INCAP GROUP INTERIM REPORT JANUARY-JUNE 2006: GROWTH IN REVENUE AND OPERATING PROFIT

Stock Exchange Release, 10 August 2006
 
 
  • Revenue in January-June was up 8.5% on the same period a year earlier and was EUR 43.5 million (Jan.-June 2005: EUR 40.1 million).
  • Operating profit grew by 10.6% and was EUR 2.6 million (2.3 million) i.e. 5.9 % of revenue (5.8%).
  • Net profit for the report period was EUR 2.9 million (3.0 million).
  • Earnings per share were EUR 0.24 (0.24).
  • Kuressaare new factory was completed and deliveries commenced.
  • Equity ratio improved remarkably reaching 48% (39%).
 
This unaudited Interim Report has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS). The profit for the report period in 2005 consisted of continuing and discontinued operations. The discontinued operations were sold on 15 April 2005.
 
REVENUE AND FINANCIAL PERFORMANCE IN APRIL-JUNE
 
Revenue in the second quarter amounted to EUR 22.5 million, or 13.0% more than in the same period last year (Apr.-June 2005: EUR 19.9 million). Revenue also grew by 6.9% over the first quarter in 2006.
 
Operating profit in April-June, a total of EUR 1.2 million, was up 6.9% over the same quarter in 2005 (1.1 million). Second-quarter operating profit represented a 5.2% share of revenue, while during the same period last year it accounted for 5.5% and in the first quarter of 2006 for 6.6% of revenue.
 
The results for the comparative periods included non-recurring operating income: in the first quarter of 2006 an adjustment to rental expenses totalling EUR 0.3 million, and in the second quarter of 2005 EUR 0.2 million in income from the sale of machinery.
 
 
 
 
The profit for the report period April-June 2005 included a total of EUR 0.8 million of capital gain from discontinued operations, which increased the earnings per share by EUR 0.06. For the first quarter of 2005 the discontinued operations showed a loss of EUR 0.7 million.
 
REVENUE AND FINANCIAL PERFORMANCE IN JANUARY-JUNE
 
Incap’s revenue in the January-June period totalled EUR 43.5 million, an increase of 8.5% over the same period’s continuing operations in 2005 (Jan.-June 2005: EUR 40.1 million). The revenue of the discontinued operations totalled EUR 1.3 million in January-June 2005.
 
Operating profit in January-June grew by 10.6% on the same period in 2005, reaching EUR 2.6 million, or 5.9% of revenue. Operating profit during the same period in 2005 totalled EUR 2.3 million, or 5.8% of revenue.
 
Net profit for the report period amounted to EUR 2.9 million (3.0 million), or 6.6% of revenue (7.4%). Earnings per share were EUR 0.24 (0.24) and equity per share was EUR 1.63 (1.18).
 
 
 
 
 
 
DEVELOPMENT OF OPERATIONS
 
The market situation continued to be favourable, with demand remaining at a good level. The utilisation rate of the production capacity that has grown due to investments was good at all facilities, and in June, the company posted a record high in its revenue.
 
Price competition in electronics contract manufacturing remained tight. Incap received manufacturing contracts for several new products from customers in the measurement and security technology sectors, among others. Incap signed a co-operation agreement with Electron Tubes of the United Kingdom for the manufacture of photometric measurement equipment at Incap’s Kuressaare facility.
 
The company modernised its line of equipment in Helsinki, Vaasa, Vuokatti and Kuressaare. The operations of the Vaasa facility were reorganised. The company began the installation of a new punch press and a materials warehouse at the Helsinki facility.
 
The roles of the Vuokatti and Kuressaare factories were clarified. The Vuokatti facility will be developed for prototype manufacture, the ramp-up of new products and demanding testing and maintenance. The Kuressaare factory will focus on the volume production of electonics products and the manufacture of products requiring a great deal of manual work.
 
NEW FACTORY IN KURESSAARE
 
The new factory building in Kuressaare was completed in July, after the close of the report period, when the former factory’s operations were moved to the new premises and deliveries from the new factory commenced. The new factory’s 3,700 square metres of floor space triple Incap’s facilities in Estonia, and the building can, in the future, be extended up to about 7,000 square metres.
 
The factory’s order book is good and recruitment in order to increase the number of personnel has started. The old factory building is still being used for the assembly of certain products and the training of new employees.
 
FOCUSES OF THE DEVELOPMENT OF OPERATIONS
 
The technological level and manufacturing capacity of the unit in Estonia have grown significantly thanks to investments. This creates a good environment for the growth of revenue and the acquisition of new customers in Scandinavia and central Europe.
 
In developing its quality system, Incap’s objective is to prepare for operations in compliance with the ISO 13485 Standard for Medical Devices which is widely stipulated by medical equipment manufacturers.
 
In India, the company is continuing its charting of local customer needs and possibilities for co-operation.
 
FINANCING AND CASH FLOW
 
The Group’s equity ratio continued to improve, reaching 48% (39%). Interest-bearing net liabilities decreased to EUR 8.6 million (10.5 million) and the gearing ratio was 44% (73%). Net financial expenses were EUR 0.2 million (0.3 million) and depreciation EUR 1.1 million (1.3 million).
 
The Group’s equity at the close of the report period was EUR 19.9 million (14.4 million). Liabilities decreased to EUR 21.5 million (22.3 million), of which interest-bearing liabilities amounted to EUR 9.0 million (10.8 million). At the close of the report period, the company had a short-term credit facility of about EUR 2 million available.
 
The Group’s liquidity was satisfactory: the quick ratio was 1.0 (0.9) and the current ratio 1.8 (1.9). Cash flow was EUR 2.1 million negative (2.1 million) and the change in cash and cash equivalents was a decrease of EUR 1.9 million (a decrease of 0.2 million). The change in cash flow was influenced by a growth of working capital employed.
 
The Group’s liquid assets at 9 August 2006 were EUR 3.1 million. The company estimates that available funds will suffice at least for the next 12 months in accordance with the company’s liquidity plan.
 
CAPITAL EXPENDITURES
 
During the report period, the company took decisions to revamp its electronics and mechanical products manufacturing capacity. The line of equipment at the Kuressaare and Vuokatti factories was supplemented with new SMD assembly lines.
 
Capital expenditures of EUR 1.6 million (0.5 million) were booked, representing about 3.7% (1.1%) of revenue. A total of EUR 1.2 million of the capital expenditures occurred during the second quarter.
 
PERSONNEL AND MANAGEMENT
 
At the start of the report period, the Incap Group had a payroll of 450 employees and at its end 544 employees. The number of personnel grew as a result of the recruitment of fixed-term employees to cover for employees on annual leave and to meet good demand in June and of an increase in the number of personnel at the Kuressaare factory.
 
Niklas Skogster, M.Sc. (Eng.), was appointed as Incap Corporation’s Director, Business Development and a member of the Management Team as from 1 August.
 
In May, Incap started co-determination negotiations at the Vuokatti factory concerning a maximum of about 130 employees. The reason for the negotiations is the division of work between the Vuokatti and Kuressaare units and the development of the Vuokatti unit primarily for the manufacture of prototypes and preproduction series. The negotiations are expected to continue into August-September.
 
AUTHORISATIONS OF THE BOARD OF DIRECTORS
 
At the close of the report period, the Board of Directors had an authorisation, granted by the Annual General Meeting of 11 April 2006, to decide on the floating of convertible bonds, the granting of stock options or the increase of share capital through a rights issue. The authorisation is valid until 11 April 2007 and can be used to increase the company’s share capital by a maximum of about EUR 4,092,776.
 
SHARES AND SHAREHOLDERS
 
The price of the Incap Corporation share varied in the range of EUR 1.82 to EUR 2.44 during the report period, and the share price at the close of the period at 30 June 2006 was EUR 2.22. The company’s market capitalisation at 30 June 2006 was EUR 27.0 million. The trade volume was 45% of the shares outstanding. Incap had 12,180,880 shares in issue. At the end of the report year the company had 1,279 shareholders.
 
STOCK OPTION SCHEME
 
The Board of Directors defined revenue and the net result as well as inventories’ percentage share of revenue as the criteria for earning 2004C option warrants which are part of the 2004 stock option scheme. Stock options were issued to a total of 11 of the Group’s key personnel. In accordance with the stock option scheme, the subscription price for 2004C option warrants is EUR 2.06, the average rate at the Helsinki Stock Exchange between 1 and 31 March 2006 weighted by the turnover in Incap’s shares. The subscription period for 2004C stock options starts in April 2009.
 
OUTLOOK FOR THE REST OF 2006
 
Incap’s customers have a mainly positive outlook for the market trend, and demand for manufacturing services is expected to retain its current level for the rest of the year. Incap estimates, based on forecasts by its customers, that its revenue in 2006 will top that of 2005.
 
Relative profitability for the entire year is expected to follow a trend reported earlier, maintaining the same level as in 2005.
 
 
INCAP CORPORATION
Board of Directors
 
 
For additional information, contact:
Juhani Hanninen, President and CEO, tel. 050 556 7199
Tuula Ylimäki, Chief Financial Officer, tel. 040 347 2025
Hannele Pöllä, Director, Communications and Investor Relations, tel. 040 504 8296
 
PRESS CONFERENCE
Incap will arrange a conference for the press and securities 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.
 
DISTRIBUTION
Helsinki Stock Exchange
Principal media