Vaahto Group Plc Oyj - Interim Management statement

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

Helsinki, Finland, 2015-11-06 10:00 CET (GLOBE NEWSWIRE) -- 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