INCAP GROUP FINANCIAL STATEMENTS FOR 2003

Stock Exchange Release, 25 February 2004, 8.30 a.m.

  • net turnover grew by 3% on the previous year and was EUR 65.2 million
  • the operating result improved by 70% on the pro forma level in 2002 but was a loss of EUR 1.9 million
  • fourth-quarter net turnover was up 31% on the previous quarter, to EUR 20.0 million
  • the operative performance in the second half of the year was in the black
  • measures aimed at improving profitability are being continued
  •  
     
    Comparison figures used in the report
     
    In the text part of this Interim Report, the comparison figures for 2002 are pro forma figures comprising the divisions according to the Group’s present structure.
     
     
    Net turnover and financial performance in October-December
     
    The last quarter of 2003 was the year’s best in terms of both net turnover and the operating result. Net turnover for the period increased by 31% on the previous quarter and was EUR 20.0 million, representing growth of 24% on the same quarter a year ago (Oct.-Dec. 2002: 16.2 million). Net turnover increased thanks to the revival in demand in the telecommunications sector and from manufacturers of measurement technology equipment.
     
    The fourth-quarter operating result was burdened by non-recurring writedowns, mainly on stocks, to a total amount of EUR 0.6 million, pushing the operating profit into the red at EUR 0.1 million negative. The operative performance in the last quarter was in the black, as it was in the previous quarter. The earnings improvement was due mainly to the growth in production volumes. Compared with the same period of 2002, the operating loss figure improved by 81%. Earnings per share were EUR 0.01 negative (-0.08).
     
    Non-recurring writedowns for structural rearrangements concerning machinery and equipment were entered in extraordinary expenses for the period to a total of EUR 3.2 million. Capacity utilisation is being stepped up and productivity is being improved by rearranging machinery and equipment of different units, centralising production on the most efficient machines and decommissioning obsolete equipment. The arrangements will be carried out during 2004.
     
     
     
     

     
     
    Full-year net turnover and financial performance in 2003
     
    Full-year consolidated net turnover was EUR 65.2 million, up 3% on 2002 (63.2 million).
     
    The Group reported an operating loss of EUR 1.9 million, i.e. a 70% improvement on 2002 (operating loss: 6.3 million). The operating profit for the full year 2003 includes a total of EUR 1.6 million of non-recurring costs resulting from efficiency-boosting and downsizing arrangements as well as unsaleable stocks. A charge of EUR 3.2 million for rearrangements of the production structure was entered in extraordinary expenses.
     
    Earnings per share were EUR 0.20 negative (0.76 negative) and equity per share was EUR 1.06 (1.52). The Group’s equity ratio was 34% (41%) and total assets were EUR 37.7 million (45.6 million).
     
     

     
     
    Trend in the operating environment
     
    There was still an overhang of excess capacity in the supply of electronics manufacturing services in 2003. Consolidation in the sector moved ahead as mass production was moved to countries with a low cost level. Manufacturers of equipment for the electronics industry cut down the number of their suppliers and sought close co-operation with a few reliable suppliers. The low demand and tough competition that have prevailed for almost three years now led to a declining price trend and mounting cost savings across the entire delivery chain.
     
    The upswing in the economy, which was forecast at the start of the year, did not materialise in the way that was expected.
     
     
    Development of Incap’s operations
     
    Incap retained its established position as a supplier of manufacturing services. The continued slack demand in the telecommunications network sector had an especially marked impact on the operations of Incap’s units that manufacture network and base station products. Despite low manufacturing volumes, productivity was improved at all the factories. The pickup in the market towards the end of the year increased the capacity utilisation rate and had a positive effect on earnings.
     
    In line with Incap’s aim to supply integrated product entities, all of the company’s areas of expertise were utilised in the deliveries of base station components that got under way at the beginning of the year. The manufacture of products involved machining, plating, PCB assembly, sheet metal fabrication, product assembly, integration, tuning and testing.
     
    In the face of tougher competition, customers were seeking ever-newer cost savings, thereby increasing the need for continuous enhancement of operations. With the aim of lowering manufacturing costs, electronics manufacture and assembly was increased in Estonia.
     
    At the factories in Kempele and Ruukki, quality and environmental systems were built and they were granted an ISO 9001:2000 quality certificate and an ISO 14001:1996 environmental certificate in January 2004. All the Group’s factories have the same types of certification.
     
    The results of customer satisfaction survey improved in all the subareas of service compared with the corresponding survey in 2002. Customers identified Incap’s main strengths as being its understanding of customers’ needs, the ease of dealing with us and the competence of our people.
     
     
    Business development priorities
     
    The paramount near-term objective is to improve profitability by increasing productivity, stepping up materials management processes and raising the capital turnover rate. Growth in net turnover will be sought primarily by expanding co-operation with present customers.
     
    Incap’s manufacturing services and way of working are suited to most electronics and fabrication customer sectors, and the company wants to maintain its versatile customer mix. Instead of focusing on a single customer sector, Incap is concentrating on customer-specific service and tailoring its operations in accordance with each customer’s needs.
     
    Incap is amplifying co-operation with its customers by offering ever more extensive integrated services and by assuming total responsibility for the customer’s production and related services.
     
    Incap’s flexible way of working, versatile expertise and ability to respond quickly are major strengths, especially in manufacturing products that are made in several versions designed for the needs of different user groups. Incap is very competitive in the manufacture of such “high mix ” low volume” products because its expertise is well suited to the small and medium-sized production series required for these products.
     
     
    Financing
     
    The Group’s liquidity was satisfactory: the quick ratio was 0.7 (0.6) and the current ratio 1.5 (1.6). Cash flow from operations was EUR 4.6 million (3.4 million negative) and the change in cash flows was an increase of EUR 0.6 million (increase of 0.2 million). The result for the period includes non-recurring expenses that do not affect cash flow.
     
    Net financial expenses came to EUR 0.9 million (1.1 million). Net debt totalled EUR 12.8 million (EUR 16.3 million) and the gearing ratio was 92% (88%). Interest-bearing net debt amounted to EUR 11.9 million at the close of the financial year (16.1 million). The equity ratio was satisfactory at 34% (41%).
     
    Cash flow from operations was positive throughout the year. The Group’s liquid assets at 23 February 2003 amounted to EUR 3.5 million, of which EUR 2,3 million consisted of unused credit facilities. The company estimates that available funds will suffice at least for the next 12 months, in accordance with the liquidity plan that has been drawn up.
     
     
    Capital expenditures
     
    The Group’s gross capital expenditures in the report period totalled EUR 0.5 million (EUR 1.1 million), or about 1% of net turnover (2%). Capital expenditures went mainly for environmental technology and testing equipment for RF products.
     
     
    Research and development
     
    Spending on research and development amounted to EUR 2.0 million, or 3% of net turnover (EUR 1.9 million, 3% of net turnover). Research and development focused, notably, on improving plating, tuning and testing processes for products incorporating high frequency technology, as well as the development of a lead-free process. Research and development expenditure has been booked to expenses for the period.
     
     
    Personnel and management
     
    At the beginning of the year the Incap Group had a payroll of 589 employees and at the end of the year it had 552 employees. The number of laid off staff decreased from 84 employees at the beginning of the year to 51 employees at 31 December 2003. New staff were hired mainly for sales, the plating process and materials management.
     
    The company’s president and CEO up to 7 July was Seppo Ropponen, after which Chief Financial Officer Rauni Nokela served as acting CEO. Juhani Hanninen, M.Sc. (Eng.) took over as the Group’s president and CEO on 1 September. Tuula Ylimäki, M.Sc. (Econ.), was appointed as the Group’s chief financial officer effective 1 October. Ari Turunen, a technician, was appointed director of materials management as from 1 November.
     
    The members of the Group’s Management Team were Juhani Hanninen (President and CEO), Hannele Pöllä (Communications and Investor Relations), Petri Saari (Sales and Marketing), Timo Sonninen (Manufacturing Services), Ari Turunen (Materials Management) and Tuula Ylimäki (Finance and Administration).
     
     
    Personnel survey
     
    An internal atmosphere survey was carried out amongst the personnel in November-December with the aim of finding out the staff’s views on their own work, their job and workplace co-ordination as well as proposals for developing these areas. The participation rate in the survey was 91%. According to the survey results, the staff consider Incap’s strengths to be efficient operations and the quality of its service. The most important areas for development turned out to be the working environment, training opportunities and motivation-building compensation.
     
     
    Organisational revamp
     
    The Group’s new organisation came into effect at the beginning of November. Customer relationship management was improved and streamlined by bringing sales functions together into a single team. The role of materials management was emphasised by turning it into an independent unit. Furthermore, manufacturing operations were stepped up by centralising all the manufacturing services within a single organisational unit.
     
     
    Group structure
     
    In order to simplify the Group structure, JMC Tools Oy, which became a Group subsidiary in 2002, was merged into the parent company by way of a voluntary dissolution procedure. The JMC Tools Oy business was transferred to the parent company at the beginning of June, and the dissolution was reported to the Trade Register in accordance with a resolution of an extraordinary general meeting of the shareholders of JMC Tools Oy on 23 December 2003.
    After the arrangement, the Incap Group has two subsidiaries: Incap Electronics Estonia OÜ and Ultraprint Oy.
     
     
    Board of Directors
     
    The Annual General Meeting held on April 25, 2003 re-elected Seppo Arponen, Kalevi Laurila, Markku Puskala, Jorma Terentjeff and Juhani Vesterinen to seats on the Board of Directors. The Board of Directors re-elected Jorma Terentjeff chairman.
     
     
    Auditors
     
    The independent firm of accountants Ernst & Young Oy acted as the company’s auditor, with Rauno Sipilä, Authorised Public Accountant, acting as chief auditor.
     
     
    Introduction of IFRS standards (IAS)
     
    The Incap Group will go over to reporting in accordance with the international IFRS standard in 2005. Preparations for introducing the standards were started in 2003, and the project has moved ahead according to plans. Decisions on the accounting policies for financial statements will be taken in 2004, at which time the figures for the opening IFRS balance sheet will be calculated, along with the comparison information for 2004.
     
     
    Share and share price trend
     
    The number of shares is 12,180,880. The price of the Incap Corporation share varied in the range of EUR 2.15 to EUR 0.87, and the share price at the close of the year was EUR 1.80. Share turnover was 28%.
     
    At the end of the report period, the company had 834 shareholders, or 51% more than at the beginning of the year (551). The company’s market capitalisation at 31 December 2003, was EUR 21.9 million.
     
     
    Events related to shares and shareholdings
     
    The Board of Directors exercised the authorisation it had received at the 2002 Annual General Meeting on 21 January 2003 through an issue of a total of 702,000 warrants directed at Varma Mutual Pension Insurance Company entitling to subscribe for an equal number or shares. The subscription price of the shares is determined according to the mathematical average of the closing prices of the company’s share during the period from 3 February to 30 May 2003, but nevertheless such that the subscription price is a minimum of EUR 2.50 per share. The subscription period for the shares commenced on 1 June 2003 and ends on 31 December 2005.
     
    If Varma exercises its option rights-based warrants in their entirety, the shareholding of Varma Mutual Pension Insurance Company in Incap Corporation will exceed 1/20 of the company’s voting rights and share capital. Varma would hold 702,000 shares, representing 5.4% of Incap Corporation’s share capital and voting rights.
     
    In a transaction completed on 2 December 2003, Jorma Terentjeff sold 1,161,700 Incap Corporation shares to Irish Life International Limited, whereby Irish Life International Limited became an Incap Corporation shareholder, with a 9.5% stake in the company. Following the transaction, Jorma Terentjeff’s proportion of Incap shares is 2.5%.
     
     
    Annual General Meeting
     
    The Annual General Meeting of Incap Corporation was held on Friday, 25 April 2003 in Helsinki. The Annual General Meeting authorised the Board of Directors to decide on increasing the share capital, granting stock options and/or issuing convertible bonds. On the basis of the authorisation the share capital can be increased by a maximum of EUR 4,092,775.68. The authorisation is valid up to 25 April 2004. The Board of Directors did not exercise the authorisation during 2003.
     
    The Annual General Meeting amended the Articles of Association in accordance with the Board of Directors’ proposal, whereby the company’s domicile was changed from Helsinki to Oulu.
     
     
     
    2004 Annual General Meeting and proposals by the Board of Directors
     
    The Annual General Meeting of Incap Corporation will be held on 20 April 2004 at 2.00 p.m. in the Oulu Radisson SAS hotel at the address Hallituskatu 1, Oulu. The notice of the Annual General Meeting will be published in the newspapers Kaleva and Helsingin Sanomat on 25 March.
     
    The Board of Directors will propose to the Annual General Meeting that the loss for the financial year, EUR 5,634,262.01, be transferred to the retained earnings account and that no dividend be distributed for the 2003 financial year.
     
     
    Outlook for 2004
     
    Signs of a revival in demand can be seen in a number of industries. Incap’s objective is to strengthen its role as a partner of its present customers, and consolidated net turnover is estimated to grow in 2004 at least in line with the market growth.
     
    Profitability will be improved by increasing cost-efficiency, especially within production and materials management. The objective is to post an operating result that is in the black and clearly better than the figure posted in 2003.
     
    The Incap Group’s Annual Report will come out in week 12 (beginning on 15 March). The Interim Report for January-March 2004 will be published on Wednesday, 5 May 2004.
     
    INCAP CORPORATION
    Board of Directors
     
     
    Juhani Hanninen
    President and CEO
     
     
    The full report including tables can be downloaded from the enclosed link.



    For additional information, contact:
    Juhani Hanninen, President and CEO, tel. +358 (0)50 556 7199
    Tuula Ylimäki, Chief Financial Officer, tel. +358 (0)40 347 2025
    Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 (0)40 504 8296


    Press conference

    Incap will arrange a conference for the press and securities analysts on Tuesday, 25 February 2003 at 10.00 a.m. at the World Trade Center Helsinki, 3rd floor in Meeting Room 10 at the address Aleksanterinkatu 17, 00100 Helsinki.