by Powerflute, good progress has been made with improving performance and restoring profitability. The business was heavily impacted by developments in worldwide pulp markets during 2009 and 2010 and we currently expect these challenging conditions to prevail for the foreseeable future. Shortly after the completion of the rights issue and placing in November 2010 an approach was received and although the Group would normally expect to own a business for a longer period, we concluded that Scheufelen would be better placed to withstand the challenges it faces as part of an integrated pulp and paper group.

The disposal is consistent with Powerflute’s strategy to create value for shareholders through the acquisition and restructuring of underperforming paper and packaging businesses. The cash consideration of €32.5m represents a significant return for Powerflute on its cash investment in Scheufelen.

Approximately €9.0m of the proceeds from the disposal will be applied to reduce Powerflute’s borrowings with the remainder retained as cash. On a pro forma basis following receipt of the first instalment of the cash consideration and repayment of existing borrowings, the Group will have net cash of approximately €5.0m, consisting of cash and cash equivalents of approximately €30.0m and remaining interest bearing loans and borrowings of €25.0m.

In the year ended 31 December 2010, Graphic Papers achieved sales of €205.1m and reported an underlying operating loss of €6.2m. The Group has recognised a non-cash impairment charge of €22.1m net of deferred taxes in its income statement for the year ended 31 December 2010 to reduce the carrying amount of the net assets of the Graphic Papers business to their recoverable amount less costs to sell. This is effectively a reversal of a portion of the non-cash gain of €33.0m recognised on the acquisition of Scheufelen in the year ended 31 December 2009. The net assets of Graphic Papers at 31 December 2010 after recognition of the impairment were €25.9m.

The transaction remains subject to certain closing conditions, including release of security over the assets of Scheufelen by Powerflute’s lenders. Completion of the transaction is expected to take place within the next few days.

Powerflute will announce its financial results for the year ended 31 December 2010 on Wednesday, 4 May 2011.

Commenting on the disposal, Dermot Smurfit, Chairman of Powerflute said:

“We are pleased to announce the disposal of Scheufelen to Paper Excellence and believe this represents a successful outcome for both the customers and employees of Scheufelen and for Powerflute’s shareholders. Scheufelen will benefit as part of an integrated pulp and paper group and will continue to prosper under new ownership.

Powerflute has achieved a significant return on its investment in a little over two years – a strong validation of our business strategy. On completion of the disposal, Powerflute will be debt free on a net basis and will have the capital structure and resources to continue to pursue its strategy of seeking opportunities to acquire underperforming businesses in the paper and packaging sectors.”

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About Powerflute

PowerfluteOyj ("the Company" or "Powerflute") is a packaging group with established positions in Nordic semi-chemical fluting and coated woodfree papers.Powerflute is quoted on the AIM market of the London Stock Exchange (Ticker: POWR) and on the First North list, the alternative market of the OMX Nordic Exchange Stockholm AB (Ticker POW1V). Through its subsidiary Savon Sellu Oy, the Group operates a paper mill in Kuopio, Finland which produces a specialised form of semi-chemical fluting made from locally sourced birch. Corrugated boxes manufactured using Nordic semi-chemical fluting demonstrate strength and moisture resistance and are used for transportation of fruit and vegetables, high-value industrial goods such as electrical appliances and automotive components. The Kuopio mill has the capacity to produce up to 300,000 tonnes per annum and is one of three suppliers of Nordic semi-chemical fluting in Europe.