• revenue rose by 8.3% on the previous year to EUR 76.7 million (2004: 70.8 million).
  • operating profit was EUR 3.8 million (3.8 million), or about 4.9% of revenue (5.3%)
  • profit for the year was EUR 5.5 million (loss 2.2 million)
  • profit for the year from continuing operations was EUR 5.1 million (4.1 million)
  • earnings per share from continuing operations were EUR 0.42 (0.34)
  • the divestment of the aluminium machining and plating operations paved the way for a significant improvement in profitability
Incap Corporation’s consolidated financial statements for 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS) and the comparative figures for 2004 have been adjusted to comply with IFRS. The effects of the transition to the standard were disclosed in a stock exchange release containing unaudited figures on 17 November 2005. The audited, partially adjusted figures are presented in Annex 6 to this stock exchange release.
In the income statement, the result of discontinued operations has been separated out from the result of continuing operations in accordance with IFRS. Unless mentioned otherwise, the figures presented in the text part of this report for the 2005 financial year and the 2004 comparison year relate to the Group’s continuing operations and do not include the aluminium machining and plating operations that were divested in April 2005.
In 2006, quarterly comparative figures for 2005 in accordance with IFRS will be published in each interim report. The quarterly figures presented in this stock exchange release are in accordance with Finnish Accounting Standards (FAS).
Fourth-quarter revenue was EUR 20.0 million (Oct.-Dec. 2004: 21.7 million). 
Operating profit in October-December doubled over the same period a year earlier, amounting to EUR 0.8 million (0.4 million). The operating profit margin on revenue was 4.1%.
The aluminium machining and plating business in Kempele and Ruukki was sold to the MariCap Group in the spring. Operations of the units and the employees working at them were transferred to the new owner on 16 April 2005. The revenue target in 2005 for the transferred businesses was about EUR 5 million, of which Incap realised EUR 1.2 million. Net profit from discontinued operations in 2005 was EUR 0.4 million (2004: a loss of 6.3 million), including a capital gain of EUR 0.5 million on the sale of the above-mentioned business.
Consolidated revenue rose by 8.3% on the previous year to EUR 76.7 million (70.8 million in 2004). Operating profit was EUR 3.8 million (3.8 million). Of the operating profit figure, EUR 0.2 million consisted of non-recurring gains on the sale of equipment connected with modernisation of machinery.
Net profit for the financial year was EUR 5.1 million (4.1 million). Net profit was improved by the deferred tax asset of EUR 1.9 million that was recorded for 2005 (1.0 million).
Earnings per share were EUR 0.42 (0.34) and equity per share was EUR 1.39 (0.94).
Incap reinforced its position as a contract manufacturer for strategic customers. Price competition was extremely keen and owing to the declining price trend in the industry, manufacturing volumes increased more than revenue. Among the positive indications of Incap’s competitiveness were the expansion of co-operation with a number of customers, the start-up of production runs for new products, deliveries to Asia and landing a production outsourcing contract after an international competitive bidding process. There was a further increase in customers’ overall interest in outsourcing manufacturing and related services.
Incap’s customer base got even more balanced than before. Delivery volumes were up, especially to manufacturers of equipment for the telecommunications and electrical industries, healthcare technology and medical equipment. Customer relationship management was enhanced both by beefing up sales resources and by developing operations. The objective of the customer relationship management project that was launched at the beginning of the year is to improve the customer focus of operations and to make customer relationship management more goal-driven. Marketing studies were employed to survey areas such as the manufacture of medical equipment in Europe.
The strategy that was adopted for developing the design services was to increase our own resources moderately in accord with customers’ demand whilst at the same stepping up design co-operation with our present network partners.
The operations in Estonia will be expanded. An industrial facility in accordance with Incap’s production needs will be built near the centre of Kuressaare, and Incap will lease the facility for its own use. The first phase of the building will have about 3,700 square metres of total floor space and the present production operations will move into the new premises in spring 2006.
Electronics manufacture was improved by purchasing a new SMD assembly line and an ancillary optical quality inspection device. A PCB assembly line that will step up new prototype and small series production was ordered for the electronics NPI (New Products Introduction) unit. Sheet metal mechanical fabrication was enchanced by investing in an automatic combination machine.
Preparations were made in good time for the entry into force of the RoHS directive on Restriction of the Use of Certain Hazardous Substances. Within electronics production, pilot production for a number of customers was run in a lead-free process. Incap’s entire electronics manufacturing went over to a lead-free process at the beginning of 2006. In sheet metal fabrication too, Incap has the capability to offer manufacture according to the RoHS directive.
All the company’s factories have environmental and quality systems that are certified by Lloyd’s and which are used as tools for continually improving operations. The environmental system was updated in 2005 in line with the ISO 14001:2004 standard. The quality system is in compliance with ISO 9001:2000. Product and component traceability was developed further within electronics manufacturing.
Deliveries by Ultraprint Oy, the subsidiary that manufactures RFID antenna solutions, were slowed down by the interruption of a customer’s operations due to the industrial dispute in the paper industry.
The Group’s equity at the close of the financial year was EUR 17.0 million (11.4 million). Liabilities totalled EUR 22.2 million (28.7 million), of which interest-bearing liabilities amounted to EUR 7.5 million (15.6 million).
Net financial expenses were EUR 0.6 million (0.7 million) and depreciation EUR 2.6 million (3.0 million). Interest-bearing net liabilities decreased to EUR 5.3 million (15.2 million) and the ratio of net liabilities to equity (gearing) was 31% (133%). The equity ratio rose to 43% (29%).
The Group’s liquid assets at 13 March 2006 amounted to EUR 4.4 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.
Incap’s research and development expenses were for its own operational processes, for which spending came to EUR 0.6 million (1.9 million). 
The Group’s capital expenditures in the financial year totalled EUR 0.8 million (EUR 0.4 million), or about 1.1% of net turnover (0.6%). The largest investment item was the punch press with integrated laser cutting that is used in sheet metal fabrication. Other investments went for developing the lead-free production process, expanding prototype manufacture and raising the efficiency of electronics manufacture at the unit in Estonia.
At the beginning of the year, the Incap Group had a payroll of 544 employees and at the end of the year it had 450 employees. The average number of employees in 2005 was 468. The reduction in staff resulted mainly from the disposal of the aluminium machining and plating businesses. New staff were hired for sales, design services and materials management.
The company’s president and CEO during the financial year was Juhani Hanninen. In addition to him, the members of the Group’s Management Team included Tuula Ylimäki (Finance and Administration), Timo Sonninen (Manufacturing Services), Petri Saari (Sales and Marketing) and Hannele Pöllä (Communications and Investor Relations) and, as from October, Liam Kenny (Materials and Logistics).
The chief executive and the members of the Management Team receive bonuses that are linked to the company’s annual result in accordance with the earnings-tied bonus scheme confirmed by the Board of Directors. Bonuses for 2005 were determined on the basis of achievement of the objectives set for net turnover, net profit and the inventory turnover rate.
The Annual General Meeting of Incap Corporation was held on 31 March 2005 in Oulu. The Annual General Meeting adopted the consolidated and parent company financial statements for 2004 and granted release from liability to the responsible officers. No dividend was paid for the 2004 financial year.
The Annual General Meeting amended Article 5 of the Articles of Association in accordance with the Corporate Governance recommendation such that the Board of Directors has from five to seven ordinary members.
The Annual General Meeting authorised the Board of Directors to decide on increasing the share capital through one or more rights issues, the floating of one or more issues of convertible bonds and/or granting stock options. The authorisation provides for raising the company’s share capital by a maximum of about 4,092,776 euros, and it is valid up to 31 March 2006. The Board of Directors did not exercise its authorisation during the financial year. 
The Annual General Meeting re-elected Seppo Arponen, Kalevi Laurila, Timo Leinilä, Sakari Nikkanen and Jorma Terentjeff to seats on the Board of Directors. Juha-Pekka Kallunki was elected a new member. From amongst its number, the Board of Directors re-elected Jorma Terentjeff chairman. Jari Pirinen (LL.M.) served as secretary to the Board of Directors.
The firm of independent accountants Ernst & Young Oy continued as the Group’s auditors in accordance with the resolution of the Annual General Meeting. The principal auditor was Rauno Sipilä, Authorised Public Accountant.
The Board of Directors met 14 times in 2005 and the average attendance of the directors at meetings was 95 per cent.
Incap had 12,180,880 shares in issue. The price of the Incap Corporation share varied in the range of EUR 1.65 to EUR 2.07 during the financial year, and the share price at the close of the year was EUR 1.87. The trade volume was 27% of the shares outstanding.
At the end of the report year the company had 1,189 shareholders. Foreign and nominee-registered owners held 11 per cent of the shares. The company’s market capitalisation at 31 December 2005 was EUR 22.8 million.
The subscription period for the Group’s 2000 share option scheme expired on 31 December 2005. Warrants were not exercised to subscribe for shares.
The subscription period for exercising the warrants directed at Varma Mutual Pension Insurance Company in 2003 likewise ended on 31 December 2005. Varma did not exercise its subscription rights.
At present the Incap Group has a share option scheme that was introduced in 2004 and commits key employees to long-term share ownership. There are a total of 630,000 option rights, entitling their holders to subscribe for an equal number of shares. On the basis of the subscriptions, Incap’s share capital can rise by a maximum of about EUR 1,058,400.
Board of Directors’ proposals for the disposal of profits
The Board of Directors will propose to the Annual General Meeting to be held on 11 April 2006 that the profit for the financial year be recorded as retained earnings and that no dividend be distributed for the 2005 financial year.
The Annual General Meeting of Incap Corporation will be held on Tuesday, 11 April 2006 beginning at 5.00 p.m. in the meeting room of the Sokos Hotel Arina at the address Isokatu 24, 3rd floor, 90100 Oulu. The Notice of Shareholder Meeting and the Board of Directors’ proposal for the agenda to be submitted to the Annual General Meeting will be published in a stock exchange release and will appear in the daily newspapers Helsingin Sanomat and Kaleva.
Incap aims at organic revenue growth through the dual means of gaining market share among our present customers and by taking on outsourcing contracts for customers’ entire production. Incap will seek to build new customer relationships, particularly among manufacturers of equipment for healthcare and personal well-being. The increase in the manufacturing capacity of the unit in Estonia will provide a solid foundation for revenue growth and acquiring new customers, especially in Scandinavia and central Europe. Sales and marketing to these areas will be stepped up, notably, through the use of agency agreements.
Incap’s objective is to expand its role as an international partner of its customers, and studies are under way on the possibilities of starting operations in the growing markets of Asia. To this end, Incap has established an office in New Delhi.
The outlook for electronics manufacturing services is good, and studies by market research institutes indicate that the EMS market will grow by about 10 per cent again in 2006. The degree of outsourcing is estimated to rise further.
Incap’s customers see a positive trend in their own markets, though projections can only be made a short way out. Incap estimates that consolidated revenue will grow moderately in 2006 in step with the overall growth in the market. First-quarter revenue and earnings are estimated to be at the level of the last quarter of 2005.
Board of Directors
Juhani Hanninen
President and CEO
Incap will arrange a conference for the press and financial analysts today at 10.00 a.m. at the World Trade Center Helsinki, in Meeting Room 1 on the 2nd floor, at the address Aleksanterinkatu 17, 00100 Helsinki.
The full report including tables can be downloaded from the enclosed link.