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Vaahto Group Interim Report for January 1 – June 30, 2015

VAAHTO GROUP PLC OYJ’S INTERIM REPORT, AUGUST 28, 2015 AT 8:45

VAAHTO GROUP INTERIM REPORT for January 1 – June 30, 2015

Development of business operations 

 

Turnover from Vaahto Group’s continuing operations for the period from January 1 to June 30, 2015 was 10.0M euros (reference period: 8.8M euros) and the operating loss from continuing operations 1.6M euros (0.2M euros).

 

The turnover increased over the reference period by 1.8M euros thanks to increased orders. The net margins were low, however. The operating result fell by 1.4M euros. The modest operating result was due to the market situation, which remained challenging, and the higher-than-expected cost of some delivery projects. The operating result was further undermined by the fact that the Group’s overhead expenses were allocated to notably reduced operations. The overhead expenses are allocated in their entirety to the continuing operations, not to discontinued operations.  On the other hand, the operating result of reference period was positively impacted by the completion of a significant project at a higher-than-expected margin.

 

The order book for the Group’s continuing operations as of June 30, 2015, totaled 10.7M euros (9.7M euros). Compared with the reference period, the orders grew by 1.0M euros.

 

In February, Vaahto Group Plc Oyj announced an arrangement concluded with its key lenders, intended to strengthen the Company’s financial position and secure its continued operation. With this agreement, the Company’s financiers committed to waive loans totaling 3.9M euros; to convert loan receivables in the amount of 1.2M euros into a subordinated loan; and to grant a grace period for their receivables, continuing until June 30, 2016. At the same time, Vaahto Group Plc Oyj carried out a private placement issuing 10,000,000 new shares at the price of 0.25 euros per share.

 

As part of the financial stabilization program, the Group has adopted a cost and operations adjustment plan aimed at reducing annual expenditure by more than 0.8M euros. The adjustment plan is to be implemented in the course of 2015 and is expected to cause a one-time adjustment cost of 0.4M euros. The plan is moving ahead as planned, with the cost savings projected to become evident toward the end of 2015 and have a full impact at the beginning of 2016. The Group’s financial situation continues to be difficult, however, and is further challenged by project deliveries requiring more working capital than anticipated. The company is involved in active negotiations concerning remarkable corporate and financial arrangements. More information in chapter “Developments since the end of the review period”

 

Reporting of business operations 

 

In line with the strategy set out by the Vaahto Group Board of Directors, the Group has this year remained focused on the Process Technology business operations.

 

AP-Tela Oy was classified as a discontinued operation in the 2014 financial year. All business operations of the Vaahto Paper Technology segment have thus been either sold or classified as discontinued operations. The Vaahto Group reports its business operations as one segment, consisting of Vaahto Process Technology operations.

 

The negotiations concerning AP-Tela have not yet resulted in a sale, and the Board of Vaahto Group Plc Oyj will reassess the situation later this year.

 

The effect of discontinued operations on profit/loss is shown on its own line, separate from continued operations. No Group administration costs are allocated to the discontinued operations, which means that these costs are fully borne by the continued operations. As the volume of the continued operations has shrunk, the relative burden of these costs on the continued operations has increased.

 

Vaahto Process Technology 

 

The operations of Vaahto Process Technology encompass the continuing operations of the Company in their entirety. The turnover for the period from January 1 to June 30, 2015, came to 10.0M euros (8.8M euros), and the operating loss was 1.6M euros (0.2M euros for the reference period).

 

The operations of Vaahto Process Technology are divided into two business units: Japrotek Vessels and Stelzer Mixing Technology.  Japrotek Vessels specializes in delivering complete process equipment for demanding applications along with tank–agitator combinations.  Stelzer Mixing Technology is focused on agitator products for chemical and food-industry applications and seeks growth in new market areas.

 

In early 2015, the order book of Japrotek Vessels, the largest business unit within Vaahto Process Technology, was weaker than anticipated, and employer–employee co-determination negotiations were initiated in preparation for a reduction in workload and possible adjustment measures.  Order intake increased slightly toward the end of the reporting period, but the order book for the current financial year remains more modest than projections. The challenging market situation in the first half of the year, together with the higher-than-expected cost of some delivery projects, place a burden on the liquidity of the unit. The investment outlook in the forest industry is expected to have a positive effect on the market situation.

 

The early months were challenging for Stelzer Mixing Technology, and the workforce was adjusted to the reduced workload. In early 2015, however, the order intake started to grow, and by the end of June, the order book had doubled in size from the beginning of the year. The challenge for the rest of the year is to realize the received orders as planned and maintain the positive order development.

 

 

Financing and liquidity 

 

The cash flow from the Group’s business operations was -2.2M euros (0.8M euros), and the cash flow from investments -0.1M euros (-0.2M euros) during the period under review. Interest-bearing liabilities amounted to 8.4M euros (18.4M euros) at the end of the period under review. The Group’s consolidated balance-sheet total was 14.8M euros (13.3M euros).

 

On February 16, 2015, Vaahto Group Plc Oyj signed an agreement with its key financiers, according to which the lenders would waive loans totaling 3.9M euros, convert loan receivables in the amount of 1.2M euros into a subordinated loan and grant a grace period for their receivables until June 30, 2016. At the same time, Vaahto Group Plc Oyj carried out a private placement issuing 10,000,000 new shares at the price of 0.25 euros per share.

 

As part of the financial stabilization program, the Group has adopted a cost and operations adjustment plan aimed at reducing annual expenditure by more than 0.8M euros. The adjustment plan is to be implemented in the course of 2015 and is expected to cause a one-time adjustment cost of 0.4M euros. The expected cost reduction of 0.8M euros would have its full impact in 2016.

 

The Group’s weak result for the early months of the year, together with the challenging markets, greatly strain its liquidity. In the early months of 2015, orders of Japrotek Oy Ab, a Group subsidiary, were carried out with delays, with their production resources being overburdened in the first six months. This development has strained the Group’s working capital and has added to the cost. The Group’s financial situation remains extremely challenging and its working capital requires continuous monitoring. According to the Board’s current estimate, the working capital at its present level will suffice to cover the operations until the last quarter of 2015. The interim report continues to be in breach of an existing covenant, and the Company will seek assurance from its financiers that no consequences of the breach would arise for the Group. The company is involved in active negotiations concerning significant corporate and financial arrangements. The result of these negotiations will have a crucial impact to the financial situation and the future of Vaahto Group Plc Oyj.

The Group’s Board of Directors is involved in active negotiations with the main shareholders and lenders of the Group in order to secure its financial position.

 

Human resources 

 

As of June 30, 2015, the average number of personnel employed by the Group in continuing operations was 137 (133).

 

The interim CEO of the Company from September 1, 2014, until March 31, 2015, was Mr. Topi Karppanen, M.Sc.; Mr. Kalle Rasinmäki, M.Sc. was nominated to serve as CEO from April 1, 2015.

 

 

Risks and uncertainty factors 

 

The Group’s liquidity remains tight and involves significant risks. The working capital is under active monitoring through cash flow projections. According to the Group’s estimate, the current working capital will suffice to cover the operations until the last quarter of 2015. The company is involved in active negotiations concerning significant corporate and financial arrangements. The result of these negotiations will have a crucial impact to the financial situation and the future of Vaahto Group Plc Oyj.

 

Vaahto Group Plc Oyj has a pending dispute regarding the terms and conditions of an employment contract with a former CEO who has been dismissed. A lower court has approved an action brought by the former CEO against the Company. A provision for compensation in the amount specified in the court decision has been included in the 2014 financial statements. The Company has filed a complaint, but its appeal is still under consideration.

 

 

Private placement 

 

On February 15, 2015, the Board of Directors of Vaahto Group Plc Oyj decided on a private placement, offering no more than 10,000,000 new shares for subscription. The shares were subscribed as follows: 3,000,000 shares by Mr. Mikko Laakkonen; 3,000,000 shares by HML Finance Oy; 3,000,000 shares by the Nemea Credit Opportunities Fund (a sub-fund of Nemea Alternative Investment Fund (SICAV) Ltd); and 1,000,000 shares by Lombard International SA’s PCP 34443. The issue price of all the shares issued was 0.25 euros per share. The investors subscribed all shares offered to them.

 

The subscription price was determined in the negotiations between the Company and the investors. The price was determined based on the Company’s financial situation and any alternative financing options. The shares were paid for in cash on February 18, 2015.

 

Vaahto Group Plc Oyj issued a prospectus approved by the Finnish Financial Supervisory Authority on August 7, 2015, for the admission of the 10,000,000 new shares issued in the above placement, as well as the 2,000,000 shares issued according to the decision dated March 10, 2014, to trading on the NASDAQ OMX Helsinki Oy stock exchange. The trading began on August 12, 2015.

 

 

Equity capital 

 

Group equity according to the 2014 financial statements was 8.6M euros to the negative. The arrangement completed with the financiers over the first quarter of 2015 had a positive effect on the equity. The arrangement included a waiver of loans in the amount of 3.9M euros, conversion of loan receivables of 1.2M euros into a subordinated loan, and new equity in the form of a private placement of 2.5M euros. As of June 30, 2015, the Group equity was negative 4.0M euros.

 

Subordinated loan

The parent company’s books include a loan of 1.175M euros granted by the Company’s financiers pursuant to Chapter 12 of the Companies Act. The loan bears an annual interest of five percent, accruing annually. The loan is due for repayment in its entirety in five years from the disbursement, i.e., in 2020. The loan capital, along with any accrued unpaid interest, may only be repaid according to the provisions of the Companies Act.

 

Japrotek Oy Ab’s first quarter of 2015 brought a loss, which resulted in negative equity for the Company. That loss can be attributed to the higher-than-expected cost of some delivery projects and a weaker-than-anticipated order book for the first quarter. The company took some immediate steps to improve the efficiency of its operations and initiated negotiations according to the Employer–Employee Cooperation Act to adjust its operations in line with weakened demand and market situation. The negotiations resulted in a decision to adjust the number of personnel as dictated by the financial situation and order intake in August 2015 at the earliest.

 

Authorization for a share issue 

 

The general meeting of April 14, 2015, voted to authorize the Board of Directors to decide on the issue of new shares and options and other special entitlements to shares pursuant to Chapter 10, Section 1 of the Companies Act, in one or more installments. The maximum number of new shares that may be issued is 10,000,000, including shares issued on the basis of special entitlement. This authorization is valid until May 31, 2016, unless a general meeting amends or revokes the authorization before that date.

 

Projection for the January 1 – December 31, 2015 financial year 

 

With the weaker-than-anticipated order book and result in the first half of the year, and the unusual amount of uncertainty connected with the second half-year projection, the Group management expects the result from continuing operations to be below that of the reference period.

 

Developments since the end of the review period 

 

As part of the adjustment program and according to the decision of Vaahto Group Plc Oyj’s Board, the operations of the Lahti main office will be transferred to the office of Japrotek Oy Ab in Pietarsaari by August 30, 2015. The cost of this transfer is included in the estimated one-off cost of the adjustment program.

 

The company is involved in active negotiations concerning significant corporate and financial arrangements. The result of these negotiations will have a crucial impact to the financial situation and the future of Vaahto Group Plc Oyj. The negotiations are expected to be closed by September 2, 2015 and the result of the negotiations will be announced without delay.

 

Interim management statement 

Vaahto Group Plc Oyj will publish the management’s interim statement for the first nine months of the 2015 financial year on November 6, 2015.

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, IFRS       
      
 

Interim Report

Interim Report

Interim Report

Interim Report

Annual Report

1 000 EUR

1.1.-30.6.2015

1.1.-30.6.2014

1.4.-30.6.2015

1.4.-30.6.2014

1.1.-31.12.2014

 

6kk

6kk

3kk

3kk

12 months

CONTINIUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

NET TURNOVER

9 974

8 783

5 352

4 407

20 262

Change in finished goods and work in progress

369

47

276

63

-523

Other operating income

90

189

0

1

111

Material and services

-6 115

-3 213

-3 276

-1 796

-9 621

Employee benefit expenses

-4 174

-4 011

-2 127

-2 046

-7 499

Depreciations

-114

-128

-56

-41

-259

Other operating expenses

-1 633

-1 909

-851

-914

-3 929

      
OPERATING PROFIT OR LOSS

-1 603

-242

-683

-326

-1 457

      
Financing income

3 960

3 026

7

341

3 036

Financing expenses

-512

-815

-159

-559

-1 152

PROFIT OR LOSS BEFORE TAXES

1 845

1 969

-834

-545

426

      
Tax on income from operations

49

-67

3

-23

77

PROFIT OR LOSS FOR THE FISCAL YEAR FROM THE CONTINUING OPERATIONS

1 893

1 902

-831

-567

349

      
DISCONTINUING OPERATIONS     
Profit of loss for the fiscal year from the discontinuing operations

222

-2 076

101

-2 285

-3 658

      
PROFIT OR LOSS FOR THE FISCAL YEAR

2 116

-174

-730

-2 852

-3 309

      
OTHER COMPREHENSIVE INCOME:     
Translation differences

0

-5

0

0

-5

Other comprehensive income, net of tax

0

-5

0

0

-5

      
TOTAL COMPREHENSIVE INCOME    

2 116

-179

-730

-2 852

-3 314

      
Earnings per share calculated on profit attributable to equity holders of the parent:        
EPS undiluted, euros/share, continuing operations

0,17

0,38

-0,08

-0,11

0,06

EPS diluted, euros/share, continuing operations

0,17

0,38

-0,08

-0,11

0,06

EPS undiluted, euros/share, cdisontinuing operations

0,02

-0,42

0,01

-0,46

-0,67

EPS diluted, euros/share, discontinuing operations

0,02

-0,42

0,01

-0,46

-0,67

EPS undiluted, euros/share

0,19

-0,03

-0,07

-0,57

-0,60

EPS diluted, euros/share

0,19

-0,03

-0,07

-0,57

-0,60

      
Average number of shares     
-undiluted

11 060 233

4 977 360

11 060 233

4 977 360

5 484 209

-diluted

11 060 233

4 977 360

11 060 233

4 977 360

5 484 209

 

 

CONSOLIDATED BALANCE SHEET,  IFRS 
   
1 000 EUR

30.6.2014

31.12.2014

 

 

 

ASSETS  
   
NON-CURRENT ASSETS  
Intangible assets

16

22

Goodwill

1 583

1 583

Tangible assets

2 590

2 751

Available for sale investments

25

25

NON-CURRENT ASSETS

4 214

4 382

   
CURRENT ASSETS  
Inventories

2 279

1 762

Trade receivables and other receivables

5 890

4 599

Cash and bank

222

544

CURRENT ASSETS

8 390

6 904

   
NON-CURRENT ASSETS HELD FOR SALE

2 184

1 986

   
ASSETS

14 788

13 272

   
SHAREHOLDERS’ EQUITY  
   
SHAREHOLDERS’ EQUITY  
Share capital

2 872

2 872

Share premium account

6

6

Fair value reserve and other reserves

8 432

6 060

Translation differences

51

51

Retained earnings

-15 398

-17 568

SHAREHOLDERS’ EQUITY

-4 038

-8 579

   
   
NON-CURRENT LIABILITIES  
Subordinated loans

1 175

0

Deferred tax liability

589

582

Long-term liabilities, interest-bearing

133

42

Non-current provisions

425

432

NON-CURRENT LIABILITIES

2 322

1 056

   
CURRENT LIABILITIES  
Short-term liabilities, interest-bearing

7 022

12 558

Trade payables and other liabilities

8 224

6 820

Tax liability, income tax

0

232

Current provisions

800

800

CURRENT LIABILITIES

16 046

20 410

   
LIABILITIES OF DISPOSAL GROUP HELD FOR SALE  
Interest-bearing liabilities held for sale

43

67

Interest-free liabilities held for sale

414

319

LIABILITIES OF DISPOSAL GROUP HELD FOR SALE

457

386

   
EQUITY AND LIABILITIES

14 788

13 272

 

 

KEY FIGURES   
    
The business indicators   
 

Interim Report

Interim Report

Annual Report

 

1.1.-30.6.15

1.1.-30.6.14

1.1.-31.12.14

1 000 EUR

6 months

6 months

12 months

 

 

 

 

Turnover, continuing operations

9 974

8 783

20 262

Operating profit/loss, continuing operations

-1 603

-242

-1 457

% of turnover

-16,1

-2,8

-7,2

Profit/Loss before taxes, continuing operations

1 845

1 969

426

% of turnover

185,0

224,2

21,0

Profit or loss for the period fron the discontinuing operations

222

-2 076

-3 658

Earnings per share calculated on profit attributable to equity holders of the parent

2 116

-174

-3 314

% of turnover

17,3

-1,3

-11,9

Return on equity (ROE), % 2)

neg

neg

neg

Return on investment (ROI), % 2)

neg

neg

neg

Equity ratio, %

neg

neg

neg

Gearing

na

na

na

Gross investments in fixed assets

67

181

268

% of turnover

0,7

2,1

1,3

Order backlog, continuing operations

10 688

9 693

9 305

Total number of personnel (average,contiuing operations)

137

135

140

 

 

 

CONSOLIDATED FLOW OF FUNDS STATEMENT, IFRS 
    
 

Interim Report

Interim Report

Annual Report

1 000 EUR

1.1.-30.6.2015

1.1.-30.6.14

1.1.-31.12.2014

FLOW OF FUNDS FROM OPERATIONS:   
Profit or loss before taxes

2 116

-174

-3 309

Adjustments:

0

0

0

Depreciations

150

290

540

Impairment losses

0

178

3 650

Unrealized foreign exchange gains and losses

-12

-35

-76

Other income and expenses, no payment related

598

1 701

-265

Debt relief

-3 850

-3 000

-3 000

Financing income and expenses

-512

900

1 117

Sales profit/loss

12

0

0

Taxes

-44

46

4

Flow of funds from operations before the change in working capital

-1 543

-94

-1 339

Change in working capital:

0

0

0

Change in short-term receivables

105

1 991

4 813

Change in inventories

-737

106

1 141

Change in short-term non-interest-bearing creditors

329

-491

-2 050

Flow of funds from operations before financial items and taxes

-1 846

1 511

2 565

Interests and other financial expenses from operations paid

-393

-632

-1 046

Dividends received

1

2

2

Interests and other financial income received

1

2

3

Income taxes paid

0

-42

-48

FLOW OF FUNDS FROM OPERATIONS

-2 238

840

1 475

    
FLOW OF FUNDS FROM INVESTMENTS:   
Investments in tangible and intangible assets

-67

-181

-268

Income from sales of tangible and intangible assets

0

0

922

FLOW OF FUNDS FROM INVESTMENTS

-67

-181

654

    
FLOW OF FUNDS FROM FINANCIAL ITEMS:   
Share issue

2 500

1 040

1 040

Withdrawals of short-term loans

301

221

906

Repayments of short-term loans

-819

-1 953

-3 661

Withdrawals of long-term loans

0

0

0

Repayments of long-term loans

0

0

0

FLOW OF FUNDS FROM FINANCIAL ITEMS

1 982

-692

-1 715

    
Change of liquid funds

-322

-33

414

Liquid assets at the beginning of the fiscal year

544

129

129

Liquid assets at the end of the fiscal year

222

96

544

Change in liquid assets according to the balance sheet

-322

-33

414

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY, IFRS 
        
1 000 EUR

Share capital

Share premium account

Unrestricted equity reserve

Reserve fund

Translation differences

Retained earnings

Total

Change in shareholders’ equity 1.1.-30.6.2015       
Shareholders’ equity at the beginning of the fiscal period

2 872

6

4 065

1 995

51

-17 568

-8 579

Comprehensive income:       
Profit or loss for the period     

2 085

2 085

Translation differences    

0

0

0

Total comprehensive income    

0

2 085

2 085

Transactions with owners:      

0

Share issue  

2 500

   

2 500

Transaction costs for equity  

-44

   

-44

Deferred taxes due to period changes  

0

   

0

Effect of change in tax rate  

0

   

0

Transactions with owners total

0

0

2 456

0

0

0

2 456

Shareholders’ equity at the end of the fiscal period

2 872

6

6 521

1 995

51

-15 483

-4 038

        
Change in shareholders’ equity 1.1.-30.6.2014

Share capital

Share premium account

Unrestricted equity reserve

Reserve fund

Translation differences

Retained earnings

Total

Shareholders’ equity at the beginning of the fiscal period

2 872

6

3 068

1 995

48

-14 251

-6 262

Comprehensive income:       
Profit or loss for the period     

-174

-174

Translation differences    

3

-8

-5

Total comprehensive income    

3

-182

-179

Transactions with owners:      

0

Share issue  

1 040

   

1 040

Transaction costs for equity  

-32

   

-32

Deferred taxes due to period changes  

6

   

6

Effect of change in tax rate  

-17

   

-17

Transactions with owners total  

997

   

997

Shareholders’ equity at the end of the fiscal period

2 872

6

4 065

1 995

51

-14 433

-5 444

 

 

DISCONTINUED OPERATIONS   
 

 

 

 
 Interim ReportInterim ReportAnnual Report
1 000 EUR

1.1.-30.6.2015

1.1.-30.6.2014

1.1.-31.12.2014

 

6kk

6kk

12kk

Profit or loss of the discontinued operations   
    
Turnover

2 240

4 529

7 628

Other income

0

119

363

Expenses

-2 008

-4 991

-7 860

Amortizations, Sales gains and losses

0

-1 593

-3 581

Depreciations

-36

-162

-281

Other items

30

0

0

Profit or loss before taxes

227

-2 097

-3 731

Taxes

-5

21

74

Profit or loss from the discontinued operations

222

-2 076

-3 658

    
Flow of funds from the discontinued operations   
Flow of funds from operations

94

-2 256

-209

Flow of funds from investments

0

0

766

Flow of funds from financial items

-24

-23

-47

Flow of funds total

70

-2 279

511

    
Non-current assets held for sale of discontinued operations

30.6.2015

30.6.2014

31.12.2014

    
Intangible assets

8

12

8

Tangible assets

1 529

5 140

1 527

Inventories

540

789

428

Receivables

108

2 350

24

Assets total

2 184

8 291

1 986

    
   
Liabilities of disposal group held for sale of discontinued operations

30.6.2015

30.6.2014

31.12.2014

    
Non-current liabilities held for sale, interest-bearing

0

43

0

Current liabilities held for sale, interest-bearing

43

47

67

Current liabilities held for sale, interest-free

414

4 788

319

Liabilities total

457

4 878

386

 

 

Securities and responsibilities  
   
EUR  
 

30.6.2015

30.6.2014

Granted securities  
   
Debt secured by real estate and corporate mortgages
Loans from financial institutions and pension loans

3 531

6 051

Other loans

2 000

2 000

Credit limits in use

812

3 698

Total

6 343

11 749

   
Loans from financial institutions are secured by real estate and corporate mortgages and share pledges. Other loans are secured by share pledges and bank deposits. Share pledges are the share capitals of Vaahto Group Plc Oyj’s subsidiaries.
   
Mortgages granted to secure loans and bank guarantees  
Real estate mortgages

2 543

2 543

Corporate mortgages

3 582

13 163

Total

6 125

15 706

   
Other granted securities for own behalf  
Deposits

0

1 483

Total

0

1 483

   
Other granted securities   
   
Vaahto Group Plc Oyj has granted as securities the share capitals of  its subsidiaries Japrotek Oy Ab, AP-Tela Oy and Stelzer Rührtechnik International GmbH.
   
Contingent liabilities and other liabilities  
   
Bank guarantees  
Bank guarantee limits total

4 874

4 990

Bank guarantee limits, used

3 608

4 652

   
Operating lease agreements  
Within a year

127

185

More than one year but no more than 5 years

68

234

Total

195

418

   

 

Figures are in thousand euros unless otherwise indicated. The figures have not been audited.

 

Notes required by IAS34

Accounting principles

The interim report was drawn up according to the same accounting principles and calculation methods as the previous financial statement, for the fiscal period that ended on December 31, 2014

 

Dividens paid

During the period under review, Vaahto Group Plc Oyj paid no dividends.

 

Lahti, August 28, 201

VAAHTO GROUP PLC OYJ

Board of Directors

 

Additional information:
Mr. Sami Alatalo, Chairman of the Board,  +358 40 826 2066