Management’s Interim Report – Vaahto Group, 1 January – 6 November 2015

VAAHTO GROUP PLC OYJ STOCK EXCHANGE RELEASE 6 NOVEMBER 2015 at 11:00

MANAGEMENT’S INTERIM REPORT – VAAHTO GROUP, 1 JANUARY– 6 NOVEMBER 2015

Business review

In the period of 1 January to 30 September 2015, Vaahto Group’s turnover from continuous operations was 18.6 MEUR (16.9 MEUR) and the operating loss from continuous operations -1.2 MEUR (operating loss -0.9 MEUR).

The turnover increased by 1.7 MEUR year-on-year due to the increased order book. Operating result decreased by 0.3 MEUR. The low operating result was due to the extended challenging market situation, an uneven distribution of workload and the cost of some project deliveries turned out to be higher than expected. On the other hand, the realisation of an important project at a better than planned margin had a positive effect on the operating result during the reference period under review.

The Group’s order book from continuing operations amounted to 14.2 MEUR on 30 September 2015 (12.8 MEUR). The order book increased by 1.4 MEUR year-on-year.

The continuous operations of the Group also include AP-Tela Oy which had previously been classified under discontinued operations, and the comparison figures have been adjusted accordingly.

Company and funding arrangement with Uutechnic

On 3 September 2015, the company announced a letter of intent with regard to a company and funding arrangement with Uutechnic Oy, in which the majority of Vaahto Group Plc Oyj’s share capital would be transferred to the current owners of Uutechnic and Uutechnic’s business operations would be merged into Vaahto Group. The arrangement was conditional subject to, among other factors, a commitment by central financers and, finally, decisions of the general meetings of the companies. The company announced the financial agreements related to the arrangement on 28 October 2015. The agreement included debt cuts, refinancing of debts and new working capital financial assets. The principal owners of Vaahto Group Plc Oyj and Uutechnic Oy signed the agreement concerning the company arrangement on 29 October 2015, and on 30 October 2015, extraordinary general meetings of both companies granted their final approval for the arrangement. At the same time, it was decided that Vaahto Group Plc Oyj be renamed to Plc Uutechnic Group Oyj and that Uusikaupunki would be the domicile of the company.

 

With the company arrangement, the business operations of Vaahto Group and Uutechnic Oy will be merged by means of an exchange of shares in such a way that the shareholders assigning shares of the business operations company demerged from Uutechnic Oy will obtain 24,000,000 new shares of Vaahto Group in return by means of a private offering. The arrangement also includes a subscription privilege issue and a private offering which offer a total of 15,985,850 new shares of Vaahto Group for subscription.

 

On 20 October 2015, the Financial Supervisory Authority granted the principal owners of the company being created in the company arrangement the permission to deviate from the duty to offer shares in Vaahto Group Plc Oyj. The validity of this special exemption was subject to the arrangement being supported in the general meeting of the company by shareholders not affected by the arrangement representing at least two thirds of the votes given. This condition was fulfilled in the general meeting of 30 October 2015, and the permission thereby became valid.

 

 

New Board of Directors

 

The extraordinary general meeting of 30 October 2015 elected Jouko Peräaho and Timo Lindström to the Board of Directors of Vaahto Group to replace Mikko Kilpinen and Topi Karppanen who no longer continued in the Board. The Board elected Jouko Peräaho as the chairperson and Sami Alatalo as the vice chairperson.

 

Reporting of operations

 

During the current financial year, Vaahto Group has continued to implement the strategy outlined by the Board of Directors, according to which the Group focuses on Process Technology operations.

 

AP-Tela Oy was classified as a discontinued operation in the financial year 2014. In connection with the company arrangements with Uutechnic, AP-Tela has now been reclassified under continuous operations.

Vaahto Group reports its business operations, AP-Tela included, in one segment which consists of Vaahto Process Technology operations.

 

 

Vaahto Process Technology

 

Vaahto Process Technology operations is divided into two business areas: Japrotek Vessels and Stelzer Mixing Technology.  Going forward, also AP-Tela will be included in Vaahto Process Technology operations. Japrotek Vessels focuses on demanding process equipment systems as well as storage tank and mixer combinations.  Stelzer Mixing Technology especially focused on mixer products for the chemical and foodstuff industry and seeks strong growth in new market areas. AP-Tela is a heavy custom machine workshop.

 

The order book of Vaahto Process Technology’s biggest business area, Japrotek Vessels, was lower than expected at the beginning of 2015, and the preparations were made for the decreased workload by arranging co-operation negotiations concerning the possibly required adjustments. Japrotek received an important order from Metsä Fibre at the beginning of September, related to the construction of the bioproduct factory in Äänekoski. The order includes the design, manufacture and installation of a bleaching reactor. The challenging market situation, uneven distribution of workload and excess cost of certain project deliveries have, however, caused substantial burden to the profitability of the business area.

 

The beginning of the year was challenging for the Stelzer Mixing Technology business area, and the workforce was adjusted to match the decreased workload. The order book started to increase at the beginning of the year, however, and reached a good level by the end of September. The challenge for the remainder of the year is to book income from the order backlog as planned and to maintain the positive development of the order book.

 

 

Financing and liquidity

 

On 16 February 2015, Vaahto Group Plc Oyj agreed with its central financers that the company’s financers would forgive the company’s debts of approximately 3.9 MEUR in total, to convert their loan receivables into a subordinated loan for approximately 1.2 MEUR and to grant an amortization-free period for their loans until 30 June 2016. At the same time, Vaahto Group Plc Oyj implemented a private offering, issuing 10,000,000 new shares at a subscription price of 0.25 EUR per share.

 

As one operation to stabilise its funding, Vaahto Group started a programme to adjust its operations and costs at the beginning of the year, aiming for a cost decrease of 0.8 MEUR per year. The adjustment programme has been implemented in 2015, and one-time adjustment costs of approximately 0.4 MEUR are expected. If realised, the desired cost decrease will have its full effect in 2016.

 

On 3 September 2015, the company announced a letter of intent with regard to a company and funding arrangement with Uutechnic Oy, in which the majority of Vaahto Group Plc Oyj’s share capital would be transferred to the current owners of Uutechnic and Uutechnic’s business operations would be merged into Vaahto Group. The arrangement was conditional subject to, among other factors, a commitment by central financers and, finally, decisions of the general meetings of the companies.

 

The most relevant current financers of the Group’s parent company and Japrotek hold approximately 5.4 MEUR of debt and subordinated loan receivables in total. According to the funding arrangement announced on 28 October 2015, the current financers have agreed to waive and release the capitals of the debt and subordinated loan receivables in question against a one-time payment of 2.0 MEUR. A binding financing offer has been obtained from a new financer, making the above mentioned one-time payment of 2.0 MEUR and the refinancing of other receivables possible. The financing offer includes new working capital assets which will further strengthen the group’s financial standing. In connection with the funding arrangement, also the loans obtained from Mikko and Hannu Laakkonen to Vaahto Group with a total capital of 2.0 MEUR will be converted into subordinated loans.

 

 

The company arrangement additionally includes the capitalization of Vaahto Group by means of share issues in such a way that existing shareholders of Vaahto Group are offered 9,985,850 new Vaahto Group shares at 0.25 EUR as a subscription privilege issue. The principal owners of Vaahto Group, Mikko Laakkonen and Hannu Laakkonen, have agreed to subscribe to the share issue for their own part as well as to subscribe to any shares which are left unsubscribed. In addition to this, a maximum of 6,000,000 new Vaahto Group shares will be offered to Uutechnic shareholders or entities appointed by them in a private issue at a subscription price of EUR 0.25 per share. The owners of Uutechnic have agreed to subscribe to these shares. These share issues will bring approximately 4.0 MEUR new capital into Vaahto Group.

 

The adequacy of working capital is monitored actively by means of cash flow forecasts. The management of the Group estimates that the company and funding arrangement obtained will improve the Group’s financial standing substantially.

 

 

 

Human resources

 

On 30 September 2015, 171 persons on average were employed in the continuous operations of the Group.

 

Topi Karppanen, M. Sc. (Tech.), was the acting CEO of the company from 1 September 2014 to 31 March 2015, and Kalle Rasinmäki, M. Sc. (Tech.), was appointed as the CEO from 1 April 2015.

 

On 5 November 2015 the company announced that the CEO will change. M.Sc. (Tech.) Martti Heikkilä has been appointed as a new CEO starting 1 December 2015.

 

 

Risks and operational uncertainties

 

Risks and operational uncertainties are linked to the development of the order book, the management of large project deliveries and profitability especially in the Japrotek Vessels business area. A successful combination of operations related to the company arrangement will also require determined cooperation from the entire organisation.

The dispute concerning the terms of termination of Vaahto Group Plc Oyj’s previous CEO has been settled in the Court of Appeal in favour of the CEO. The compensation according to the Court’s ruling had been entered as an expense in 2014 already and was paid out in October 2015.

 

 

Share issues

 

At its meeting of 15 February 2015, Vaahto Group Plc Oyj’s Board of Directors decided on a private issue in which the company offered a maximum of 10,000,000 new shares for subscription. In the share issue, Mikko Laakkonen subscribed to 3,000,000 shares, HML FINANCE OY subscribed to 3,000,000 shares, Nemea Credit Opportunities Fund (a sub-fund of Nemea Alternative Investment Fund (SICAV) Ltd) subscribed to 3,000,000 shares and Lombard International SA’s PCP 34443 subscribed to 1,000,000 shares. The subscription price per share of all the shares was 0.25 EUR. The investors subscribed to all the shares offered to them. The subscription price of shares was determined on the basis of negotiations between the company and the investors. The company’s financial situation and alternative financing opportunities were observed in the setting of the subscription price. The shares were paid for in cash to the company on 18 February 2015.

 

Vaahto Group Plc Oyj published the listing prospectus approved by the Financial Supervisory Authority on 7 August 2015 concerning the listing at NASDAQ OMX Helsinki Oy of the 10,000,000 new shares issued according to the above share issue decision and the 2,000,000 new shares issued according to the share issue decision of 10 March 2014. Trading in the above mentioned stocks began on 12 August 2015.

 

On 30 October 2015, Vaahto Group’s extraordinary general meeting decided on the subscription privilege issue and private issue related to the company and funding arrangement. In the subscription privilege issue, existing shareholders of Vaahto Group are offered 9,985,850 new Vaahto Group shares for subscription at 0.25 EUR per share. The principal owners of Vaahto Group, Mikko Laakkonen and Hannu Laakkonen, have agreed to subscribe to the share issue for their own part as well as to subscribe to any shares which are left unsubscribed. A maximum of 6,000,000 new Vaahto Group shares will be offered to Uutechnic shareholders or entities appointed by them in a private issue at a subscription price of EUR 0.25 per share. The owners of Uutechnic have agreed to subscribe to these shares. In addition, shareholders of the business operations company demerging from Uutechnic will be offered 24,000,000 new Vaahto Group shares for subscription at a price of 0.25 EUR per share in return for the shares in the business operations company demerged from Uutechnic.

 

Authorisation for share issue

 

The general meeting decided on 14 April 2015 according to the Board of Director’s proposal to authorise the Board to decide on the issue of new shares and the granting of options and other special rights to shares according to Section 1 of Chapter 10 of the Finnish Companies Act in one or several batches. The maximum number of new shares granted is 10,000,000, including shares granted on the basis of special rights. The authorisation is valid until 31 May 2016 unless the general meeting changes or revokes the authorisation prior to that.

 

Shareholders’ equity

 

The arrangement realised with the financers during the first quarter of the financial year resulted in the waiving of loans totaling 3.9 MEUR, the conversion of loans into subordinated loans of 1.2 MEUR and the obtaining of new capital of 2.5 MEUR by means of a private issue. The group’s shareholders’ equity was -4.0 MEUR on 30 June 2015.

 

The share issues related to the company arrangement decided in October, the waiving of loans and the conversion of owners’ loan receivables into subordinated loans will have a positive effect on the Group’s shareholders’ equity. The waiving of loans also has a positive effect on Japrotek’s shareholders’ equity.

 

Estimate for financial year 1 January – 31 December 2015

 

The company’s management keeps the estimate given in the interim report for 1 January–30 June 2015. The combination of Vaahto Group and Uutechnic Oy in the Group’s IFRS reporting consists of a so-called reverse acquisition. As the owners of Uutechnic obtain the majority of the merged Group’s shares and votes as well as the Board, Uutechnic Oy is considered as the acquiring party in the preparation of the consolidated financial statements. As a result of this, reporting of Vaahto Group ends with the entry into force of the company and funding agreement on 30 October 2015.

 

In the financial statements of 31 December 2015, the new entity will combine the Uutechnic Oy from 1 January 2014 (comparison figures) and the current Vaahto Group for the last two months of financial year 2015. Uutechnic’s operations left outside the amalgamation of operations in the demerger and the related balance sheet items will be shown as discontinued operations in the profit and loss statement and as items removed as a result of the demerger on the balance sheet.

 

Helsinki, November 6, 2015

VAAHTO GROUP PLC OYJ

Board of Directors

 

Additional information:
Mr. Sami Alatalo, Chairman of the Board  +358 40 826 2066