• net turnover was up 19.5% on the same period a year earlier and was EUR 54.0 million (Jan.-Sept. 2003: EUR 45.2 million)
  • the operating result grew by 167% and was a profit of EUR 1.2 million (a loss of 1.7 million)
  • earnings per share were EUR 0.06 (0.19 negative)
  • co-operation with strategic customers was increased
  • production started up on the new chemical milling line
Net turnover and financial performance in July-September
Net turnover in July-September was EUR 16.8 million, up 9.6% on the same quarter a year earlier (July-Sept. 2003: EUR 15.3 million).
Operating profit in July-September was EUR 0.3 million, up 153% on the same quarter a year earlier (July-Sept. 2003: a loss of EUR 0.5 million). Earnings per share were EUR 0.01 (0.06 negative).
Net turnover and financial performance in January-September
Net turnover in January-September was EUR 54.0 million, up 19.5% on the same period a year earlier (Jan.-Sept. 2003: EUR 45.2 million).
The Group reported an operating profit of EUR 1.2 million, i.e. a 167% improvement on the same period a year ago (operating loss: 1.7 million). The operating profit margin on net turnover was 2.2% (3.8% negative).
Earnings per share were EUR 0.06 (0.19 negative) and equity per share was EUR 1.12 (1.33). The Group’s equity ratio was 35.4% (38.9%) and total assets were EUR 38.5 million (41.7 million).
Development of operations
Incap’s net turnover in the January-September period grew by 19.5% on the same period a year ago. There were variations in demand both across sectors and customers during the report period. Net turnover in July was seasonally lower than in the other months. Demand for products picked up towards the end of the period, particularly within security and measurement technology. In the telecommunications sector, deliveries of certain high-volume products were expected to be larger than the actual sales figures.
The trend in profitability was positive in January-September compared with the same period a year earlier and net turnover was up 167%. The third-quarter operating profit margin was at the level seen in the second quarter of the year.
Materials costs for mechanical fabrication increased owing to the sharp rise in prices of steel products, and there was a lag in factoring these costs into customer prices. 
Customers’ interest in Incap’s manufacturing capability in Estonia grew further, and the expansion of production capacity in Kuressaare at the beginning of 2005 will pave the way for boosting the volume of operations.
The new chemical milling line at the Group’s Ultraprint Oy subsidiary became operational in Kempele in mid-September. The new line will quadruple flexible PCB production and also make it possible to manufacture larger-sized units. The products will be used mainly in automation and telecommunications applications as well as in various antenna constructions. 
The changeover to the lead-free RoHS process was continued according to plan. The first fully lead-free products were delivered to a customer at the end of the report period, and a manufacturing line applying the lead-free process will go into actual operation in December.
Product and component traceability was developed further. Traceability software was added to the enterprise resource planning system, enabling it to trace the components and materials of an individual product throughout its entire lifecycle.
During the report period Incap expanded delivery agreements with a number of customers in respect of both new products and larger integrated deliveries. The amplification of customer relationships is being carried out on a long-term basis, and the transfer of a new product from the product development phase into high-volume production can take from a few months up to a year. For this reason, the new co-operation agreements will show up in net turnover with a lag, and their impact can vary considerably depending on the market situation for the new products.
The development of design services has moved ahead by means of commercialising services, beefing up personnel resources and expanding network co-operation with firms of consulting engineers. Sales and marketing resources were also strengthened.
Strategic priorities
In accordance with its strategy that was updated during the autumn, Incap will concentrate on technically demanding products that have medium-sized or small production volumes and whose manufacture calls for a very flexible way of working. The present operational model and customer base well support the chosen strategy, which highlights Incap’s present strengths: flexibility, quick response, professionalism and ease of dealing with the company.
Incap is seeking to achieve a solid position as a European contract manufacturer. Although the company’s present and potential customers operate globally, a significant part of their operations – product development, for example – is located in Europe.
Incap is going after growth both organically and through M&A arrangements. Success in the face of tough competition means that the company must realise a further significant enhancement of its operations: improved profitability, the development of service provision and the strengthening of competence, notably within new technologies, sales and design services.
The Group’s liquidity was satisfactory. The quick ratio was 0.7 (0.7) and the current ratio 1.5 (1.6).
In the third quarter, cash flow from operations turned negative and was EUR -0.5 million (3.3 million). The change in cash flows was a decrease of EUR 0.9 million (an increase of 1.0 million). A greater amount of working capital was tied up in stocks and trade receivables than previously.
Consolidated shareholders’ equity amounted to EUR 13.6 million at the close of the report period (16.3 million). Liabilities totalled EUR 24.9 million (25.4 million), of which interest-bearing liabilities amounted to EUR 12.8 million (14.7 million) and non-interest-bearing liabilities EUR 12.1 million (10.7 million). Net financial expenses were EUR 0.4 million (0.6 million) and depreciation EUR 2.1 million (2.7 million). Net debt decreased to EUR 11.9 million (14.0 million) and the gearing ratio was 91.5% (80.7%). The equity ratio was 35.4% (38.9%).
The Group’s liquid assets at 8 November 2004 amounted to EUR 0.9 million, of which EUR 0.6 million consisted of unused credit facilities. The company estimates that available funds will suffice at least in accordance with the liquidity plan that has been drawn up for the next 12 months.
Capital expenditures
The Group’s gross capital expenditures totalled EUR 0.3 million (0.4 million), or 0.5% of net turnover (0.8%).
Research and development
Incap’s research and development effort consists mainly of the development of the Group’s own manufacturing processes, and expenses attributable to this during the report period amounted to EUR 1.3 million (1.4 million), or 2.5% of net turnover (3.0%).
At the beginning of the financial period the Incap Group had a payroll of 551 employees and at the end of the financial period it had 550 employees. At the end of the period a total of 30 people had been laid off (51 employees at the start of the year).
Valid authorisations of the Board of Directors
At the close of the report period, the Board of Directors has a valid authorisation to raise the share capital by a maximum of EUR 3,034,375.68 (not an exact figure).
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 1.65 to EUR 2.59 during the report period, and the share price at the close of the period was EUR 1.80. Share turnover was 22.3%.
At the end of the report period, the company had 1,001 shareholders, or 20% more than at the beginning of the year (834 shareholders). The company’s market capitalisation at 30 September 2004 was EUR 21.9 million.
Adoption of IFRS standards (IAS)
Incap will publish its financial statements for the 2005 financial year in accordance with IFRS standards, and the first IFRS interim reports in 2006.
Outlook for the future
Net turnover in the October-December period is estimated to exceed the third-quarter level and to reach about the same level than the fourth quarter in 2003. Full-year net turnover is expected to be substantially higher than it was last year. The operating profit for the full year will post a significant improvement on the result achieved in 2003.
Incap’s financial statement bulletin for 2004 will be published on Tuesday, 22 February 2005.
Board of Directors
Juhani Hanninen
President and CEO