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VAAHTO GROUP PLC OYJ STOCK EXCHANGE BULLETIN 16.11.2006 at 10 am

VAAHTO GROUP’S PREVIEW OF RESULTS FOR FISCAL YEAR 1.9.2005–31.8.2006

Vaahto Group’s turnover for the fiscal period was 65.4 MEUR (58.1 MEUR) and operating profit 2.5 MEUR (0.6 MEUR). Earnings per share were 0.32 euros. The Board of Directors will propose a dividend of 0.20 euros per share.

Business developments

Vaahto Group’s turnover for the fiscal period ending in August 2006 was 65.4 million euros (58.1 million euros), with an operating profit of 2.5 million euros (0.6 million euros). The turnover increased by 12.6% from that of the previous fiscal period. The group's profitability improved thanks to increased turnover and the reorganization procedures implemented. The order backlog increased considerably during the period under review and came to 50.1 million euros (34.2 million euros) at the end of the fiscal year.

Pulp & Paper Machinery

Despite the tough competition, the Pulp & Paper Machinery division's sales were excellent in the period under review. The most significant order received during the period was the board machine renewal for Iggesund Paperboard AB, with delivery scheduled for the end of summer 2007. Other significant orders were placed by, for example, Dunafin for Hungary, Stora Enso for Poland, Korsnäs for Sweden, Ninxia Meili and Shandong Bohui for China, and UPM-Kymmene for Finland.

The division's order backlog has continued to develop in accordance with the targets toward technologically advanced key components of paper and board machines, such as headboxes, formers, and shoe presses. The division's roll sales have been moderate, and the fiscal year saw growth in the order backlog.

The Pulp & Paper Machinery division’s turnover increased considerably over the previous fiscal period’s result, and the division saw positive results. Because of a tough market situation and a decline in prices, profitability was nonetheless lower than during the previous period. The market situation is going to continue to impose tough challenges for the division's operations. 

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 international paper and board machine market.

Process Machinery

Early in the fiscal period, the Process Machinery division’s market situation was weak overall, and turnover saw a slight downturn from that of the previous period. Thanks to the rationalization activities, the division's profitability improved considerably and its result for the fiscal period was positive. The market situation and demand recovered towards the end of the period under review, and thus this division of the group increased its order backlog during the fiscal period.

In the previous fiscal period, Japrotek Oy Ab, one of the companies in the group, received a significant order for the design and delivery of pressure vessels for the Olkiluoto nuclear power plant construction project. The delivery schedules have changed several times in the course of the project, and the manufacture and deliveries will take place mainly in the next fiscal period. Apart from this, pressure vessel, reactor, and column business has been good, and the targets set have been reached. The reorganization of activities has improved profitability remarkably.

Spiral heat exchanger turnover and profitability fell short of both the previous fiscal year’s result and the targets. In the latter half of the fiscal period, sales of spiral heat exchangers picked up, indicating fair prospects for the next period.

The market situation and order backlog for agitators improved during the fiscal period. The rationalization activities of the previous fiscal year at Stelzer Rührtechnik International GmbH, a German member of the group, have increased the profitability of the agitator business considerably from the previous fiscal period’s level.

Results

Vaahto Group’s operating profit for the fiscal period was 2.5 million euros, as compared to 0.6 million euros in the previous fiscal year. The operating profit for the period was 3.8% (1.0%) of the group’s turnover. Profits before extraordinary items and taxes totaled 1.5 million euros (-0.1 million euros), and the return on investment was 12.5% (2.8%).

Financing

The group’s cash flow was 6.5 million euros (5.9 million euros). The cash flow showed a further increase from the previous fiscal period, mostly due to improved profitability. The group’s net financial expenses were 0.9 million euros (0.7 million euros) – i.e., 1.4% (1.2%) of the turnover. The investment cash flow for the period was higher than that for the previous period, at -1.8 million euros (-1.0 million euros). The decrease in net debt, including interest, was 3.1 million euros.

Total assets and liabilities on the consolidated balance sheet stood at 42.9 million euros (39.2 million euros), and the parent company’s balance sheet showed 11.2 million euros (10.7 million euros). The group's equity ratio increased further, to 39.1% (35.2%).

Investments

The group’s investments in capital assets for the fiscal period totalled 1.9 million euros (1.1 million euros). The most significant investment was Vaahto Oy's new pickling facility. 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 continued to concentrate 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 developed further, in accordance with the centralized operations model. During the fiscal period, a decision was made to acquire a group-wide enterprise resource planning system. The system’s deployment is to take place in the next two fiscal periods.

Personnel

Group personnel averaged 410 (420) over the fiscal year and numbered 404 (401) at the end of the period. Due to the rationalization activities, the number of personnel in the Process Machinery division decreased during the fiscal period. By contrast, the number of personnel increased slightly in the Pulp & Paper Machinery division.

Risks and business uncertainties

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

Large-scale projects involve risk of the final result of the project falling short of expectations, if the project's future costs and other risks that might affect the delivery cannot be assessed explicitly enough at the tender stage. Risks associated with large projects are managed by using various quality 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 ensure that the group can obtain equity and liability financing on competitive terms.

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

Introduction of international financial reporting standards

On September 1, 2005, Vaahto Group moved its financial reporting over to calculation and final accounting principles that are in accordance with the International Financial Reporting Standards (IFRS) system. Previously, the group followed the Finnish Accounting Standards (FAS). The exchange report of January 30th, 2006, presents an accounting of Vaahto Group's switch to IFRS accounting practice and adjustments to the opening balance on the transition date of September 1, 2004, in accordance with the IFRS standards, compared to the closing balance for the 2003–2004 fiscal period. The reference data for the 2004–2005 fiscal period are as presented in the stock exchange release of January 30, 2006.

The interim report for the situation on February 28, 2006, has been prepared in accordance with IFRS registration and valuation principles.

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 15, 2005, elected the following members 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 certified public auditing firm Ernst & Young Oy, with Pauli Hirviniemi, CPA, as chief auditor.

Forecast of developments

Determined product development and rationalization activities have improved the competitiveness of Vaahto Group. A good order backlog and an advanced product range enable profitable business in the current fiscal period. 

Proposal for distribution of profits

Group funds available for distribution of profits total 5,136,961.53 euros. Parent company funds available for distribution of profits total 4,668,619.79 euros, of which 86,228.32 euros represents profits for the fiscal period.

The Board will propose to the Annual General Meeting that a dividend of 0.20 euros per share, amounting to a total of 574,460.40 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 14, 2006 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 19, 2007.