Kotkamills Group Oyj

STOCK EXCHANGE RELEASE

28 February 2018, at 8:00 p.m. (CET + 1)

This is a summary of the January - December 2017 interim report. The complete report is attached to this release and is also available at www.kotkamills.com/fi/kotkamillsgroup/keyfinancials

KOTKAMILLS INTERIM REPORT

October - December 2017 (10-12/2016)

The revenue of continuing operations of EUR 79,3 million (EUR 58,6 million) improved by EUR 20,7 million from the same period a year ago mainly due to increased Consumer Boards sales.

The Group EBITDA of EUR 23,7 million (EUR 17,9 million) improved from the same period a year ago.

The operating profit of continuing operations was EUR 16,7 million (EUR 13,8 million including EUR 18,9 million profit of disposal of Malaysian subsidiary LPPF shares) mainly due to EUR 19,6 million profit of disposal of Kotkamills Imprex Oy shares and further improved but still a negative impact of Consumer Boards business.

The good financial performance of Industrial Products segment with operating profit of EUR 5,5 million (EUR 7,4 million) continued also in Q4/2017.

January - December 2017 (1-12/2016)

The revenue of continuing operations of EUR 287,7 million (EUR 219,1 million) improved by EUR 68,6 million from the same period a year ago due to increased Consumer Boards sales.

The Group EBITDA of EUR 28,8 million (EUR 9,5 million) improved from the same period a year ago.

The operating profit of continuing operations was EUR 5,7 million (EUR -0,4 million including disposal of Malaysian subsidiary LPPF shares)  mainly due to EUR 19,6 million profit of disposal of Kotkamills Imprex Oy shares, further improved but still a negative impact of Consumer Boards business and one-time impairment costs of intangible assets of EUR -3,9 million related to the announced termination of Tainionkoski PM7 leasing agreement at the end of 2018.

Events in October - December 2017

In October the Company informed that it's fully owned subsidiary Kotkamills Oy has signed a share purchase agreement concerning the sale and purchase of all issued and outstanding shares in Kotkamills Imprex Oy to Dongwha Enterprise Co. On October 31st, 2017 The Company informed that Kotkamills Oy has completed the disposal of Kotkamills Imprex Oy. Kotkamills Imprex Oy was part of Group's Industrial Products segment.

The enterprise value (on a debt and cash free basis) of Kotkamills Imprex Oy was EUR 27 million. The purchase price was subject to a customary closing accounts adjustment. The purchase price was paid to Kotkamills Oy in cash.

In accordance with the terms and conditions of the consent for the disposal of the Imprex Business granted by the holders of Kotkamills Group Oyj's EUR 105,000,000 Senior Secured Callable Bonds 2015/2020 (ISIN: FI4000148705) (the "Bonds") on 16 January 2017, 50 per cent of the net disposal proceeds received by Kotkamills Oy from the sale of Kotkamills Imprex Oy was to be applied in partial repayment on outstanding Bonds. On that basis, the amount repaid for each Bond was EUR 11,732.00. The Record Date (as defined in the terms and conditions of the Bonds) for the repayment was 6 November 2017 and the repayment of EUR 12,5 million (including accrued interest) was disbursed to the bondholders on 7 November 2017. The repayment decreased non-current liabilities by EUR 12,3 million in Q4/2017.

The disposal improved Kotkamills Group's Q4/2017 operating profit by EUR 19,6 million.

In November the Company's fully owned subsidiary Kotkamills Oy reached a settlement in the contractual dispute related to potential compensation claim by a supplier related to performed construction work and pending arbitration was withdrawn. The settlement does not have a material impact on Kotkamills Oy's operating profit or balance sheet.

The delivery volumes of both saturating base kraft and wood products in Industrial Products segment increased clearly compared to the previous quarter mainly due to maintenance shutdown in Q3/17. The demand continued to stay at a good level.

The delivery volumes of Consumer Boards increased compared to the previous quarter and commercial ramp-up of Consumer Boards products continued in the third quarter.

Key figures

The Group monitors capital by using an adjusted equity ratio based on the financial covenant, which is total equity added with shareholder loan and the junior term loan and divided by total assets (which shall be at least 30% in the end of each reporting period). The Group's policy is to keep the adjusted equity ratio above 30%. There have been no breaches of the financial covenant of adjusted equity ratio in the current period.            

Events after reporting date

On February 20th, 2018 the shareholders of Kotkamills Group Oyj have on unanimously resolved to offer by a directed issue a maximum of 450,770 new series A shares (the "New A Shares") of the company for subscription to the holders of series A shares pro rata to their holding of series A shares, a maximum of 20,000 new series B shares (the "New Management Incentive Allocation") for subscription to certain directors of the Kotkamills group and a maximum of 49,230 new series B shares (the "New B Shares", together with the New A Shares and the New Management Incentive Allocation, the "New Shares") of the company for subscription to the holders of series B shares pro rata to their holding of series B shares, taking into account the New Management Incentive Allocation offered for subscription. The New Shares represent in aggregate approximately 3.82 per cent of the existing shares in the company. In addition, the board of directors was authorised to issue a maximum of 24,376 new series B shares to key employees and directors of the company or its subsidiaries as part of the company's management incentive system in deviation from the shareholders' pre-emptive subscription rights.

The subscription period for subscription of the New Shares based on primary subscription rights expired on 26 February 2018. Based on the primary subscription rights and secondary subscription rights allocated by the board of directors, holders of series A shares subscribed the maximum number of 450,770 New A Shares offered for subscription, certain directors of the Kotkamills group subscribed the maximum number of 20,000 series B Shares offered for subscription in the New Management Incentive Allocation and holders of series B shares subscribed 47,493 of the in total 49,230 New B Shares offered for subscription. The subscribed New Shares represent in aggregate approximately 3.81 per cent of the total number of shares in the company.

The subscription price for each New Share is EUR 2.00 and the aggregate subscription price for the New Shares is EUR 1,036,526. Pursuant to the terms of the share issue of the New A Shares, holders of series A shares granted in connection with their participation in the share issue shareholder loans to the company in the aggregate amount of EUR 5 million. The terms of the shareholder loans are in material respects equivalent to the terms of the existing shareholder loans.

The purpose of the share issue and the utilisation of the shareholder loans is to ensure successful commercial launch of new food service board products and to secure the efficient working capital management of Kotkamills Group's further increasing consumer board products delivery volumes. As a result of the share issue and the utilisation of the new shareholder loans, Kotkamills Group Oyj will obtain financing in the aggregate amount of EUR 6 million.

After the share issue has been recorded in the Finnish Trade Register, the total number of shares issued by the company will be 14,121,069, of which 12,732,464 will constitute series A shares, representing approximately 90.17 per cent of the total number of the shares in the company, and 1,388,605 will constitute series B shares, representing approximately 9.83 per cent of the total number of the shares in the company. The entire subscription price of EUR 1,036,526 will be entered in the company's reserve for invested unrestricted equity.

The Company has decided to make a pre-feasibility study for an investment to increase the production of Saturating Base Kraft ("Laminating Papers"). In order to prepare Kotkamills Absorbex Oy, the fully owned subsidiary of Kotkamills Oy and the leading global supplier of Laminating Papers, to meet the increasing demand as well as to replace the discontinuing production volume of paper machine 7 in Tainionkoski, Imatra (Stock Exchange release on the 3rd of July 2017), Kotkamills Oy has started the pre-feasibility study of a new paper machine 3 (a "New PM3") in Kotka. Kotkamills Absorbex Oy is part of Group's Industrial Products segment.                                                 

The final decision of this possible investment will be done by the end of year 2018. The capacity, cost estimation and start-up timing of the New PM3 will be published later on subject to the positive investment decision. The possible investment would have a positive impact on the profitability of Kotkamills Group.       

Outlook for 2018

The revenue of the first quarter in 2018 is estimated to be slightly higher than in the fourth quarter 2017 due to increasing delivery volumes in both segments despite of typically slightly lower seasonal demand in Industrial Products segment.

The profit of continuing operations for the first quarter of 2018 is estimated also to be slightly better compared to the previous quarter (excluding one-time profit of disposal Kotkamills Imprex Oy shares in October 2017) due to increased sales volumes and prices. This effect is estimated to be partly offset by increased raw material and energy prices and unfavorable currency exchange rates development.

The demand of all business segments is expected to stay at the good level, but changes in global economic situation and geopolitical risks may have weakening impact on demand.

Kotkamills Group Oyj
Board of Directors

For additional information, please contact:

CFO Petri Hirvonen, tel.+358 40 571 0834, petri.hirvonen@kotkamills.com

DISTRIBUTION:
Nasdaq Helsinki Ltd
Key media
www.kotkamills.com

Kotkamills Group in brief

Kotkamills is a responsible partner that delivers renewable products and performance to its customers' processes via product innovations created from wood, a renewable raw material. One of the key brands of the company include Absorbex® an innovative laminating paper product for the laminate, plywood and construction industries. Moreover, Kotkamills offers ecological, technically sound and visually attractive wood products for demanding joinery and construction. In summer 2016, Kotkamills started up a new board machine producing AEGLE(TM) Folding Boxboard and ISLA(TM) Food Service Boards, including the capability to add barriers on-machine. All Consumer Board material solutions are fully recyclable and repulpable.

Kotkamills has two production sites in Finland, located in Kotka and Imatra. The majority shareholder of Kotkamills is MB Funds, a Finnish private equity firm.

www.kotkamills.com

Disclaimer

The information contained in this release shall not constitute an offer to sell or the solicitation of an offer to buy securities of Kotkamills Group Oyj in any jurisdiction.