INCAP GROUP INTERIM REPORT JANUARY-MARCH 2008: REVENUE INCREASED FROM THE COMPARABLE PERIOD OF THE PREVIOUS YEAR, OPERATING PROFIT WAS NEGATIVE

Incap Corporation                 Interim Report            7 May 2008 8.30 a.m.
  • Revenue stood at EUR 20.3 million or 20% higher than during the comparable period of the previous year (Q1/2007: EUR 17.0 million)
  • Operating profit (EBIT) was EUR 1.3 million negative (EUR 1.2 million negative), or 6.5% negative of revenue (7.0% negative)
  • Net profit for the report period amounted to EUR 1.7 million negative (1.3 million negative)
  • Earnings per share (EPS) were EUR 0.14 negative (0.11 negative) 
This unaudited interim financial report has been prepared in compliance with the recognition and measurement principles of the IFRS standards. The tables in the report have been prepared in compliance with the requirements of the IAS 34 standard approved by the EU. The accounting principles and methods of the interim report are the same as in the last annual financial statements. Unless mentioned otherwise, the comparison figures used in the text portion of the report are the figures for the comparable period during the previous year.
 
Revenue and earnings in January-March 2008
 
Revenue during the first quarter was EUR 20.3 million (EUR 17.0 million) or 20% higher than during the comparable period in 2007. The period’s operating profit, EUR 1.3 negative, was slightly lower than during the comparable period last year (EUR 1.2 million negative) and as a percentage of revenue it was 6.5% negative (7.0% negative). The comparable operating profit from actual operations during the final quarter of 2007 was EUR 1.1 million negative. The profitability of the report period was affected particularly by the focus of manufacturing on material-intensive products, which have a relatively low sales margin. The comparable period in 2007 does not include operations in India, which were consolidated into the Group on 1 June 2007.
 
Net profit for the report period amounted to EUR 1.7 million negative (1.3 million negative). The decline in net profit was affected by increased financing expenses. Earnings per share amounted to EUR 0.14 negative (EUR 0.11 negative), while equity per share stood at EUR 1.41 (EUR 1.56).
 
 
 
 
Development of operations
 
The company won new customer accounts during the report period and the products of some important customers moved from the prototype and preliminary series stage into actual production. A contract was concluded in February with ABB Oy Electrical Machines concerning the manufacturing of flat bar copper windings for the magnetic poles of electric motors which starts in June 2008 at Incap’s factory in Vaasa.
 
The materials management organisation was reformed. To improve the efficiency of sourcing and procurement operations and to reduce the cost of materials, a cooperation concerning procurement of electronics and mechanics was started with a partner operating in Shanghai, Suzhou and Hong Kong. The material and purchasing operations of the Indian subsidiary were strengthened to serve the needs of the whole Group.
 
Indian operations
 
The active acquisition of new customers continued in India and cooperation with six new customers started during the report period. Most of the new products are at the prototype stage at the moment. The new customers are equipment manufacturers in energy technology and industrial electronics for which Incap supplies both electronics and product entities.
 
Construction work has started on the new factory in Tumkur, India and production is due to move to the new premises in November/December.
 
On 1 January 2008, Jarmo Kolehmainen started as the managing director of Incap’s Indian subsidiary and as a member of Incap Group’s Management Team. Kolehmainen has wide experience in the electronics industry and business operations in Asia.
 
Financing and cash flow
 
The Group’s equity ratio was 33.3% (45.3%). Interest-bearing net liabilities totalled EUR 18.3 million (EUR 11.6 million) and the gearing ratio was 106.5% (61.2%). Net financial expenses were EUR 0.4 million (EUR 0.2 million) and depreciation expenses were EUR 0.8 million (EUR 0.7 million).
 
The balance sheet total at the end of the report period stood at EUR 51.7 million (EUR 41.9 million). The increase was a result of the change in the Group structure on 1 June 2007 when the operations of the acquired business in India were consolidated into the Group. The delay of some deliveries increased the inventory compared with the turn of the year.
 
The Group’s equity at the close of the report period was EUR 17.2 million (EUR 19.0 million). Debt totalled EUR 34.5 million (EUR 22.9 million), of which interest-bearing debt amounted to EUR 18.9 million (EUR 11.7 million).
 
The Group’s liquidity was satisfactory: the quick ratio was 0.6 (0.6) and the current ratio 1.4 (1.5). Cash flow from operations was EUR 1.8 million positive (EUR 2.6 million negative) and the change in cash and cash equivalents was a decrease of EUR 0.3 million (a decrease of EUR 0.4 million).
 
Capital expenditures
 
The Group’s capital expenditures were EUR 0.8 million (EUR 0.3 million) or 4.1% (1.8%) of revenue.
 
Personnel and management
 
At the end of the report period, Incap Group had 724 employees (525) in addition to which a total of 91 leased employees worked at the company. At the end of the report period, 51% of personnel worked in Finland, 27% in Estonia and 22% in India.
 
Eeva Vaajoensuu, M.Sc. (Econ.), was appointed as the Chief Financial Officer of Incap Group and as a member of the Management Team after the end of report period on 14 April. Her area of responsibility includes the Group’s administration, financing and IT management.
 
On 11 February 2008, layoff negotiations pursuant to the Co-operation Act started in the material and purchasing operations of the Finnish units and the Group support operations, which ended after the report period on 2 April 2008. The negotiations on temporary layoffs that were started at the Vuokatti unit on 28 February were interrupted on 3 April 2008 due to an improvement in demand.
 
Decisions of the Annual General Meeting
 
Incap Corporation’s Annual General Meeting was held in Oulu on 10 April 2008. The AGM approved the 2007 financial statements of the Group and parent company and discharged the Board of Directors and CEO from liability. No dividend was paid for the 2007 and the loss for the financial year was transferred to retained earnings.
 
The AGM approved the Board of Director’s proposal for a change to the Articles of Association. The company’s domicile was moved from Oulu to Helsinki.
           
The AGM re-elected Jukka Harju, Kalevi Laurila and Susanna Miekk-oja as members of the Board of Directors. Kari Häyrinen was elected to the Board of Directors as a new member. The Board of Directors elected Kalevi Laurila as Chairman and Susanna Miekk-oja as Deputy Chairman from among its members. Authorised Public Accountants Ernst & Young Oy was selected again as the company’s auditor.
 
The AGM authorised the Board of Directors to decide within one year of the AGM on the increase of share capital through one or more rights issues and on granting of stock options so that on the basis of the authorisation the total number of new shares to be subscribed is a maximum of 4,000,000, of which a maximum of 600,000 shares can be used in stock options.
                       
Shares and shareholders
 
Incap Corporation has one series of shares and the number of shares in 12,180,880. During the report period, the share price varied between EUR 1.09 and EUR 1.60 and the closing price of the period was EUR 1.10. During the report period, the trading volume was 3% of outstanding shares.
 
 
Short-term risks and factors of uncertainty concerning operations
 
Even though Incap’s sales come from several customer sectors, which evens out the effect of industry sectors’ cyclical fluctuations, the loss of a single large customer can have a significant impact on the company’s revenue and profitability. Incap’s demand and financial position are also affected by the international economic trends.
 
In Incap’s industry segment, contract manufacturing, there is continuous pressure on the management of cost levels and the company strives to reduce the respective risk through the improvement of operational efficiency and cost competitiveness. Rapid changes can occur in the market prices of materials and in particular there are clear signs of increases in the prices of metals.
 
The acquisition of a new business unit in India has increased the Group’s exposure to financing risks. The interest and currency rate risks are managed with a special financing structure, based on financing instruments with fixed and variable interest rates and denominated in selected currencies.
 
Outlook for the rest of 2008 
 
Incap’s customers have given mainly positive estimates of the trend in their own demand. The prediction of the future development of the market is difficult due to the short visibility and the weakening of the global economic outlook.
 
Incap continues to expect that the Group’s revenue in 2008 will increase from last year (2007: EUR 83.0 million). The profitability is expected to improve during the second half of the year and operating profit from operations in 2008 is expected to be better than in 2007 in line with the company’s earlier statement. Operating profit from operations was EUR 2.8 million negative in 2007.
 
Incap will release its January-June Interim Report on Wednesday, 6 August 2008.
 
Helsinki, 7 May 2008
 
INCAP CORPORATION
Board of Directors
For additional information, please contact:
Juhani Hanninen, President and CEO, tel. +358 50 556 7199
Eeva Vaajoensuu, Chief Financial Officer, tel. +358 40 763 6570
Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 40 504 8296
 
 
DISTRIBUTION
OMX Nordic Exchange Helsinki
Principal media
 
 
PRESS CONFERENCE
Incap will arrange a conference for the press and financial analysts today at 10.00 a.m. at the World Trade Centre Helsinki, in Meeting Room 1 on the 2nd floor at Aleksanterinkatu 17,
Helsinki.
 
ANNEXES
1 Consolidated Income Statement
2 Consolidated Balance Sheet
3 Consolidated Cash Flow Statement
4 Consolidated Statement of Changes in Equity
5 Group Key Figures and Contingent Liabilities
6 Quarterly Key Figures
 
INCAP IN BRIEF
Incap Corporation is an internationally operating electronics contract manufacturer whose comprehensive service covers the entire product life cycle from design and manufacture to repair and maintenance services. In addition to electronics, Incap also manufactures mechanical products and parts. The company specialises in technically demanding products and product entities that are manufactured in small and medium-sized production series. Incap’s main customers are leading equipment suppliers in telecommunication, energy, industrial electronics, security as well as in medical and well-being. Incap has operations in Finland, Estonia and India. The Group’s revenue in 2007 amounted to EUR 83 million and the company currently employs approx. 720 persons. Incap’s share is listed on the OMX Nordic Exchange Helsinki. For additional information, please visit www.incap.fi 
 
 
Annex 1
 
 
 
 
Annex 2
 
 
 
 
 
 
Annex 4
 
 
 
Annex 5
 
 
 
 
Annex 6