Vaahto Group’s Preview of Results for Fiscal Year 1.9.2007 – 31.8.2008

VAAHTO GROUP PLC OYJ STOCK EXCHANGE BULLETIN 14.11.2008 at 10.00

VAAHTO GROUP’S PREVIEW OF RESULTS FOR FISCAL YEAR 1.9.2007–31.8.2008

Vaahto Group’s turnover for the fiscal period was 73.2 MEUR (88.2 MEUR) and operating profit 0.6 MEUR (5.8 MEUR). Earnings per share were 0.08 euros. The Board of Directors will propose a dividend of 0.10 euros per share.

Business developments

Vaahto Group’s turnover for the fiscal year ending in August 2008 was 73.2 million euros (88.2 million euros), with an operating profit of 0.6 million euros (5.8 million euros). The Group’s turnover decreased by 17% from the previous fiscal year’s figure. In addition to the decreased turnover, the result was undermined by the poor profitability of the Pulp & Paper Machinery division’s project deliveries completed during the period under review. Vaahto Group’s order backlog increased toward the end of the period, coming to 54.4 million euros (42.9 million euros) on August 31.

Pulp & Paper Machinery

The Pulp & Paper Machinery division’s turnover for the fiscal year was 39.5 million euros (54.2 million euros), with an operating loss of 3.3 million euros (operating profit of 3.7 million euros). The division’s result was significantly lower than in the previous fiscal year and became negative. Profits were hampered by the decreased turnover and the poor profitability of project deliveries completed during the period.

The division’s roll sales and roll-servicing business saw moderate results. The expansion of the product range has strengthened the competitiveness of the division’s roll-servicing business and supports Pulp & Paper Machinery’s full-system deliveries.

The market situation has remained challenging. The forest industry’s investment rate in Finland and the rest of Europe is low, and the competitive situation in Asia has tightened considerably. Despite the tough competition, the Pulp & Paper Machinery division’s sales picked up toward the end of the fiscal year. Significant orders included the modernization of a paper machine for Kama in Russia and delivery of the main equipment for a multi-layer board machine at the Jingxing Pinghu plant in China.

The operations of the subsidiary company established in Shanghai in the previous fiscal year have gotten off to a good start, which has improved the division’s competitive position in the Chinese market.

Vaahto Pulp & Paper Machinery’s goal is to keep strengthening its position as one of the leading suppliers of technology and services in the demanding international paper and board machine markets.

Process Machinery

The Process Machinery division’s turnover for the fiscal year was 34.4 million euros (34.1 million euros), with an operating profit of 4.0 million euros (2.0 million euros). Profitability improved for both tanks and agitators.

The Process Machinery division’s sales were good during the period under review. The most significant orders for Japrotek Oy Ab, part of the division, included an absorption tower for Uhde GmbH in Germany and a leaching autoclave for Norilsk Nickel Harjavalta Oy. Stelzer Rührtechnik International GmbH, a German company in the division, achieved good sales for the fiscal year, and the company received significant orders from, e.g., North America and China, in addition to its strong local market area in Central Europe.

During the period under review, Vaahto Oy signed an agreement to sell its spiral heat exchanger business, which belonged to the Process Machinery division, to the German HES Heat Exchanger Systems GmbH. The sale included the spiral heat exchanger production line and its machinery and equipment, with related intangible rights. The production machinery and equipment were transferred to the buyer in spring 2008. The annual turnover for spiral heat exchanger business has fluctuated between two and four million euros. Vaahto Oy recognized a profit of 0.6 million euros for the sale in the fourth quarter of the fiscal year.

Results

Vaahto Group’s operating profit for the fiscal year was 0.6 million euros, as compared to 5.8 million euros in the previous fiscal year. The operating profit for the period equaled 0.9% (6.6%) of the Group’s turnover. Profits for the fiscal year totaled 0.3 million euros (3.9 million euros), and the Group saw a 2.6% (25.8%) return on investment. The main reasons for the reduced profitability were the decreased turnover and the poor profitability of the Pulp & Paper Machinery project deliveries completed during the period.

Financing

The Group’s cash flow was 1.2 million euros (-5.8 million euros). The Group’s net financial expenses came to 0.7 million euros (0.6 million euros), or 1.0% (0.7%) of turnover. Investment cash flow in the fiscal year was -4.0 million euros (-1.1 million euros). The increase in debt, including interest, was 3.2 million euros.

Period-end total assets and liabilities on the consolidated balance sheet stood at 41.8 million euros (52.2 million euros), and the parent company’s balance sheet showed 17.0 million euros (11.1 million euros). The Group’s equity ratio increased slightly, to 37.3% (35.5%).

Investments

The Group’s investments in capital assets for the fiscal period totaled 4.6 million euros (1.5 million euros). The most significant investments were Vaahto Group’s new enterprise resource planning system, the polyurethane and composite equipment for Vaahto Roll Service Oy (formerly AK-Tehdas Oy), and Japrotek Oy Ab’s water treatment equipment. Other investments consisted mainly of smaller machinery and equipment acquisitions and of investments in information systems.

Information systems

The Group’s information systems and information management were developed further, in accordance with the centralized operations model. The period saw the new Group-wide SAP enterprise resource planning system implemented successfully.

Research and development

The Group’s research and development activities focused for the most part on improving the competitiveness of roll servicing and of the Pulp & Paper Machinery division’s key components for paper and board machines. The scope of the Group’s R&D activities remained the same as in the previous fiscal period.

Personnel

Group personnel averaged 426 (414) over the fiscal year and numbered 424 (428) at the end of the period.

Risks and business uncertainties

Demand for Vaahto Group products depends largely on economic cycles and developments in the world economy and the customer industries. Risk caused by fluctuations in demand is being compensated for through adjustment of the Group’s sales operations in line with the economic cycles of various markets and customer industries.

Large-scale projects involve the risk of the final result falling short of expectations, since the project’s future costs and other risks that could affect the delivery cannot be assessed explicitly enough at the tender stage. Risks associated with large projects can be managed by applying various quality management systems, profitability analyses, directives, and acceptance procedures.

The Group’s financial risk management objectives are to minimize harmful effects on the Group’s result caused by fluctuations in financial markets and to ensure that the Group can gain equity and liability financing on competitive terms.

Business-related risks of material, consequential, and liability losses are covered by appropriate insurance policies.

Shareholders’ equity

The Board of Directors has no authority to issue new shares, convertible bonds, or bonds with warrants, nor the authorization to obtain or surrender shares.

Administration

The Annual General Meeting of December 14, 2007, elected the following to the Board of Vaahto Group Plc Oyj:

Seppo Jaatinen, chairman

Mikko Vaahto, vice-chairman

Martti Unkuri, member

Antti Vaahto, member

Antti Vaahto served as CEO throughout the fiscal period.

The Group companies have been audited by the certified public auditing firm Ernst & Young Oy, with Pauli Hirviniemi, CPA, as chief auditor.

Forecast of developments

Vaahto Group’s competitiveness has improved, thanks to determined product development and the expanded product range. However, the market situation for the Group’s major products is highly challenging. In Europe and North America, the forest industry is having trouble and investing very carefully. In the largest growing market area, China, local suppliers are growing stronger and competition is growing tighter. In addition, the international financial crisis has caused insecurity in the market and postponement of investment decisions.

In spite of the challenging market situation, the Group’s order book as of 31 August is higher than a year earlier, laying a foundation for business growth.

Proposal for distribution of profits

Parent company funds available for distribution of profits total 3,555,313.93 euros, of which 176,360.06 euros represents loss for the fiscal period.

The Board will propose to the Annual General Meeting that a dividend of 0.10 euros per share, for a total of 287,230.20 euros, be paid. The remaining operating profit is to be transferred to the earnings account.

The Annual General Meeting

The Annual General Meeting of Vaahto Group Plc Oyj will be held on December 15, 2008 at 1.00 p.m. in the Sibelius Hall, Lahti.

Interim management statement

Instead of the interim report for the first three months of the accounting period, Vaahto Group Plc Oyj will disclose the interim management statement on January 16, 2009.

 

VAAHTO GROUP CONSOLIDATED FIGURES
CONSOLIDATED	2007/08	% of	2006/07	% of
INCOME	12	turn-	12	turn-
STATEMENT,IFRS	months	over	months	over
1000 EUR
NET TURNOVER	73 207		88 161
Change in finished
goods and work
in progress	92		696
Production
for own use	693		377
Other operating
income	688		303
Material and
services	-39 404		-50 629
Employee benefits
expenses	-21 082		-20 241
Depreciations	-2 220		-1 840
Other operating
expenses	-11 339		-11 015
OPERATING PROFIT	635	6,6	5 812	3,8
Financing income
and expenses	-726		-611
Share of results of
affiliated companies	14		24
PROFIT BEFORE TAXES	-77	5,9	5 226	2,3
Tax on income
from operations	-396		-1 313
PROFIT FOR THE PERIOD	320	4,4	3 913	1,6
Net profit
attributable:
To equity holders
of the parent	238		3 639
To minority
interest	82		274
Total	320		3 913
Earnings per share calculated on profit attributable
to equity holders of the parent:
EPS undiluted,
EPS undiluted,
euros/share	0,08		1,27
EPS diluted,
euros/share	0,08		1,27
Average number of
shares (1000 shares):
undiluted	2 872		2 872
diluted	2 872		2 872
CONSOLIDATED	31.8.08		31.8.07
BALANCE SHEET,IFRS
1000 EUR
ASSETS
NON-CURRENT ASSETS:
Intangible assets	3 127		621
Goodwill	1 702		1 702
Tangible assets	14 198		14 644
Shares in affiliated
companies	39		24
Non-current trade and
other receivables	13		13
Other long-term
investments	44		44
Deferred tax asset	471		120
NON-CURRENT ASSETS	19 594		17 169
CURRENT ASSETS:
Inventories	8 508		8 188
Trade receivables
and other receivables	12 392		25 276
Tax receivable,
income tax	624		23
Cash equivalents	0		960
Cash and bank	730		574
CURRENT ASSETS	22 253		35 021
TOTAL ASSETS	41 847		52 190
CONSOLIDATED	31.8.08		31.8.07
BALANCE SHEET, IFRS
1000 EUR
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY:
Share capital	2 872		2 872
Share premium
account	6		6
Other reserves	2 006		2 128
Retained earnings	7 537		8 436
Equity attributable
to equity holders
of the parent	12 421		13 442
Minority share	1 336		1 393
SHAREHOLDERS’
EQUITY	13 757		14 835
NON-CURRENT LIABILITIES:
Deferred
tax liability	736		928
Long-term
liabilities,
interest-bearing	7 378		4 923
Non-current
provisions	271		684
NON-CURRENT
LIABILITIES	8 385		6 536
CURRENT LIABILITIES:
Short-term
liabilities,
interest-bearing	7 087		6 331
Trade payables and
other liabilities	12 618		23 558
Tax liability,
income tax	1		931
CURRENT LIABILITIES	19 705		30 819
TOTAL EQUITY AND
LIABILITIES	41 847		52 190
KEY FIGURES, IFRS	2007/08		2006/07
Shareholders’
equity per share, euros	4,32		4,68
Earnings per
share, euros	0,08		1,27
Solidity, %	37,3		35,5
Gross
investments, 1000 EUR	4 613		1 502
Total average
number of
personnel	426		414
Order backlog at
the end of the
fiscal period, 1000 EUR	41 847		42 894
The amount of contract revenue recognized as revenue has
been deducted from the order backlog.
OTHER LIABILITIES	31.8.08		31.8.07
1000 EUR
Bank guarantees:
Bank guarantee limits
total	33 700		26 700
Bank guarantee limits
used	16 523		21 692
Lease liabilities,
excluded financial
lease liabilities:
Current lease
liabilities	208		114
Lease liabilities
maturing
in 1-5 years	242		272
Total	450		386
Other liabilities:
Granted guarantees	38		452
Derivative contracts:
Currency forward agreements are as a rule used to hedge
against exchange rate risks. The currency forward agreements
have been used to protect receivables and future assets.
Interest rate agreements are used to hedge against the
changes of the interests.
The derivative agreements of the group are booked according
to IAS 39: Financial instruments. Derivative agreements are
initially recognized at their purchase cost which is
equivalent to the fair value and they are subsequently
remeasured at fair value.
Fair values	Nominal	Fair	Fair	Fair
of derivative	value	value,	value,	value
agreements		pos.	neg.	total
31.8.2008
1000 EUR
Interest rate swap
agreements	15 924	14	-140	-126
Fair values of derivative agreements are determined by using
the market prices for the equivalent agreements on the day of
the closing of  the accounts. Fair values state for the income
or expenses the group would book if the derivative agreements
were closed at the end of the fiscal period.
CONSOLIDATED FLOW	2007/08		2006/07
OF FUNDS	12		12
STATEMENT, IFRS	months		months
1000 EUR
Flow of funds
from operations:
Profit before taxes	-77		5 226
Adjustments	1 817		2 697
Change in working
capital	336		-11 797
Financial income and
expenses and taxes	-840		-1 918
Flow of funds from
operations	1 236		-5 792
Flow of funds from
Investments:
Investments in
tangible and
intangible assets	-4 613		-1 502
Income from sales
of tangible and
intangible assets	650		405
Granted loans	0		-11
Flow of funds from
investments	-3 963		-1 108
Flow of funds from
financial items:
Withdrawals of
short-term loans	5 688		4 297
Payments of
short-term loans	-5 840		-1 792
Withdrawals of
long-term loans	4 878		2 247
Payments of
long-term loans	-1 515		-1 637
Dividends	-1 287		-671
Flow of funds from
financial items	1 923		2 444
Change of liquid
funds	-804		-4 457

Lahti November 14, 2008

VAAHTO GROUP PLC OYJ

Antti Vaahto

President (CEO)

Information:

Antti Vaahto

CEO, Vaahto Group Plc Oyj

tel. +358 40 8232835