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VAAHTO GROUP PLC OYJ STOCK EXHANGE BULLETIN 17.11.2004 at 9.00 a.m.

VAAHTO GROUP’S PREVIEW OF RESULTS FOR FISCAL YEAR 1.9.2004 – 31.8.2005

Vaahto Group’s turnover for the fiscal period was 58.1 MEUR (61.7 MEUR) and operating profit 0.2 MEUR (2.8 MEUR). Earnings per share were -0.29 euros. The Board of Directors will propose a dividend of 0.12 euros per share.

Business developments

Vaahto Group’s turnover for the fiscal period ending in August 2005 was 58.1 million euros (61.7 million euros), with an operating profit of 0.2 million euros (2.8 million euros). Turnover decreased by 5.9% from that of the previous fiscal period. Reasons for the decrease include a temporary decrease in demand and deliveries due to the industrial action in the paper industry and the transference of some significant customer projects included in the order backlog to the next fiscal period. The Group's order backlog increased considerably during the period under review and was 34.2 million euros (19.7 million euros) at the end of the fiscal period.

In spite of the challenging market situation, the Group achieved fair sales figures. For paper and board machines, the market situation was weak at the beginning but improved toward the end of the period. The troubled domestic market situation was exacerbated by the long‑term industrial action in the paper industry. Overall, sales for the Group's paper and board machines and key components were good over the period.  By contrast, the market for process machinery was for the most part weak. However, early in the fiscal period the Group received a significant order for the Olkiluoto nuclear power plant currently under construction.

Due to the increased size and duration of deliveries, the Group started recognizing long‑term projects under the percentage‑of‑completion accounting method in the previous fiscal period. The long‑term projects to be recognized thusly are delivery projects that last a minimum of six months or are significant in some other way. Through use of the percentage‑of‑completion method, the Group’s business can be portrayed more accurately and reliably. In comparing the figures from the period under review with those for the previous fiscal period, it must be noted that in the transition period the introduction of the percentage‑of‑completion method increased the Group's turnover and operating profit figures for the previous fiscal period by 8.2 and 2.2 million euros, respectively.  In addition, the Group started applying the full cost principle – i.e., the capitalization of fixed expenses – to inventory evaluation, which in the transition period increased the operating profit for the previous fiscal period by 0.4 million euros.

Group structure

During the fiscal period, a subsidiary company was established in Sweden to strengthen the sales of roll services and other servicing in Scandinavia. Apart from this, no changes to the Group's structure occurred during the period.

Pulp & Paper Machinery

The market situation for the Group’s Pulp & Paper Machinery division was weak at the beginning of the period under review but improved considerably toward the end.  In Finland, market weakness was exacerbated by the protracted industrial action in the paper industry.

Sales of the division’s paper and board machines and key components were good in spite of the challenging market situation. New orders were received from China, and the significance of this market area for the division grew further.  In addition to Scandinavia, significant new orders were received from, for example, the U.S. and Turkey. Most of the new orders were, in line with the division’s objectives, for advanced headboxes, formers, shoe presses, and other key components of paper and board machines. The division’s roll sales showed a clear increase from the previous period and exceeded objectives. The labor dispute in the paper industry temporarily undermined domestic roll servicing deliveries, at the end of the fiscal period.

The division's turnover decreased slightly from the previous fiscal period’s figure. However, profitability remained at a satisfactory level and the division saw positive results. The division's order backlog increased considerably during the period under review and was at an all‑time high at the end of the fiscal period.

Determined product development work has improved the Pulp & Paper Machinery division's strategic competitive position, and the division aims to further strengthen its position as one of the leading suppliers of technology and services in the demanding paper and board machine market environments.

Process Machinery

The Process Machinery division’s market situation was difficult for most of the period under review, and demand was modest. At the beginning of the fiscal period, Japrotek Oy Ab, one of the companies in the division, received a significant order for the design and delivery of pressure vessels for the new Olkiluoto nuclear power plant. During the period under review, the schedule of the project changed, hence transferring the manufacturing and deliveries for the order to the current fiscal period. Apart from this, pressure vessel, reactor, and column activities suffered due to weak market conditions and did not meet the targets set.

Sales of spiral heat exchangers were good in the fiscal period under review, and business remained in line with objectives. The order backlog and prospects for the spiral heat exchanger business area are promising.

In the agitator area, the market situation was difficult for the period under review, with Stelzer Rührtechnik International GmbH, one of the companies in the division, particularly far behind the goals set.  The company tried to improve its profitability during the period by carrying out actions aimed at improving sales efficiency and attaining cost savings, including business redistribution and reductions in personnel.

The Process Machinery division’s turnover decreased from that of the previous fiscal period, profitability was weak, and the result for the fiscal period was still negative. The actions to make operations more effective and to attain cost savings will be continued in the division to improve its profitability. 

Results

Vaahto Group’s operating profit for the fiscal period was 0.2 million euros, as compared to 2.8 million euros in the previous fiscal period.  The operating profit for the period was 0.3% (4.6%) of the Group’s turnover. Losses before extraordinary items and tax totaled 0.5 million euros (profit of 2.2 million euros), and the return on investment was 1.2% (10.8%). The Group's turnover and operating profit figures for the previous fiscal period showed an increase of 8.2 and 2.2 million euros, respectively, due to the recognition of long‑term projects under the percentage‑of‑completion method. Moreover, the operating profit for the previous fiscal period includes an increase of 0.4 million euros caused by application of different inventory valuation principles.

The Group's Pulp & Paper Machinery division managed to retain a satisfactory level of profitability in a demanding market climate. The Process Machinery division’s results did not meet the targets set and were negative.

Financing

The Group’s cash flow was 5.6 million euros (4.3 million euros). The cash flow showed a further increase from the previous fiscal period, mostly due to reduced working capital. The Group’s net financial expenses were 0.6 million euros (0.6 million euros) – i.e., 1.1% of the turnover. The investment cash flow was slightly less for the period than in the previous period, coming to ‑1.0 million euros (‑1.2 million euros). The decrease in net debt, including interest, was 4.2 million euros.

Total assets and liabilities on the consolidated balance sheet stood at 37.5 million euros (41.4 million euros), and the parent company’s balance sheet showed 10.7 million euros (10.7 million euros). The Group's equity ratio increased further, to 35.9% (33.2%).

Investments

The Group’s investments in capital assets for the fiscal period totaled 1.1 million euros (1.2 million euros). The most significant investments were for Vaahto Oy's heat exchanger production and AK‑Tehdas Oy's roll cover production. Apart from this, investments consisted mainly of smaller machinery and equipment acquisitions, and investments in information systems.

Research and development

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

Information systems

The Group’s information systems and information management systems were further developed in accordance with the centralized operations model. Attention is still being paid to more efficient utilization of the Group’s enterprise resource planning system, thus decreasing the amount of overlapping work and improving the manageability of business. These development efforts will be continued in the current fiscal period.  

Personnel

Group personnel averaged 420 (464) over the fiscal period and numbered 401 (432) at the end of the period.  The main reasons for the decrease in personnel were the rationalization and associated reductions in personnel in the Process Machinery division.

Introduction of international financial reporting standards

International financial reporting standards (IFRS) are to be applied in the Group in the fiscal period starting on September 1, 2005. The opening IFRS balance will be prepared as of September 1, 2004, and the first IFRS financial statement will be published for the September 1, 2005 – August 31, 2006, fiscal period.

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 on December 14, 2004, elected the following members to the Board of Vaahto Group Plc Oyj:

Seppo Jaatinen, chairman

Ilkka Vaahto, vice-chairman

Martti Unkuri, member

Antti Vaahto, member

Mikko 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 future developments

The Group’s operating environment is still challenging due to the hard‑to‑predict and rather weak market situation for the Group’s main products.  However, successful product development work and completed rationalization projects have improved the Group’s competitiveness and thus laid a foundation for profitable business.  Thanks to a high order backlog and advanced product selection, Vaahto Group stands a fair chance of increasing its turnover in the current fiscal period.   

Proposal for distribution of profits

Group funds available for distribution of profits total  3,428,282.25 euros. Parent company funds available for distribution of profits total 4,927,067.71 euros, of which 1,184.99 euros represents losses for the fiscal period.

The Board will propose to the Annual General Meeting that a dividend of 0.12 euros per share 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, 2005 at 1.00 p.m. in the Sibelius Hall, Lahti.

Interim report

The company will publish one interim report covering six months of operations on April 21, 2006.