INCAP GROUP INTERIM REPORT, JANUARY-JUNE 2005: NET TURNOVER UP AND A CLEAR IMPROVEMENT IN PROFITABILITY

  • Net turnover was up 11% on the same period a year earlier and totalled EUR 41.4 million (Jan.-June 2004: EUR 37.2 million)
  • Operating profit was EUR 1.6 million (0.9 million), or about 4% of net turnover (2%)
  • Profit before extraordinary items was EUR 1.4 million (0.6 million)
  • Earnings per share before extraordinary items (EPS) were EUR 0.11 (0.05)
  • Extraordinary income of EUR 0.7 million was booked on the disposal of the aluminium machining and plating business
  • Co-operation with strategic customers was deepened
 
 
NET TURNOVER AND FINANCIAL PERFORMANCE IN APRIL-JUNE
 
Second-quarter net turnover was EUR 20.4 million, i.e. at the same level as in the first quarter and up 13% on the same quarter a year ago (Apr.-June 2004: EUR 18.0 million).
 
Operating profit in April-June was EUR 1.1 million, more than triple the figure reported for the same period a year earlier (0.3 million). Operating profit grew by 88% compared with the first quarter of 2005. Earnings per share were EUR 0.07 (0.01).
 
 
 
 
NET TURNOVER AND FINANCIAL PERFORMANCE IN JANUARY-JUNE
 
Net turnover in January-June was EUR 41.4 million, up 11% on the same period a year earlier (Jan.-June 2004: EUR 37.2 million).
 
The Group reported operating profit of EUR 1.6 million, i.e. an 80% improvement on the same period a year ago (0.9 million). The operating profit margin on net turnover was 4% (2%).
 
Earnings per share were EUR 0.11 (0.05) and equity per share was EUR 1.13 (1.11). The Group’s equity ratio was 42% (37%) and total assets were EUR 32.4 million (36.7 million).
 
 
 
 
DEVELOPMENT OF INCAP’S OPERATIONS
 
Overall demand was steady in the first part of the year. Sales of network products to the telecommunications sector showed a positive trend during the report period. Deliveries of components and integrated products connected with healthcare technology increased, and a number of new products went into production. Manufacturing volumes of components delivered for ship engines and generators grew markedly.
 
The favourable product mix, particularly in the second quarter, had a positive impact on earnings in the report period. Productivity also improved evenly throughout the first part of the year.
 
Co-operation with strategic customers was deepened. In April, Incap and ABB Oy’s Electrical Machines unit signed a new five-year co-operation agreement on the delivery of pole core components that are used in synchronous machines. Long and close co-operation with Abloy Oy expanded in May with the signing of an agreement that makes Incap an approved supplier for companies all across the Assa Abloy Group.
The programme that was launched last year with the aim of boosting the efficiency of materials management has been continued according to plan.
 
As part of the modernisation of the machinery at the plants in Helsinki and Vaasa, fixed assets that are no longer needed were sold, generating EUR 0.2 million of non-recurring income that was included in operating profit.
 
The disposal of the aluminium machining and plating business in mid-April improved the profitability of continuing operations in the second quarter. The sale of the business operations resulted in extraordinary income of about EUR 0.7 million that increased second-quarter earnings.
 
BUSINESS DEVELOPMENT PRIORITIES
 
Incap is developing its competitiveness with an emphasis on technically demanding products that are manufactured in medium-sized and small series. Thanks to its flexible operational model and adaptable skills, Incap is well placed to achieve good performance specifically in this high mix – low volume segment. Compared with high volume mass-produced articles, the market situation for these products is more stable.
 
The company’s strength is its versatile service palette, which covers both electronics and mechanical fabrication, including final assembly. Services are being developed further also within design and R&D.
 
Incap’s flexible operational model enables new products to be ramped up quickly and production to be shifted where needed. With product life cycles getting ever shorter, this offers customers a way of boosting their profitability. 
 
Incap’s production technology is being modernised for greater versatility and so that it is suited to the products of a number of different industries. The objective is to maintain the present broad-based customer structure.
 
To improve profitability, ways of working have been streamlined, particularly within materials management. The energetic development of the procurement process and the supply chain is continued and Incap is targeting additional savings, especially on materials costs.
 
The challenging competitive situation means that a contract manufacturer must have the ability to offer affordably priced manufacturing services. In Incap’s priority area – medium-sized manufacturing runs – Estonia’s low cost level is competitive.
 
FINANCING AND CASH FLOW
 
The Group’s liquidity was good: the quick ratio was 1.1 (0.7) and the current ratio 2.1 (1.6). Cash flow from operations was EUR 0.8 million (0.6 million) and the change in cash flows was a decrease of EUR 0.2 million (a decrease of 0.8 million). Loan repayments totalled EUR 3.7 million. 
 
Consolidated shareholders’ equity amounted to EUR 13.8 million at the close of the report period (13.5 million). Liabilities totalled EUR 18.7 million (23.2 million), of which interest-bearing liabilities amounted to EUR 7.3 million (12.0 million).
 
Net financial expenses were EUR 0.2 million (0.3 million) and depreciation EUR 0.8 million (1.4 million). Interest-bearing net debt totalled EUR 7.1 million (EUR 11.5 million) and the gearing ratio was 52% (85%). The equity ratio rose to 42% (37%).
 
The Group’s liquid assets at 1 August 2005 amounted to EUR 4.3 million, of which EUR 3.5 million consisted of unused credit facilities. The company estimates that available funds will suffice, in accordance with the liquidity plan that has been drawn up, at least for the next 12 months.
 
CAPITAL EXPENDITURES
 
The Group’s capital expenditures in the report period totalled EUR 0.5 million (EUR 0.2 million), or about 1% of net turnover (1%).
 
PERSONNEL AND MANAGEMENT
 
At the beginning of the report period the Incap Group had a payroll of 544 employees and at the end of the year it had 463 employees. There were no laid-off staff at the close of the report period. The sale of the aluminium machining and plating business on 15 April reduced the Group’s total payroll by 69 employees.
 
Liam Kenny has been appointed the Group’s Vice President, Materials and Logistics and a member of the Management Team as from 1 October. Mr Kenny has previously been employed with Sanmina-SCI in Ireland and Finland.
 
ADOPTION OF IFRS STANDARDS (IAS)
 
The Incap Group will publish its first IFRS interim report for the January-March period of 2006 and in October or November it will release information on the effects of the transition to IFRS on the Group’s financial figures.
 
VALID AUTHORISATIONS OF THE BOARD OF DIRECTORS
 
The Board of Directors has current authorisations, granted by the Annual General Meeting on 31 March 2005, to decide on increasing the share capital, floating convertible bonds and/or the granting of stock options such that the company’s share capital is raised by a maximum of about 4,092,775.68 euros.
 
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 2.07 to EUR 1.65, and the share price at the close of the period was EUR 1.75. The trade volume was 9% of the shares outstanding.
 
At the end of the report year the company had 1,028 shareholders. The company’s market capitalisation at 30 June 2005 was EUR 21.3 million.
 
OUTLOOK FOR THE REST OF THE YEAR
 
Incap’s operations have developed favourably in the first part of the year. Market visibility is nevertheless very short and moving forward we can expect fluctuations in demand that cannot be forecast exactly at the present time.
 
On the basis of customers’ projections, Incap estimates its net turnover in 2005 to be slightly higher than in 2004 despite the disposal of its machining and plating operations. Third-quarter net turnover is expected to be lower than in the other quarters because demand slows down seasonally in July.
 
Profitability in the latter part of the year is estimated to remain at roughly the level of the first half. 
 
Incap’s Interim Report for January-September 2005 will be published on Wednesday, 26 October 2005.
 
 
INCAP CORPORATION
Board of Directors
 
 
Juhani Hanninen
President and CEO
 
The full report including tables can be downloaded from the enclosed link.