* revenue was EUR 36.1 million (Jan.-Jun. 2006: EUR 43.5 million)

  * operating profit was EUR 1.1 million negative (2.6 million positive)
  * net profit for the report period amounted to EUR 1.5 million negative
(2.9 million positive)
  * earnings per share were EUR 0.12 negative (0.24 positive)
  * launch of manufacturing operations in India generated non-recurring costs of about EUR 0.5 million in profit and loss statement  
Juhani Hanninen, President and CEO of Incap Corporation: “A very sharp decline in the demand for telecommunications products in the first quarter was reflected in revenue for the entire first half of the year. This year we have established several new customer relationships and also received new products from existing customers to compensate for the decline in telecommunications sector revenue.
In addition to the reduced volume, earnings development was impacted by non-recurring expenses arising from the launch of operations in India, as well as other business development expenses.
The launch of manufacturing operations in India has brought Incap substantial new growth potential. In addition to new customers, it provides better preconditions for expanding our business with existing globally operating customers.”
Accounting policies applicable to the interim report
This interim report has been prepared in compliance with the IAS 34 Interim Financial Reporting standard, and the accounting policies are in line with those of the annual financial statements. The operations of the manufacturing unit in India have been consolidated with the reported figures as of 1 June 2007, due to which the figures presented in this report are not comparable with those of the corresponding period in 2006.
Revenue and financial performance in April-June
Second-quarter revenue increased by 13% on the previous quarter to EUR 19.1 million. This represents a decline of 15% on the same period last year.
Operating profit in April-June was EUR 0.04 million (1.2 million), or 0.2% of revenue (5.2%).


Revenue and financial performance in January-June
Incap’s revenue in January-June was EUR 36.1 million, down 17% on the same period in 2006 (January-June 2006: EUR 43.5 million).
Operating profit in January-June was EUR 1.1 million negative (2.6 million positive), or 3.2% negative of revenue (5.9% positive). The operating profit includes non-recurring expenses totalling approximately EUR 0.6 million associated with business development and implementation of the growth strategy. EUR 0.5 million of this referring to Indian operations. The establishment of the Indian subsidiary and launch of its operations generated total costs of approximately EUR 1.1 million.
Net profit for the report period amounted to EUR 1.5 million negative (2.9 million positive), or 4.1% negative of revenue (6.6% positive). The profit for the comparative period in 2006 includes EUR 0.5 million of increases in deferred tax assets. Earnings per share (EPS) amounted to EUR 0.12 negative (0.24 positive), while equity per share stood at EUR 1.55 (1.63).

Development of operations
Demand for Incap’s manufacturing services was brisk during the second quarter. Deliveries to customers in the telecommunications sector also increased slightly compared to the early part of the year.
New customers were acquired during the report period and agreements signed for the manufacture of new products for present customers, and the revenue effects of these will be seen in the second half of the year. The most significant new sale was an agreement on enamel copper winding operations signed with ABB Oy, which will substantially increase Incap’s share of the manufacture of rotor components as of October.
An agreement for the acquisition of a manufacturing unit in India was signed with TVS Electronics Limited in late May, resulting in the transfer of a factory manufacturing electronics and box-build products, as well as an associated design unit to Incap. The total acquisition cost for the business was approximately EUR 8.3 million, including an additional land area allowing future expansion of the operations in India as well as other immediate costs associated with the acquisition. The intention is to complete integration of the Indian manufacturing unit’s operations into the Group in September.
Incap’s strategic targets
Incap defined its strategy aiming for strong growth and internationalisation in May. The company aims to double its business volume by 2010 through organic growth as well as acquisitions and other corporate arrangements. Profitable organic growth must outperform average market growth, which, in accordance with estimates by research institutes, will be approximately 10% annually within the next few years. Incap will maintain its balanced customer base to keep its dependence on any single customer sector below 30%. Within the next few years the company’s growth will focus outside Finland, with the aim of having at least half of the company’s operations located outside Finland in 2010.
Short-term risks and factors of uncertainty
Incap’s sales are spread over several customer sectors, which hedges the company against sharp seasonal changes. However, the drop in revenue from customers operating in the telecommunications sector during the first half of the year occurred extremely quickly, causing financial effects. In accordance with its strategy, the Group will continue to balance its customer base so that the loss of a single customer or several customers from the same sector does not expose the company to a major financial risk.
The acquisition of a new business unit in India has increased the Group’s financing and exchange rate risk. Interest rate risk, as well as the exchange rate risk associated with financing and operations, are managed through a financing structure balanced in the Group’s main currencies.
Financing and cash flow
The Group’s equity ratio was 35% (48%). Interest-bearing net liabilities totalled EUR 18.8 million (8.6 million) and the gearing ratio was 99.5% (43.5%). Net financial expenses were EUR 0.4 million (0.2 million) and depreciation EUR 1.3 million (1.1 million). The Group’s liquidity was satisfactory: the quick ratio was 0.9 (1.0) and the current ratio 1.8 (1.8).
Cash flow was EUR 1.6 million negative (2.1 million negative) and the change in cash and cash equivalents was increase of EUR 1.7 million (decrease of 1.9 million).
The Group’s equity at the close of the report period was EUR 18.9 million (19.9 million). Liabilities totalled EUR 34.8 million (21.5 million), of which interest-bearing liabilities amounted to EUR 20.9 million (9.0 million).
The business acquisition in India was financed through convertible promissory notes and loans from local financial institutions.
Convertible promissory notes
In May Incap offered convertible promissory notes to a limited group of professional investors for the purpose of financing acquisitions in accordance with the company’s strategy. The convertible promissory notes have nominal value of EUR 6,750,000 and were subscribed in full. The term is five years and the notes carry a right of conversion into 2,500,000 new shares of the company for a price of EUR 2.70. Subscriptions by parties closely related to the company totalled EUR 307,800.
Capital expenditures
The Group’s capital expenditures excluding the business acquisition in India totalled EUR 0.6 million (EUR 1.6 million), or about 1.6% of revenue (3.7%). The expenditures mainly concerned production machinery and equipment, as well as information management.
At the beginning of the period under review the Incap Group had a payroll of 541 employees and at the end of the period it had 773 employees. The average number of personnel was 569 (489). Of the total personnel, 367 employees are based in Finland, 178 in Estonia and 228 in India.
556 were permanently employed staff and 217 fixed-term employees. There were 10 part-time employment contracts at the end of the period.
Jukka Turtola, M.Sc. (Eng.) was appointed Vice President, Global Sales and Marketing, and a member of the Management Team as from 25 June 2007. Turtola has previously worked in various international tasks, most recently as General Manager, Sales and Marketing for Latin American operations with GE Healthcare, Clinical Systems.
Shares and shareholders
Incap has 12,180,880 shares on issue. The price of the Incap Corporation share varied in the range of EUR 1.89 to EUR 2.67 during the report period, and the closing share price on 30 June 2007 was EUR 2.20. The trade volume was 28% of the shares outstanding.
At the end of the report period the company had 1,122 shareholders. Foreign and nominee-registered owners held 16.6% of all shares. The company’s market capitalisation on 30 June 2007 was EUR 26.8 million.
Share options
The Incap Group currently runs 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 share options, entitling their holders to subscribe for an equal number of shares. The share options are divided into A, B and C warrants.
The share subscription period for warrants 2004A began on 1 April 2007 and will continue through to 30 April 2009. The subscription period for shares to be subscribed for with the warrants will not commence until the average price of the Incap share weighted by two calendar months’ trade volume is at least 3 euro.
Announcements in accordance with Chapter 2, Section 9, of the Securities Market Act on changes in holdings
Ilmarinen Mutual Pension Insurance Company announced that after having purchased convertible promissory notes on 21 May 2007, its share of Incap’s share capital and votes would exceed 5% if the company exercises the right to subscribe for new shares. The OP Bank Group Central Cooperative announced that if mutual funds managed by its subsidiary OP Fund Management Ltd were to exercise the subscription rights associated with their convertible promissory notes purchases in full, the OP Bank Group Central Cooperative’s share of holding in Incap would exceed 5%.
Outlook for the future
The general market outlook for electronics contract manufacturing is unchanged. Outsourcing is expected to continue while price competition remains intense.
Incap’s quotation base is strong. New customer relationships are expected to create added revenue later this year and more substantially in 2008. Deliveries of telecommunications products are expected to remain substantially lower than last year, and rapid changes in volume such as those experienced early this year are estimated to even out during the latter half of the year.
Incap estimates that the entire Group’s revenue in 2007 will be on a par with or slightly lower than in 2006 when it was EUR 89.3 million. The revised estimate for the revenue of the Indian subsidiary is approximately EUR 6 million instead of the previously estimated EUR 8-10 million.
Profitability is expected to improve during the latter half of the year compared with the first half of the year. The full-year operating result is estimated to represent a loss.
Incap will release its January-September Interim Report on Wednesday, 7 November 2007.
Board of Directors
For additional information, please contact:
Juhani Hanninen, President and CEO, tel. +358 50 556 7199
Anne Sointu, Chief Financial Officer, tel. +358 40 347 2059
Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 40 504 8296
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 Aleksanterinkatu 17, FI-00100 Helsinki.
Incap Corporation is a fast-growing electronics contract manufacturer whose comprehensive service covers the entire product life cycle from design and manufacture to repair and maintenance services. The company’s main customers are leading equipment suppliers in telecommunications, electrical power technology, the automation and process industries as well as measurement technology, security electronics and health care. The Incap Group’s revenue amounted 2006 to EUR 89 million and the company currently employs approx. 750 persons. Incap’s share is listed on the Helsinki Stock Exchange and it is a component of the Nordic Small Cap list within the information technology sector. For additional information, please visit 
1 Consolidated Income Statement
2 Consolidated Balance Sheet
3 Consolidated Cash Flow Statement
4 Consolidated Statement of Changes in Equity
5 Notes to the Interim Report
6 Group Key Figures and Contingent Liabilities

Annex 1


Annex 2


Annex 3
(EUR thousands, unaudited)


Annex 4
(EUR thousands, unaudited)


Annex 5
Notes to the Interim Report
Accounting policies applicable to the interim report
This interim report has been prepared in compliance with the IAS 34 Interim Financial Reporting standard, and the accounting policies are in line with those of the annual financial statements. The operations of the manufacturing unit in India have been consolidated with the reported figures as of 1 June 2007, due to which the figures presented in this report are not comparable with those of the corresponding period in 2006.
Acquired operations
Incap Corporation’s subsidiary Incap Contract Manufacturing Services Pvt. Ltd., established in India in April 2007, acquired a business unit manufacturing electronics and box-build products from TVS Electronics Limited on 31 May 2007. The number of personnel transferred in the business acquisition was 230, and the company is estimated to receive approximately EUR 6 million of revenue in 2007.
The total acquisition cost was EUR 8.3 million, paid in cash. In addition to the cash consideration, a total of EUR 0.5 million in consultancy fees and other costs immediately associated with the acquisition are included in the acquisition cost. Part of the acquisition cost exceeding the balance sheet value, EUR 1.2 million, was allocated to intangible rights by calculating fair values for the acquired customer base. TVS Electronics will build new premises in the recently acquired land area for Incap’s use by the end of year 2008, from which 1.0 million euros has been enrolled as an advance payment. The remaining business value of 1.0 million euros is based on Incap’s improved position in the Asian contract manufacturing markets.
The following assets and liabilities were recognised for the acquired object:

There are no temporary tax differences to be recognised on the allocated intangible rights.
Convertible promissory notes
On 21 May 2007 the Group issued 1,250 units of convertible promissory notes with a nominal value of EUR 5,400 each to a total amount of EUR 6,750,000 for the purpose of financing the business acquisition in India and upcoming investments.  The term of the convertible promissory notes is from 25 May 2007 to 25 May 2012 if the holders of the notes do not exercise their right to convert the notes into the parent company’s shares. Notes with a nominal value of EUR 5,400 can be converted into 2,000 shares of the parent company at a conversion rate of EUR 2.70. The conversion period for notes is from 19 June 2007 to 30 April 2012.  The convertible promissory notes have not been divided into equity and liabilities in the financial statements as the equity component is not substantial at the time of issuing the notes.

Annex 6