VAAHTO GROUP MOVE TO IFRS REPORTING ON SEPTEMBER 1, 2005

Vaahto Group started applying the International Financial Reporting Standards (IFRS) instead of the Finnish Accounting Standards (FAS) in the current fiscal period, which started on September 1, 2005. This bulletin describes Vaahto Group’s move to the IFRS accounting policies and specifies adjustments to the opening balance sheet on the transition date of September 1, 2004, in accordance with the IFRS standards, compared to the closing balance sheet for the 2003–2004 fiscal year.

Vaahto Group’s IFRS transition date was September 1, 2004, and the end date of the first IFRS reporting period is August 31, 2006. The financial statement for the 2005–2006 fiscal year will be prepared in accordance with the IFRS standards. The interim report for the first six months of the fiscal period, to be published on April 21, 2006, will also be prepared in accordance with the IFRS entry and valuation principles.

The move to IFRS accounting principles was carried out in accordance with the IFRS 1 transition standard. Of the exemptions allowed by the standard, the Group utilized the option of not applying the IAS 22 Business Combinations standard retroactively to earlier business combinations. The acquisition costs used for tangible assets are the revaluated amounts of the assets with depreciation taken into account.

The unaudited opening balance sheet on the transition date of September 1, 2004, in accordance with the IFRS standards, and the differences from the balance sheet figures obtained according to the Finnish Accounting Standards


		FAS	IFRS	IFRS
1000 EUR		31.8.2004	adjustments	1.9.2004	Note

ASSETS

Non-current assets
	Intangible assets	506	-31	475	1,3
	Goodwill	1 702	0	1 702	2
	Investment properties	0	341	341	1
	Tangible assets	14 459	1 374	15 833	1
	Non-current trade and other receivables	3	0	3
	Other long-term investments	239	0	239
	Deferred tax assets	79	27	106	4
	Non-current assets	16 989	1 710	18 699

Current assets
	Inventories	5 415	0	5 415	5
	Trade receivables and other receivables	14 347	0	14 347
	Cash equivalents	2 450	0	2 450
	Cash and bank	2 175	0	2 175
	Current assets	24 387	0	24 387

	Total assets	41 376	1 710	43 086

EQUITY AND LIABILITIES

Shareholders' equity					7
	Share capital	2 782	0	2 782
	Share premium account	6	0	6
	Fair value reserve and other reserve	2 223	-100	2 123
	Retained earnings	5 637	110	5 747
	Equity attributable to equity holders of the parent	10 739	9	10 748
	Minority interest	816	68	884
	Shareholders' equity	11 555	78	11 632

Non-current liabilities
	Deferred tax liability	381	351	732	4
	Long-term liabilities	5 448	967	6 416	9
	Non-current provisions	292	0	292	8
	Non-current liabilities	6 121	1 319	7 440

Current liabilities
	Short-term interest-bearing liabilities	8 773	314	9 087	9
	Trade payables and other liabilities	14 926	0	14 926
	Tax liability, income tax	1	0	1
	Current liabilities	23 700	314	24 014

	Total equity and liabilities	41 376	1 710	43 086

Additional information for balancing calculations

1. Tangible assets

The buildings and land among the Group’s tangible assets were valued for the opening balance sheet in the manner allowed by the IFRS 1 standard, at the reassessed market values for the previous years, retroactive depreciation deducted. The effect of retroactive depreciation on the opening balance sheet is -155 thousand euros. A property rented out outside the Group is handled as investment property where the IFRS balance sheet is concerned.

Activated property modernization costs were moved from intangible assets to tangible assets to the amount of 31 thousand euros in the opening balance sheet.

In accordance with the Finnish Accounting Standards, rental agreements were dealt with as other financing agreements, so the rent amounts collected on their basis were entered in the accounts as expenses in equal amounts during the rental period. In IFRS reporting, some rental agreements are classified as financial leasing agreements. Items rented under financial leasing agreements were entered in the accounts as tangible assets, and most of them will be fully depreciated over the rental period. The corresponding rent obligations are entered in the accounts as long- and short-term liabilities with interest. The effect of financial leasing agreements on the opening balance sheet is +1,839 thousand euros for assets and +1,281 thousand euros for liabilities.

2. Goodwill

The goodwill in the consolidated balance sheet figures consists of the consolidated goodwill and the goodwill from the German company’s balance sheet.

Under the Finnish Accounting Standards, the consolidated goodwill entered on the balance sheet consists of the difference between the purchase price and the equity of the subsidiaries at the time of acquisition. The relevant portion of the consolidated goodwill was registered for those tangible assets of the subsidiary from which it was deemed to have resulted. Planned depreciation was deducted from the consolidated goodwill in accordance with the Finnish Accounting Standards.

Correspondingly, planned depreciation was deducted from the German company’s goodwill in preparation of the annual consolidated financial statements in accordance with the Finnish Accounting Standards.

In the opening IFRS balance sheet, the consolidated goodwill remained unchanged in accordance with the exemption allowed by the IFRS 1 transition standard. Also, in accordance with the IFRS standards, planned depreciation is no longer deducted from the consolidated goodwill. The goodwill values were tested for depreciation on the transition date in accordance with the requirements of the IFRS 1 transition standard. These depreciation tests did not lead to depreciation entries. Goodwill values will be tested for depreciation annually.

3. Intangible assets

In accordance with FAS rules, research and development expenditures were entered under annual costs for the year in which they originated.

In the IFRS system, research expenditures are entered under costs. Also, expenditures for ongoing development projects are entered under costs, as they have not been deemed to meet the requirements for entry in the balance sheet according to the IAS 38 Intangible Assets standard.

4. Imputed tax claims and deferred taxes

With FAS principles applied, the consolidated financial statements included taxes calculated on the basis of the results of the Group companies for the fiscal period, according to local tax laws and at the tax rate applicable on the date of the financial statement. Imputed tax claims or deferred taxes were calculated for all accrual differences between accounting and taxation, at the tax rate in effect on the date of the financial statement. Imputed tax claims were included as a separate item under claims on the balance sheet, and imputed deferred taxes under liabilities on the balance sheet.

According to the IFRS accounting principles, imputed deferred taxes are for the most part entered for all taxable differences. For the adjustments caused by the move to IFRS accounting policies, the imputed effect on taxes was taken into account. The effect of IFRS adjustments made in the opening balance sheet is +27 thousand euros on imputed tax claims and +352 thousand euros on imputed deferred taxes. Imputed tax claims are entered under long-term assets, and imputed deferred taxes under long-term liabilities. For the confirmed losses of the German company, 1,274 thousand euros, the imputed tax claim was not entered. On August 31, 2004, the Finnish companies did not have confirmed losses left.

5. Inventories

In both the FAS and the opening IFRS balance sheet, the inventory acquisition costs include the variable costs arising from acquisition and manufacturing as well as the labor, material, purchase, and other costs and depreciation related to the manufacturing of products.

6. Derivatives

In the FAS financial statement, the market value of derivatives was indicated in the notes.

For the opening IFRS balance sheet, the Group did not apply the IFRS hedging calculation procedure to the derivatives protecting assets and liabilities in foreign currencies or to future cash flows, even though these have been acquired for hedging purposes in accordance with the Group’s principles of currency risk management. The market value of derivatives on the transition date is not relevant to the Group and was not included on the opening balance sheet.

7. Shareholders’ equity

Adjustment items resulting from the move to IFRS accounting policies were entered in the opening balance sheet under shareholders’ equity. The most significant changes in proceeds and other funds resulted from the difference between the financial leasing amounts entered under assets and liabilities (+558 thousand euros), the net change in imputed taxes (-325 thousand euros), and the retroactive depreciation for property revaluation (-155 thousand euros).

The minority share of the shareholders’ equity is included as a separate item under the shareholders’ equity, in accordance with the IAS 1 standard, whereas FAS saw it presented separately from the equity attributable to the parent company’s shareholders. The effect of IFRS adjustments on the minority share is +68 thousand euros.

The net effect of all IFRS adjustments on the shareholders’ equity of the Group is +78 thousand euros.

8. Long- and short-term reserves

The Group’s reserves under the FAS system are mostly consistent with the definition of reserves in the IAS 37 Provisions, Contingent Liabilities and Contingent Assets standard. Long-term reserves correspond to mandatory reserves entered in the accounts in accordance with the Finnish Accounting Standards.

9. Long-term and short-term liabilities

The liabilities entered in the accounts for financial leasing assets increase both long- and short-term liabilities. The effect of financial leasing agreements on the opening balance sheet is +967 thousand euros for long-term liabilities and +314 thousand euros for short-term liabilities.

Lahti, January 30, 2006

VAAHTO GROUP PLC OYJ

The Board of Directors