1

Active Energy Group: Powering Ahead On July 18, 2014 Active Energy Group Plc (AEG) announced that it had entered into a landmark joint venture agreement to commercialize over 250,000 hectares (ha) of land in Canada, which contain at least 108,000 ha of mature timber as well as other natural resources. Since that date, the company’s stock has gone up by 75% to USD 0.076 per share, implying a market capitalization of just USD 42 million.

However, in our view AEG’s stock price is largely undervalued, considering that the company can net as much as USD 130 million in value over the next few years from its JV project by realizing long-term Tree Farming Permits to timber investment management companies (TIMOs). At the KAQUO Métis Settlements Economic Development Summit, held on 27 January 2015, KAQUO commented that it had received three non-binding, conditional offers, in aggregate amounting to USD 300 million subject to further due diligence, which demonstrates a high level of interest by investors in the asset. Moreover, with the Canadian project, the company has significantly changed its business and risk profile – expanding from its original business of wood chip manufacturing exclusively in Ukraine to timberland and natural resources development and management in Canada.

Thus, given the joint venture value and the considerable international growth opportunities in the company’s other market sectors (wood chip for MDF/OSB panel board manufacturing, wood chip for power generation, and biomass fuel technologies), we issue a BUY recommendation for the stock with a target price of USD 0.260 per share, implying 244% upside.

Investment summary:

► AEG’s Canadian JV may generate USD 130 million in cash flow over the years 2015-2017. According to a forestry sampling study that the company commissioned, out of the total land area of 250,000 hectares, 108,147 hectares were classified as being the most commercially viable, with an estimated merchantable timber volume of 34.8 million m3 (322.16 m3 per hectare on average). We believe that over the next three years the JV can commercialize that valuable timberland by selling long-term Tree Farming Permits, which at a rate of USD 3,300 per hectare (the median price for recent transactions in Canada & the US), AEG’s 45% stake in the JV can be valued at USD 160 million. However, assuming only 90% of the JV profit is distributed as dividends, and a dividend tax rate of 10%, this yields a net cash flow to AEG of USD 130 million.

► AEG is the largest exporter of wood chip from Ukraine, supplying high-quality material to several MDF manufacturers in Turkey (the leading country for MDF production in Europe). The company has confirmed off-take wood chip contracts with Turkish customers for 2015 that represent a 100% increase on 2014 shipped volumes of 210,000 tonnes, which themselves represented a 300% increase on 2013 volumes. As shipments from Ukraine offer several key advantages over traditional transatlantic supply sources, we believe that AEG has the potential to increase its share of the Turkish imported wood chip market to at least 25%, or 700,000 tonnes per annum, by 2018.

► Our valuation target is a sum of the DCF valuation for AEG’s wood chip business and the value of its Canadian JV project based on a transaction comparison approach, which are USD 34 million and USD 114 million (discounted value) respectively, implying a USD 0.260 target price per share, or 244% above the current market price.

March 24, 2015

Analyst: Eugene Petrusha

AEG stock price, $

Bloomberg ticker AEG LN Share price, $ per share (March 20, 2015)

0.076 (5.05 GBp)

Market cap, $ mn 42.0

Net debt, $ mn 1.9

EV, $ mn 43.9

Market data

Target price, $ per share

0.260 (17.35 GBp)

Shareholder structure Gravendock 27.3%

Eastwood SA 10.9%

Windstar Investments SA 10.2%

Free float 39.6%

Held in treasury 10.0%

Source: Company data

Source: Bloomberg, ESCP estimates

Source: Bloomberg

0.00

0.05

0.10

0.15

Mar-14 Jun-14 Sep-14 Dec-14 Mar-

Key financials, USD mn 2014e 2015f

Revenue* 26.3 56.3

EBITDA 0.5 58.5

Net income (0.9) 55.7

Net debt 2.0 2.0

2016f

69.0

91.9

89.5

2.0

Dividends** (KAQUO JV)

- 47.9 81.5

Source: ESCP estimates

* not including the income from JV in Canada ** after tax

Revenue by segments

Source: ESCP estimates

2014e 2015f 2016f

Dividends from KAQUO

Wood chip for BFE

Wood chip for MDF

26

104

150

2

Table of Contents:

Company description…………………………………………………….. 3

Overview of business segments

Wood chip for MDF manufacturing…………………………………… 4

Wood chip for power generation (BFE)……………………………….. 6

Canadian JV…………………………………………………………….. 7

Market overview

Wood chip for MDF manufacturing…………………………………... 12

Canadian lumber market……………………………………………… 16

Wood chip for power generation (BFE)……………………………… 21

Management team……………………………………………………….. 23

DCF valuation…………………………………………………………….. 24

P&L statement……………………………………………………………. 26

Contents

Important disclosures start on page 27

3

Overview

Active Energy Group Plc is an AIM-listed (AEG.LN) international supplier of timber products and forestry management services, headquartered in the UK, with operations in Ukraine, Canada, Spain and Montenegro. We understand that the company has other markets under development including the UK and UAE, as well as Turkey.

The Group’s core business activities are supplying industrial wood chip and timber products for Medium-Density Fiberboard (MDF) and Oriented Strand Board (OSB) manufacturing; producing Biomass for Energy (BFE) fuels, including wood chip, and providing timberland and natural resources development and management services.

To date, the Group’s primary operations have focused on procuring raw timber (primarily logs, technical lumber and forestry residues) from a number of state-owned Ukrainian forestry enterprises, which deliver it by rail to its facilities in Yuzhny Port, near Odessa on the Black Sea. It processes the timber into high-quality wood chip, loads the finished material into time-chartered bulk cargo vessels, and exports it under off-take agreements to leading MDF manufacturers in Turkey.

AEG also sources finished wood chip from Montenegro and Spain on an ad hoc basis when raw material specifications and profit margins are acceptable and supplies it to biomass-fuelled power plants in Italy. However, volumes have been limited over the past few quarters, as the company has significantly increased its MDF wood chip activities.

The company holds a 45% stake in a joint venture timber and natural resources development project (“KAQUO Forestry & Natural Resources Development Corporation”) with several indigenous Métis settlements to commercialize 250,000 hectares of valuable land they own in Alberta, Western Canada.

Over the past year AEG has invested in research and development of important new environmentally-friendly technologies, including biomass fuel pelleting solutions that will materially increase the calorific value of wood chip from waste residue, and allow the switch from burning coal to clean energy power generation with no cost of retro-fit for existing coal-fired power stations.

Company description

4

Wood chip for MDF manufacturing Overview

AEG operates a wood chipping facility at Yuzhny Port on the Black Sea with a current nominal processing capacity of 960 tonnes per day (313,500 tonnes per annum, assuming 330 working days). The company has supply contracts with more than 30 state-owned forestry enterprises in Western and Central Ukraine to provide hardwood and softwood timber feedstock (primarily logs, technical lumber and forestry residues). We estimate that in 2014 AEG produced approx. 210,000 tonnes of MDF-quality wood chip (1H2014: 61,185 tonnes).

In the near future, the company plans to extend its production capacity by 120-130 tonnes per hour (500,000-560,000 tonnes per annum) by installing another fixed wood chipper at Yuzhny Port. Assuming that the additional facilities will be commissioned by 2H2015, we estimate AEG’s annual capacity at 580,000 tonnes in 2015, or up more than 163% y/y, and 780,000 tonnes onward.

The wood chip is delivered by sea to Turkey, where it is used in the production of Medium-Density Fibreboard (MDF). Turkey is the largest manufacturer of MDF in Europe, producing 4.3 million m3 in 2013 from six major plants, most of which are located close to the Black Sea.

It is worth noting that supplying wood chip from Ukraine has a number of key advantages over traditional transatlantic supply sources, as transportation costs are significantly lower and shipping times considerably shorter, which provides manufacturers with substantial cost savings and cash flow advantages, as well as fresher product (a key requirement). Thus, we believe that AEG can exploit these advantages to greatly increase its share of Turkish MDF wood chip imports.

On 12 January 2015 AEG announced that it will expand its MDF wood chip product offering to include Pine-based softwood wood chip in 2H2015, which we believe will open further long-term supply opportunities and give further certainty to volume enhancements.

Processed wood chips

Location of AEG’s facilities

AEG’s production of wood chip for MDF

Source: Company data, ESCP estimates

210

500600

700 700 700

2014 2015 2016 2017 2018 2019

5

Site visit—January 15, 2015 Overview

AEG’s wood chipping facilities are located in Yuzhny Port on the Black Sea (27 km from Odessa), on the private berth of TransInvest Service (TIS), the port owners. TIS handles most port logistical tasks on behalf of AEG, including receiving and unloading raw material on rail wagons, port handling, and cargo vessel loading. The company recently purchased two additional log loaders to speed up its production processes and prepare for increased log deliveries in future; and a further two log loaders are on order and will be delivered shortly, demonstrating the intent to further grow volumes at Yuzhny.

The TIS terminal is Ukraine’s largest dry cargo port with freight turnover of 21.4 million metric tonnes (MMTs) in 2013 and approximately 26 MMTs in 2014. Its deep berths are capable of receiving Panamax-class vessels, which could carry as much as 40,000 metric tonnes (MTs) of wood chip (a substantial increase over the 14,000 to 16,000 MTs capacity of the vessels that the company is currently utilizing on a time charter basis). In fact the port is capable of receiving Cape Size vessels of well over 100,000 MTs capacity, but these vessels are not used for wood chip. AEG currently uses the MV Sider King (14,000 MTs) and the MV Amar Meray T (16,000 MTs) and is negotiating time charter arrangements for another two dry bulk vessels to support its increased shipping volumes.

Unloading of raw timber Wood chipper at work

Scooping of wood chip MV Sider King (in the process of loading)

6

Wood chip for power generation (BFE) Overview

Over the last few years biomass wood chip has increasingly been used as a “clean energy” renewable fuel for generating electric power; known as Biomass for Energy (BFE). According to Ecoprog, in late-2013 around 2,800 BFE power plants were operating worldwide, which either solely or partially incinerate biomass feedstock and it estimates that a further 170 new BFE power plants, capable of producing 3.6GW of electricity, were constructed in 2014 alone.

Due to the high transportation costs and resulting low margins of exporting BFE wood chip from Ukraine, AEG has to date sourced finished wood chip (produced from Pine and Spruce logs) on an ad hoc basis when raw material specifications are acceptable from sawmills and timber processing firms in Spain and Montenegro, for delivery to biomass-fuelled power plants in Italy.

It should be noted that this segment is highly dependent on the prevailing market prices for BFE wood chip and the calorific value measured in Gigacalories per tonne (Gcal/t) of the processed material, which is greatly affected by the moisture content. While AEG’s Spanish wood chip has an average calorific value of 3.2 Gcal/t, the Montenegrin feedstock stands at 2.2-2.3 Gcal/t due to higher moisture content. Thus, it is only profitable for AEG to supply customers on an opportunistic basis when margins are high. We understand that this is one of the primary factors behind AEG's decision to develop its own BFE fuel solutions, as drier/higher-energy fuel attracts a higher market price, and is more profitable and easier to transport than wood chip.

Nevertheless, with demand for BFE fuel increasing incrementally each year, we expect that AEG will re-focus on this market sector in the future, and will increase its trading volumes.

EU trade flows of wood chip and pellets

7

Canadian JV Overview

AEG holds a 45% stake in KAQUO Forestry & Natural Resources Development Corporation (‘KAQUO’), a Canadian-incorporated joint venture company that it formed with Grand Chief Ronald M. Derrickson of British Columbia and three of the Métis Settlements of Northern Alberta in Western Canada, owners of large areas of valuable land, which include standing prime forestry assets.

KAQUO has the exclusive right to commercialize over 250,000 hectares of timberland on the Paddle Prairie and Peavine Settlements, of which 108,147 hectares of mature forests contain some 34.8 million m3 of merchantable timber (approximately 70% hardwood and 30% softwood).

The Paddle Prairie Settlement spans over 169,000 hectares and contains approximately 58,000 hectares of commercially viable timberland, while the Peavine Settlement spans over 82,000 hectares and contains approximately 50,000 hectares of merchantable timber.

KAQUO holds a 197-year exclusive license on the total area of 250,000 hectares, and has already commenced the process of marketing Tree Farming Permits to investors for a period of 99 years with a possible extension of another 98 years. Current monetization opportunities include saw-log export, pulp and paper production, sawmilling, panel board manufacturing (MDF and OSB) and biomass fuel processing.

We believe that KAQUO will realize the full value of the Tree Farming Permits over the next few years. The company may initially operate the forestry assets to enhance the value of an operating business and establish the licenses. Upon establishment of operations, the sale of Tree Farming Permits would likely be at the higher end of the value range – approximately USD 3,300 per hectare.

At a recent economic development summit in Edmonton, AEG management revealed that several investors were interested in buying Tree Farming Permits and/or financing their joint venture with the Métis Settlements, and that some of them were looking at the option to finance the establishment of an operating business with KAQUO. The decisive factor will be the value of the Tree Farming Permits and the desire of the partners to operate a business.

It is also worth noting that the partners in KAQUO have long experience in the timberland business: the Métis have a history of operating as contract loggers for the forestry industry, while Grand Chief Derrickson, Chairman of KAQUO, pioneered the modern large-scale aboriginal forestry business as Chief of the Westbank First Nation in British Columbia. From its side, AEG has expertise in value added wood processing facilities including logistics and biomass power station supply. Furthermore, the JV will offer direct employment for the Métis and the opportunity to participate in work skills programmes including arboriculture and logging qualifications.

As was mentioned at the recent Métis Economic Development Summit in Edmonton, AEG has strengthened their management team for the KAQUO joint venture with the appointment of three individuals specifically engaged for the development of the Canadian forestry business.

Metis settlements location and Alberta topographic map

8

Canadian JV (continued) Paddle Prairie

The Paddle Prairie Settlement is located in Northern Alberta, Canada within the County of Northern Lights and adjacent to Mackenzie County. Its area is reported at 169,069 hectares. The Settlement develops along the Mackenzie Highway (Highway 35), approximately 52 km south of the Town of High Level. Furthermore, the Settlement is connected to Edmonton via the Canada National (CN) Railway Network.

According to a survey based on 57 randomly selected land plots, the productive area of Paddle Prairie was estimated at 57,868 hectares with an average stem count of 1,139/hectare. The commercial inventory is dominated by Trembling Aspen (261.55 m3/hectare or 66% of total) and White Spruce (127.86 m3/hectare or 32% of total). Assuming an average cut of 1,200 hectares per year, this translates into an annual production of 217,312 m3 of pulpwood/biomass and 238,917 m3 of saw-logs.

Paddle Prairie Settlement map

9

Canadian JV (continued) Peavine

The Peavine Settlement is located in Northern Alberta, Canada within the Municipal District of Big Lakes. Its area is reported at 82,364 hectares. The Settlement develops around Highway 750 to the northeast of High Prairie, and is connected 50 km South to High Prairie through Rd 679, which is connected to Edmonton via Hwy 2, 43 and 44 (average distance is 365 km). Peavine is also connected to Edmonton via the Canada National (CN) Railway Network.

According to a survey based on 95 randomly selected land plots, the productive area of Peavine was estimated at 50,278 hectares with an average stem count of 1,362/hectare. The commercial inventory is dominated by Trembling Aspen (112.42 m3/hectare or 47% of total), White Spruce (96.02 m3/ha or 40% of total) and Black Poplar (25.15 or 11% of total). Assuming an average cut of 1,000 hectares per year, this translates into an annual production of 137,247 m3 of pulpwood/biomass and 103,341 m3 of saw-logs.

Peavine Settlement map

10

Canadian JV (continued) Commercialization opportunities

According to the statements of the company’s management, there are several commercialization options for the KAQUO joint venture, including operation of the raw material business (exporting saw-logs and selling wood pulp locally), building a biomass-fuelled power plant that will incinerate waste material from main forestry operations (thinnings and tree-tops), and selling Tree Farming Permits to third parties (timber industry operators and TIMOs).

However, due to the lack of actual data on the biomass-fuelled power plant, we analyzed the commercial possibilities of entering into the wood farming business. Due to the differences in wood type and quality, there are two separate markets that should be considered in this case:

1. Woodpulp for paper industry, manufacturing of particleboards, MDF/OSB. This market buys small diameter saw-log, less than 20cm in diameter.

2. Saw-Log export (mostly used in home construction/building industry). This market requires saw-log which is greater than 20cm in diameter.

According to the forest survey, with 2% of the total forest area (approx. 108,000 hectares of commercially viable timberland) being cut annually, production of pulpwood at Paddle Prairie and Peavine could reach 388,000 m3, although this figure could be higher as there has been no harvesting for many years.

The most viable commercialization strategy would be to supply the volume of larger saw-log (greater than 20cm in diameter) to Asian and Far East export markets (China, Japan, Korea) with the smaller saw-log (less than 20cm in diameter) supplied to local pulp factories, as both settlements are located within a 150km range of the nearest pulp mills (for example Daishova-Marubeni Intl).

Considering transportation costs (USD 6-7 per m3) and logging costs of around USD 12-13, as well as current low market prices of Northern pulpwood at USD 25/m3, this yields an operating margin of USD 4-5/m3. As a result, we understand that this is not considered to be a core business, but will provide a contribution margin to the overall timberland operations.

0

10

20

30

40

Paddle Prairie Peavine

Logging Transportation

average price

Estimated costs and prices of wood pulp

Source: ESCP estimates, Logistics study, USDA, BC Government

11

Canadian JV (continued) Annual production of saw-logs from both Settlements is estimated at 368,000 m3. The logs can be transported to a collection yard close to the intermodal terminal in Edmonton, loaded in containers and shipped via railcar to the point of export (Vancouver port facility).

In this case, however, transportation expenses will be much higher reflecting additional costs for railway transportation, transloading, and container shipment. We estimate total CIF China costs to be around USD 100/m3 for Peavine and USD 118/m3 for Paddle Prairie (the higher cost for the latter is explained by a larger distance to container terminal), while import prices of lumber in China vary in the range of USD 130/m3 (hardwood) to USD 160/m3 (softwood). Overall, we expect that the total operating margin for lumber shipments will be 23-25%.

Additionally, we expect that around USD 1,500/hectare (or USD 3-4/m3) should be spent on planting, although these expenses can be delayed by 2-3 years. However, this is outweighed by the change in fair value of biological assets, which should be in the range of USD 8-10 million (assuming a 2% rate of growth).

The total sales volume is expected to be around USD 62 million (of which roughly 16% will be generated by pulpwood sales, and 84% by lumber shipments), with an estimated net income of USD 17 million (accounting for the organic growth of forest, and assuming a total income tax of 25%). Assuming an after-tax cost of capital of 7% and a terminal growth rate of 2%, this translates into a fair value per hectare of USD 3,200.

Estimated costs and prices of saw-log

Source: ESCP estimates, Logistics study, USDA, BC Government

0

20

40

60

80

100

120

140

160

Paddle Prairie Peavine

Logging Transportation Transloading Container handling Shipping Stumpage fees

12

Market overview—wood chip for MDF manufacturing Resource base

Forests cover an area of 9.6 million hectares, or 15.9% of the total area of Ukraine, while wood stock is estimated at 2.1 billion m3, which places the country in sixth place in Europe. The prevailing species of trees are Pine (33%), Oak (24%), Beech (7%) and Spruce (8%). Woodstock inventory is quite high at 240 m3/ha, compared to 219 m3/ha in Poland or 183 m3/ha in Belarus. However, 15.8% of forest lands are deemed as protected, while more than 50% of Ukraine’s forests have ecological importance and thus have limited regime of forest management.

Most of the land is managed by the State Agency of Forestry Resources (SAFR, 73%), while another 13% is owned by local municipal authorities. State forestry enterprises are responsible for the full range of forestry works from planting of forests to logging.

The volume of woodstock harvesting from all types of logging in 2013 amounted to 18 million m3 (SAFR—14.4 million m3). Logging volumes were far below the allowable cut limit, while the overall annual growth of wood in the forests managed by SAFR reached 24.6 million m3. This policy has allowed Ukraine to expand its timberland area by 1%, and increase woodstock inventory by 12% over the last 10 years.

AEG has concluded long-term contracts with 30 state-owned forestry enterprises to secure supplies of raw materials to produce wood chip. Raw timber (primarily non saw-logs, technical lumber and forestry residues) is delivered by rail to the company’s processing facilities at Yuzhny Port.

Map of Ukraine’s forests

13

Market overview—wood chip for MDF (continued) Export markets—Turkey

According to USDA, imported logs, primarily from Ukraine, used to be the main raw material for Turkish MDF producers. About 60% were Beech logs, 15% were Birch, 15% were Oak and 10% were Ash. In recent years however, imported wood chip has become the main raw material used. Wood chip accounts for 60% of total raw material utilized in Turkish MDF manufacturing.

Ukraine was the third largest exporter of sawn wood and wood chip to Turkey in 2013, with a market share of around 12%, after the US (34%) and Bulgaria (13%). However, while the share of Ukrainian sawn wood in Turkey’s imports have been stable at 31-32%, the country’s share of wood chip imports into Turkey has fallen in recent years, reaching just 6% in 2013, compared to 43% in 2008.

Last year, Ukraine exported 207,000 tonnes of sawn, chipped and sliced wood worth USD 47 million to Turkey, while total exports amounted to USD 273 million. At the same time, the country’s exports of wood chip amounted to 195,000 tonnes or USD 19 million, 128,000 tonnes of which was supplied to Turkey.

In 2013, the Turkish MDF market was estimated at 4.3 million m3 produced annually, with approximately 9-10% of the end product shipped to the Middle East and Europe. According to the UNECE/FAO forecasts, Turkey should produce 5.0 million m3 of MDF in 2015, and export 583,000 m3 of it abroad.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Wood chips Wood sawn/sliced/chipped

Ukraine’s exports of sawn wood and wood chips to Turkey, tonnes

Source: UN Comtrade, ITC, ESCP estimates

0

1,000

2,000

3,000

4,000

5,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Turkey’s production of MDF (‘000 m3)

Source: FAOSTAT

10y CAGR: 24%

14

Market overview—wood chip for MDF (continued) Turkey’s domestic market—overview

Turkey is the 6th largest economy in Europe, and 16th largest in the world. The country’s GDP per capita stood at USD 10,815 in 2013 (current US dollars), which places Turkey in the list of middle-income countries. Turkey is also one of the world’s biggest markets with a population of 76 million and a labour force of 28 million, with half of the population below the age of 30.

After a 5% drop in real GDP in 2009, Turkey managed to quickly recover thanks to economic stimulus measures (reduction of taxes and lower lending rate of the central bank) as well as an inflow of foreign investments as capital shifted from developed markets to emerging markets. Thus, in 2010-2011 the country’s GDP grew by 9%, outperforming all other European countries. In 2012-2013, however, the growth slowed down to 2-4% as the country was continuing to maintain a high current account deficit (mostly due to energy imports), while savings rate dropped to below 15%. Coupled with the recovery in the US, and the subsequent course of the Fed to taper its expansionary monetary policy soon, it resulted in the devaluation of the Turkish lira as capital started going out of the country, which has already forced the Central Bank of Turkey to ramp up its base rate to 14%.

The Turkish construction sector, however, was performing much better than the economy as a whole, growing by 7.1% in 2013 and becoming one of the main drivers of the local economy. The construction permit statistics point to a sustained growth of the sector in 2014.

In 2013, the government introduced an Urban Transformation project, which envisages the demolishing and renewal of millions of buildings (6.5 million over the next 15-20 years) deemed to be unsafe in the country’s earthquake-prone regions. The project is likely to induce a higher rate of growth in the construction and related industries.

According to IBS Consulting, the Turkish fibreboard industry is expected to grow by 8% annually reaching USD 2.7 billion by 2017, while the production level is expected to reach 5.6 million m3.

Turkey’s building permits statistics (# of dwelling units)

Source: OECD

0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Turkey’s real GDP growth

8.46.9

4.7

0.7

-4.8

9.2 8.8

2.1

4.13.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Source: Turkish Statistical Institute

15

Market overview—wood chip for MDF (continued) Prices

According to trade statistics, the implied price of wood chip imported from Ukraine was in the range of USD 90-115/t in 2013-2014, with the latest recorded price of USD 107/t. Prices mainly fluctuate due to seasonality factors, as well as changing demand for wood-based panels.

Domestic sales prices of fibreboard in Turkey have dropped by 7% to USD 420/m3 in 2013 on the back of increased production and devaluation of the Turkish lira. However, considering growing demand supported by the construction industry in Turkey, we expect prices to recover slightly in 2015.

Implied import price of Ukrainian wood chip, USD/t

Source: UN Comtrade, ITC, ESCP estimates

5060708090

100110120130140150

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Domestic prices of fibreboard in Turkey, USD/m3

394

377

404

451

420

2009 2010 2011 2012 2013

Source: IBS Consulting

16

Market overview—Canadian lumber market Resource base

Canada has over 348 million hectares of forest lands, which represents 9% of the world’s forests, primarily containing Spruce, Poplar and Pine. According to National Resources Canada (NRCan), in 2013, the forest industry’s contribution to Canada’s GDP was USD 19.8 billion, with 216,000 people directly employed in the industry. In 2012, 148 million m3 of industrial roundwood were harvested in Canada from an area of 0.6 million hectares, or approximately 0.3% of the total standing wood volume of 47 billion m3.

Out of the total timberland area, 153 million hectares of forests have been independently certified as sustainably managed. It is worth noting that about 90% of Canada’s forests are publicly owned. Provincial governments regulate harvest levels on provincial Crown lands by specifying the annual level of harvest allowed on a particular area (annual allowable cut or AAC). However, according to NRCan, Canada’s estimated sustainable wood supply is currently much higher than the annual volume of harvested timber (227 million m3 vs. 148 million m3 in 2012).

Canadian forests composition

17

Market overview—Canadian lumber market (continued) Supply-side shocks

The mountain pine beetle (MPB) epidemic in British Columbia (BC) has caused significant mortality in Pine forests. The current MPB outbreak started in BC in the early 1990s and has since killed about 55% of the total volume of commercial Lodgepole Pine in the province. It is estimated that by 2017 over 70% of current standing volumes of BC Pine will be destroyed by MPB. As the province accounts for more than 40% of the total volume of harvested forest in Canada, it will most likely result in the significant drop in production volume of saw-logs, which could push the prices upwards as a result of a supply gap.

It should also be noted that while the MPB epidemic has now spread into Alberta, the forests in the Paddle Prairie and Peavine Settlements are mostly composed of Spruce and only a small amount of Pine. Furthermore, the latest maps of MPB population prepared by the Environment and Sustainable Resource Development Ministry of Alberta show either no MBP infestation or a decreasing population of MBP near the Settlements.

The reduction of the annual allowable cut in Quebec and Ontario provinces will also affect the North American timber supply in future. Reductions in Quebec began in 2008 as a result of the Coulombe Commission report on the sustainability of public-forest management, which concluded that the forests were overharvested and recommended a 20% cut in production. However, the province’s authorities later introduced a 35% reduction in AAC.

MPB-affected areas in Canada

Source: Natural Resources Canada (NRCan)

18

Market overview—Canadian lumber market (continued) Domestic production

In 2013, production levels were up across all segments of the forest sector in Canada. Thus, production of lumber grew by 6% y/y to 59 million m3, while structural panels production increased by 7% y/y to 7 billion m3, supported by the recovery in the US housing market. Wood pulp production was largely stable at 17 million tonnes (+1% y/y). At the same time, domestic consumption of lumber was down by 4% y/y to 23 million m3, while consumption of wood pulp amounted to 7.8 million tonnes (+3% y/y).

International trade

The main consumer of the Canadian lumber is the US with a 61% share of total exported value of sawn wood in 2013. The US housing market remains a key driver in North American lumber market, as the majority of lumber is used in new home construction (about 30–40% of North American lumber goes into new homes, with another 30–35% used in repair and remodeling). Canadian softwood lumber exports soared in 2013, rising by 29.5% y/y to USD 7.4 billion, out of which USD 4.4 billion were exported to the US.

Another big export market for Canadian lumber is China. Shipments of softwood lumber to China have been rising steadily over the past few years, reaching 7.96 million m3 in 2013 (12 times as much as in 2007). We believe that the growth of exports to the region will slow down in 2015 due to China’s economy losing steam, but Canada is likely to stay one of the key exporters.

Monthly shipments of softwood lumber to China (’000 m3)

Exports of wood from Canada, (’000 m3)

0

10,000

20,000

30,000

40,000

2009 2010 2011 2012 2013

sawn softwood industrial roundwood

Source: US Census Bureau

Source: Canada Statistics, COFI, FAS

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012 2013 2014

Housing starts in the US, annualized rate (’000 units)

Source: UNECE/FAO

0

200

400

600

800

1,000

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

US Canada

19

Market overview—Canadian lumber market (continued) Prices

Domestic prices of softwood lumber have been increasing steadily over the last few years, while prices of pulpwood remained relatively stable, albeit declining in September-October 2014. According to the latest log market report of British Columbia government, SPF (Spruce-Pine-Fir) lumber prices were around USD 65/m3 in October 2014 (+14% ytd), while pulpwood prices dropped to USD 32/m3 (-9% ytd).

At the same time, average coast log prices for SPF (Vancouver log market) were USD 116-117/m3 in October, while prices for Birch and Alder were in the range of USD 55-65/m3.

US prices of framing lumber have failed to recover from a sharp selloff in spring 2013 after disappointing housing starts data, and stayed in the range of USD 350-400/1,000 board feet (tbf) in 2014. However, positive economic data on the US economy (+5% GDP growth in 3Q2014) and revival of housing starts gives hope for a rebound of prices in 1Q2015.

Domestic prices of lumber and pulpwood in British Columbia ($/m3)

Source: BC Government website

Source: Random Lengths, NAHB

0

20

40

60

80

100

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

sawlogs pulpwood

250

300

350

400

450

500

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

US prices of framing lumber ($/1,000 board feet)

20

Timberland prices—transaction analysis We have reviewed the latest transactions involving the sale of timberland in the US and Canada with publicly disclosed information about the deal size and characteristics of timberland assets. Average transaction prices of timberland vary in the range of USD 2,000-5,000 per hectare, with the median value of USD 3,303 per hectare.

The latest transaction in Canada involved the purchase of 634,000 acres of timberland in British Columbia by BC Investment Management Corporation and Alberta Investment Management Corporation for a total consideration of USD 170 million, which translates into a price per hectare of USD 2,651.

Considering the recent increase in the price of softwood lumber, as well as likely shortages of supply from the British Columbia due to the MPB (mountain pine beetle) infestation, we believe that the timberland assets of KAQUO may be priced close to the median level for comparable transactions at USD 3,300 per hectare (USD 1,330 per acre), which brings the total possible cash flow to AEG to about USD 130 million (assuming that 90% of the revenue of the KAQUO JV is immediately distributed as dividends, and a 10% tax rate is applied on dividends under the Canada-UK legislation on avoidance of double taxation).

It is reasonable to assume that the company will be able to sell Tree Farming Permits for several areas of the timberland controlled by KAQUO, rather than the whole asset itself. Thus, selling a permit for 25,000 hectares (61,750 acres) could net AEG a total of USD 30 million in dividends (after taxes). We believe that KAQUO will be able to commercialize the entire asset in 2-3 years.

M&A transactions with timber tracks in 2010-2014

Date Location Acres of

timberland Deal size,

$ mn $/acre $/ha

Mar-14 US/Georgia 36,340 74 2,036 5,032

Sep-13 US/Alabama 72,000 90 1,250 3,089

Jul-13 US/Virginia 39,945 17 413 1,021

Jun-13 Canada/British Co-lumbia

634,000 170 1,073 2,651

Apr-13 US/Georgia 46,000 72 1,565 3,868

Dec-12 Texas 62,600 88 1,406 3,474

Oct-12 US 29,300 21 700 1,729

Oct-12 US 2,000 2 1,000 2,471

May-12 US 4,700 8 1,766 4,364

Dec-11 US 7,400 6 797 1,970

Nov-11 US/Texas 7,000 12 1,763 4,356

May-11 US 2,600 6 2,346 5,797

Feb-11 Canada/British Co-lumbia

7,678 22 2,867 7,084

Sep-10 US/Texas 14,280 18 1,268 3,132

Average 1,446 3,574

Median 1,337 3,303

Source: CapitalIQ, ESCP estimates

21

Market overview—Wood chip for power generation (BFE) According to all major sources (IEA, EIA, BP, Pöyry etc.) the share of renewables in energy consumption should increase in future, which will be greatly influenced by current polices of key global economies—the EU, China, and the US. For example, the EU aims to get 20% of its energy from renewable sources by 2020 (The EU RES Directive).

The European biomass market is expected to grow from 82 terawatt-hours (TWh) in 2013 to 250 TWh in 2020 (biomass electricity production), according to the European Renewable Energy Council. Thus, the demand for wood in the EU is very likely to increase in the period to 2020 and potentially beyond, with most of this due to a significantly greater increase in the demand for wood for energy. This demand can be satisfied by various types of wood: wood pellets, wood chip, sawdust, post-consumer recovered wood etc.

In 2013, the EU-28 countries imported USD 4 billion of fuel wood, the majority of which was attributed to wood pellets (56%) and wood chip (20%, mostly coniferous wood chip). The top-5 importing countries of coniferous wood chip were Finland (32% of total or USD 164 million), Austria (18% or USD 90 million), Sweden (14% or USD 73%), Germany (7% or USD 36 million) and Italy (6% or USD 30 million), while the total import value reached USD 504 million.

The majority of coniferous wood chip was also imported from the EU-28 countries (72%), while Russia and Belarus accounted for another 25% of total exports to the EU (in value terms). However, the share of intra-EU shipments of hardwood chip is only 43%, while major exporters are Uruguay (34%), Germany (8%) and Russia (7%).

The demand for woody biomass is mostly driven by the evolution of the biomass power plant industry. Thus, according to Ecoprog, at the beginning of 2014 there were around 1,200 active biomass power plants in Europe. This number is expected to grow to approximately 1,750 by late 2023. In South Italy alone, the total feedstock demand of biomass power plants is forecasted to increase from 1.1 million dry tonnes p.a to 1.7 million dry tonnes p.a. due to new projects coming online in future, according to Pöyry.

56%

14%

13%

11%

7% Wood pellets

Sawdust and wood waste

Wood in chips, coniferous

Fuel wood

Wood in chips, non-coniferous

EU imports of fuel wood, by value (2013) Imports of wood chip by EU-28 countries, USD mn

Source: ITC, Comtrade

403 457 549 456 504

213327

383

262284

2009 2010 2011 2012 2013

Wood in chips, non-coniferous Wood in chips, coniferous

Source: ITC, Comtrade

22

Market overview—Wood chip for BFE (continued) Prices

The prices of wood fuels and fossil fuels can be compared by primary energy prices in EUR/MWh. Typically energy value of wood fuel varies mainly according to its moisture content. Out of all wood fuels, wood chip is the cheapest.

Due to fragmented markets, as well as different local demand and supply chains, wood chip prices vary a lot across Europe. According to the BiomassTradeCentre, the lowest prices in 1H2014 were recorded in Croatia (EUR 56/t) and Romania (EUR 58/t), while the highest prices were observed in Ireland (EUR 136/t), Austria (EUR 132/t) and Germany (EUR 114/t) for wood chip with moisture in the range of 20-30% and a particle size of P45.

Over the first half of 2014, in Croatia, Romania and Germany prices of wood chip have increased by about 7% and 8% respectively compared to 2H2013. In Austria the prices decreased by around 11% and in Ireland remained at approximately the same level.

Prices of wood fuels compared to heating oil, EUR/MWh

Source: BiomassTradeCentre

Price dynamics of wood chip in some European countries, EUR/MWh

Source: BiomassTradeCentre

23

Management team Richard Spinks, Chief Executive Officer

Mr Spinks is a seasoned entrepreneur, with a proven track record in business development within the hi-tech, food processing, agriculture and forestry/biomass industries. He has worked in Central and Eastern Europe since 1980, gaining vast experience and a network of high-level contacts across different industry sectors in a number of emerging markets, including Russia, Ukraine and Poland. Prior to his appointment as Chief Executive Officer at Active Energy Group Plc in 2012, he founded and served as Chief Executive Officer (2004-2009) at Landkom International Plc, the first AIM-listed company in the agricultural sector, based in Ukraine.

Matteo Girlanda, Chief Operating Officer

Mr Girlanda has over ten years experience in pan-European wood trading, processing and logistics for the biomass fuel and MDF manufacturing sectors, as well as considerable knowledge of forestry management, renewability and sustainability. He has worked in Ukraine since 2005, initially as Director of ICL Ukraine (2005-2011), a wood chip processing and shipping company. He then founded and headed up Nikofeso Group, which owned and operated high-volume wood chip processing, logistics and port facilities in Western and Southern Ukraine, and which he developed to become the country’s leading exporter of wood chip to the EU and Turkey.

Brian Evans-Jones, Chief Financial Officer

Mr Evans-Jones is a qualified Chartered Accountant, with many years international experience working with start-ups and established businesses across a broad range of industry sectors. He has acted as a consultant to, officer of, and investor in a number of businesses in the food, manufacturing, construction and property sectors across the UK, Europe and CIS, including several turn-around situations and early stage companies. His clients have included Harsco Inc., Ensemble Combined Services, Celtic Oriental, Boditronics, Ty Nant Spring Water (where he was a Founder and Finance Director) and Seconds Ahead.

Frank Lewis, Non-Executive Chairman

Mr Lewis is a highly-experienced and accomplished public company director, having served as Non-Executive Chairman and Director for a number of international publicly-quoted firms with interests across the UK, Europe, Far East, Middle East and Africa. He is a Fellow of the Institute of Chartered Accountants in England & Wales and serves as a committee member for its special interest group for Non-Executive Directors, and was previously a member of the AIM Advisory Council, which advises the London Stock Exchange on matters relating to the AIM market.

Giuseppe (Joseph) Valoroso, Non-Executive Director

Mr Valoroso has been involved in the forestry and timber products industries for almost five decades, and has significant experience in large-scale commercial logging operations. He founded his first logging firm in British Columbia in 1965; before establishing Valoroso Logging (1972-1987), which he developed to become the largest logging company in the territory, supplying large volumes (up to 3,000 m3 per day) of high-quality timber to sawmills and wood processing firms throughout the region.

24

DCF valuation Assumptions

For the purposes of this valuation we excluded any cash flow to/from AEG’s BFE fuel pellet division, as the technology is still in its early stages and can’t be valued properly on the data we have right now.

We estimate that the company will be able to gradually ramp up its wood chip for MDF division to 700,000 tonnes supplied in 2017-2019 due to a planned increase in production capacity from 80 tonnes per hour to 200 tonnes.

However, we conservatively assume that AEG will limit its sales of Biomass for Energy (BFE) to 50,000 tonnes annually as currently margins remain quite low.

We estimate that the company’s MDF wood chip gross margin will improve to about 24% in 2015 on back of the positive effect of the Ukrainian hryvnia (UAH) devaluation on costs, but gradually decrease to 16% in 2019 as cost inflation catches up, while a strong US dollar and weak Turkish lira will not allow wood chip prices to increase substantially.

As for the BFE segment, we estimate that margins will eventually improve to about 10% in 2017 as the company improves the efficiency of its operations.

We expect that the company’s working capital will be around 30 days of sales, as shipping time is relatively small, while payment from clients is usually delivered without delays.

Moreover, we forecast that the company will need about USD 2 million of additional investment to expand the capacity of its MDF wood chip division in Yuzhny Port and install equipment needed to produce softwood wood chip (log debarker).

As for the value of the company’s share in KAQUO, we assume that the JV will be able to sell Tree Farming Permits for 108,000 ha over a two-year period at a price of 3,300/ha, which brings the total possible cash flow to AEG to USD 130 million (assuming that 90% of the revenue of the KAQUO JV is immediately distributed as dividends, and a 10% tax rate is applied on dividends).

Parameter 2014 2015 2016 2017 2018 2019

Volumes, tonnes

Wood chip for MDF 210,000 500,000 600,000 700,000 700,000 700,000

Wood chip for BFE 42,629 25,000 50,000 50,000 50,000 50,000

Prices

Wood chip for MDF, $/t 109 109 109 109 109 109

Wood chip for BFE, $/t 81 76 74 77 79 81

Gross margin

Wood chip for MDF 13% 24% 21% 18% 17% 16%

Wood chip for BFE 0% 3% 5% 10% 10% 10%

Other items

Working capital 2,523 4,627 5,672 6,575 6,584 6,594

CAPEX 800 2,000 250 250 250 250

Exchange rates (avg)

USD:UAH 12.50 25.00 25.50 26.01 26.53 27.06

EUR:USD 1.25 1.05 1.00 1.00 1.00 1.00

25

DCF valuation (continued)

DCF Output

USD ‘000 2014e 2015f 2016f 2017f 2018f 2019f

FCF to Firm (1,394) 4,697 7,793 8,332 8,524 7,799

EBIT 148 10,115 10,433 10,887 10,001 9,087

Income tax rate 18% 18% 18% 18% 18% 18%

- Tax (27) (1,821) (1,878) (1,960) (1,800) (1,636)

+ Depreciation 308 508 533 558 583 608

- CapEx (800) (2,000) (250) (250) (250) (250)

- WC change (1,023) (2,104) (1,044) (903) (9) (10)

WACC 27.5% 27.5% 27.5% 27.5% 27.5% 27.5%

Discount factor 0.82 0.65 0.51 0.40 0.31

Time factor 1.00 1.00 1.00 1.00 1.00

FCFs Discounted 3,873 5,041 4,228 3,394 2,436

WACC to perpetuity 20%

Sum of FCFs 18,972

Terminal growth rate 3.0%

Terminal value 47,253

NPV of TV 14,761

TV contribution to EV 44%

Segment value 33,733

Less Net Debt -1,825

Less Conv. Debt -1,048

Equity value 145,067

Add: JV value (discounted at 8%) 114,206

Total company value 147,939

Value per share, USD 0.260

Current value 0.076

Upside 244%

WACC calculation

Risk-free rate (UST) 2.3%

Unlevered beta 1.00

Levered beta 1.49

Equity risk premium 5.6%

Country risk premium 23.5%

Cost of equity (USD) 34.2%

Risk-free rate (Ukr. 10 year Eurobonds yield) 18.0%

AEG premium/discount 10.0%

Tax rate 18.0%

After tax cost of debt 23.0%

%D 60%

%E 40%

WACC (USD) 27.5%

26

P&L statement

USD ‘000 2014 2015 2016 2017 2018 2019

Sales 26,312 56,298 69,004 79,995 80,111 80,229

COGS -23,414 -43,159 -55,395 -65,773 -66,608 -67,466

Gross profit 2,898 13,139 13,609 14,222 13,502 12,763

Gross margin 11% 23% 20% 18% 17% 16%

Admin. Expenses -2,750 -3,025 -3,176 -3,335 -3,502 -3,677

EBIT 148 10,115 10,433 10,887 10,001 9,087

EBIT margin 1% 18% 15% 14% 12% 11%

Finance cost -1,050 -625 -600 -700 -700 -700

EBT -902 9,490 9,833 10,187 9,301 8,387

Taxes 0 -1,708 -1,770 -1,834 -1,674 -1,510

Net income -902 7,781 8,063 8,354 7,627 6,877

NI margin -3% 14% 12% 10% 10% 9%

27

About us

Empire State Capital Partners is a full service investment company with Western roots headquartered in Ukraine. We offer services in capital markets advisory, mergers and acquisitions, debt and equity underwriting, corporate finance, brokerage, asset management and structured products. Our team is comprised of experienced professionals from United States, Europe, Australia and Ukraine, who have been involved in a wide variety of investment projects in CIS countries and overseas.

Disclaimer Although the information in this report was collected in good faith and has been obtained from sources which Empire State Capital Partners believes to be reliable, we do not represent or warrant its accuracy, except with respect to information concerning Empire State Capital Partners, its subsidiaries and affiliates, either expressly or implied, and such information may be incomplete or condensed. Nor has the information and/or data been independently verified, and so is provided without further caveat regarding its reliability, suitability for commerce or specific purpose. This report does not constitute a prospectus and is not intended to provide the sole basis for an evaluation of the securities discussed herein. All estimates and opinions included in this report constitute our judgment as of the date of the report and may be subject to change without notice. Empire State Capital Partners or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, or other services (including acting as advisor, manager) for any company referred to in this report and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. Empire State Capital Partners will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This report is confidential and is being submitted to select recipients only. It may not be reproduced (in whole or in part) without the prior written permission of Empire State Capital Partners. Any recommendations, opinions, forecasts, estimates or views herein constitute a judgment as at the date of this report. This document has been produced independently of Empire State Capital Partners and the recommendations, forecasts, opinions, estimates, expectations, and views contained herein are entirely those of the research analyst(s). While all reasonable care has been taken to ensure that the facts presented herein are accurate and that the respective recommendations, forecasts, opinions, estimates, expectations, and views are fair and well considered, none of the research analyst(s), Empire State Capital Partners or any of its directors, managers or employees has verified the contents of this document and, accordingly, no research analyst, Empire State Capital Partners or any of its respective directors, managers or employees shall be in any way responsible for its contents. Empire State Capital Partners received payment for the compilation and distribution of this research report. © Empire State Capital Partners, 2015

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