Incap Group Interim report January-March 2010: profitability was burdened by structural change

Incap Corporation   Stock Exchange Release   5 May 2010 at 8:30 a.m.

 

INCAP GROUP INTERIM REPORT JANUARY-MARCH 2010: PROFITABILITY WAS BURDENED BY STRUCTURAL CHANGE

  • Incap decided to close down operations in Vuokatti factory and to centralise company’s European electronics manufacturing in Estonia – in order to get out of overlapping and to increase efficiency of operations
  • Revenue in the first quarter stood at EUR 13.4 million, or 27% lower than during the comparable period in the previous year (1-3/2009: EUR 18.5 million) 
  • Operating profit (EBIT) was EUR -1.7 million (EUR -0.5 million)
  • Planned cost savings from structural change did not reflect in full in the result of the period
  • Earnings per share were EUR -0.16 (EUR -0.08)
  • Directed share issue carried out after the review period was subscribed in full

 

This unaudited interim report has been prepared in accordance with international financial reporting standards (IFRS). Unless otherwise stated, the comparison figures refer to the same period the previous year.

 

Sami Mykkänen, the President and CEO of Incap Group: “The market situation continued to be difficult, with the first months of the year being more quiet than usual for a number of customers. Demand for both electric power and well-being products remained at a low level.”

 

“Our primary objective is to improve profitability. The centralisation of electronics production at the Kuressaari plant is making good progress towards our goal of completing the production transfer in the autumn. The structural change is aimed at achieving significant cost savings which start realising towards the end of the year.”

 

“We have seen positive indications that the number of quotations is increasing with intensive negotiations over the manufacture of new products and the new customer relationships. We can increase our manufacturing capacity quickly according to demand with no need for further investments. I trust that, as the market situation improves, our business volumes will increase while the negotiations held over the manufacture of new products will result in concrete orders.”

 

Revenue and net profit during January-March 2010

Revenue in the first quarter stood at EUR 13.4 million, or 27% lower than during the comparable period in 2009 (1-3/2009: EUR 18.5 million).

 

The operating profit was EUR -1.7 million (EUR -0.5 million), comprising -12% of the revenue (-3%).

 

 

Quarterly comparison

(EUR thousands)
1-3/

2010
10-12/

2009
7-9/

2009
4-6/

2009
1-3/

2009
 

Revenue
 

13,436
 

17,746
 

16,613
 

16,928
 

18,479
 

Operating profit/loss

    
 

-1,670
 

-3,666

 
 

-314
 

-472
 

-518
Net profit/loss

 
-1,899 -3,926 -810 -1,035 -949
Earnings per share, EUR  

-0.16
 

-0.32

 
 

-0.07
 

-0.08
 

-0.08

 

The slow recovery of the general market situation was not yet reflected in the total demand for Incap services. The order volumes of some of the largest customers in well-being products were clearly lower than in the previous year. The demand from customers in the energy efficiency industry was lower than normal in Europe. The revenue of the Indian unit was clearly higher than in the corresponding period last year, as expected.

 

Decrease in revenue had the most impact on profitability. Cost structure could not be adapted according to decreased revenue in the same time scale, because the product transfers required partial overlapping in the operations of electronics factories in Vuokatti and Kuressaare.

 

The availability of specific components and materials declined in the global market, causing additional challenges for the procurement organisation and creating pressure for an increase in component prices.

 

Operations were adjusted through temporary lay-offs in all of the company’s functions. Accordingly, personnel expenses over the review period were about EUR 0.2 million lower than during the corresponding period last year. We continued our savings measures and reduced other operating expenses by EUR 0.1 million. 

 

Inventories stood 11% lower compared to the previous year and amounted to EUR 13.1 million (EUR 14.7 million). Compared with the end of the year 2009, the amount of inventories increased by EUR 1.7 million (31 December 2009: EUR 11.4 million), which was mainly caused by the electronics manufacturing reserve stocks established for product transfers.

 

The change in the production structure proceeded according to the company’s strategy. Cooperation negotiations at the Vuokatti plant were completed in March as it was decided that the company’s European electronics production will be centralised to the Estonian plant during 2010. Centralised production will improve operational efficiency and is aimed at achieving cost savings of EUR 3 million in 2011, compared with 2009. After closing the Vuokatti plant, Incap’s Finnish functions cover mechanics manufacturing and product assembly operations in Helsinki and Vaasa.

 

Net financing costs dropped to EUR 0.2 million (EUR 0.4 million) because the Indian rupee strengthened during the review period. Depreciation stood at EUR 0.7 million (EUR 0.7 million) Losses before tax amounted to EUR 1.9 million (EUR 0.9 million). The loss for the period was EUR 1.9 million (0.9 million).

 

Return on investment was -22% (-5%) and return on equity was -138% (-30%). Earnings per share were EUR -0.16 (EUR -0.08).

 

Balance sheet

The balance sheet total fell by EUR 4.0 million to EUR 40.8 million. The Group’s equity at the close of the period under review was EUR 4.5 million (EUR 6.4 million at the end of 2009, and EUR 12.3 million on 31 March 2009). Liabilities stood at EUR 36.3 million (EUR 33.3 million at the end of 2009, and EUR 32.6 million on 31 March 2009), of which EUR 22.1 million comprised interest-bearing liabilities (EUR 21.3 million at the end of 2009, and EUR 19.9 million on 31 March 2009). Of liabilities, current liabilities took up EUR 25.5 million (EUR 22.2 million at the end of the year, and EUR 20.8 million on 31 March 2009). The parent company’s equity decreased to EUR 11.1 million, comprising 54% of the share capital. The directed share issue carried out after the review period, i.e. a total of 2,000,000 new shares, was subscribed in full.

 

The Group’s equity ratio was 11.1% (27.4% on 31 March 2009). Interest-bearing net liabilities totalled EUR 21.7 million (EUR 18.6 million) and the gearing ratio was 477% (151%).

 

Financing and cash flow

The Group’s quick ratio was 0.5 (0.6) and the current ratio 1.0 (1.3). Cash flow from operations was EUR -0.3 million (EUR 0.8 million) and the change in cash and cash equivalents showed a decrease of EUR 0.1 million (an increase of EUR 0.8 million).

 

Capital expenditures

Investment cash flow amounted to EUR 0.05 million (EUR 0.2 million).

 

Personnel

At the end of the review period, Incap Group employed 774 people. The average number of personnel was 734 (728). Compared with the end of 2009, the number of personnel was reduced by nine employees. At the end of the review period, approximately 39% of the personnel worked in Finland, 23% in Estonia and 38% in India.

 

The 2009 option programme

The criteria set for the option programme directed at the President and CEO, and the other management team in 2009 were not met in 2009 with regard to operating profit and working capital. In March 2010, the Board of Directors adjusted the option programme’s distribution principles, emphasising the fulfilment of each personal objective, and decided to distribute 25,000 B-options to the President and CEO, and a total of 100,000 C-options to the management team members.

 

The 2004 option programme

The subscription period of option rights 2004B expired after the review period on 30 April 2010. Option rights were not used for subscriptions, because the target share price was not realised according to the terms.

 

Annual General Meeting 

Incap Corporation’s Annual General Meeting was held in Helsinki on 13 April 2010, after the review period. The Annual General Meeting confirmed the consolidated financial statements over the financial period ended on 31 December 2009. Following the Board of Directors’ decision, the Annual General Meeting decided that no dividend would be paid and the loss for the accounting period (EUR 3,825,364.89) be left in equity.

 

The AGM discharged the Board members and the President and CEO from liability. Kari Häyrinen, Kalevi Laurila, Susanna Miekk-oja and Lassi Noponen were re-elected as Board members, and Raimo Helasmäki was elected as a new member. In the new Board’s organisation meeting, Kalevi Laurila was elected as Chairman and Susanna Miekk-oja as Deputy Chairman.

 

Ernst & Young Oy, Authorised Public Accountants, was selected again as the company’s auditor after a competitive bidding.

 

The Annual General Meeting amended the Articles of Association in accordance with the Corporate Governance code so that the notice of a meeting is to be sent no later than 21 days before the AGM date, instead of 17 days before the AGM date as prescribed in the current Articles of Association.

 

The Annual General Meeting authorised the Board to decide upon an increase in share capital by one or more new issues within one year from the Annual General Meeting so that the aggregate number of shares subscribed on the basis of the authorisation will be no more than 1,500,000 shares.

 

Directed share issue

The Annual General Meeting held after the financial period on 13 April 2010 decided, according to the Board of Directors’ proposal, upon increasing the share capital through a directed share issue where a maximum of 2,000,000 new shares were, deviating from the pre-emptive right of the current shareholders, offered to the company’s Board of Directors, President and CEO, management team members, and those of the current shareholders who, at the beginning of the offering on 13 April 2010, held at least 100,000 shares in the company.

 

The subscription price of the shares subscribed in the offering was EUR 0.64 which was the volume-weighted average price of the company’s share on the Helsinki Stock Exchange in March 2010.

 

The Board of Directors approved the subscriptions in its meeting held after the review period on 3 May 2010. The Board of Directors, President and CEO and management team members subscribed a total of 9.4% of new shares. Seven of the biggest shareholders subscribed a total of 1,812,200 new shares. As a result, all of the shares offered, i.e. a total of 2,000,000 shares, were subscribed. The new shares comprise 16.4% of the company’s all shares prior to the share issue.

 

Shares and shareholders

Incap Corporation has one series of shares and the number of shares is 12,180,880. During the review period, the share price varied between EUR 0.60 and EUR 0.75 (EUR 0.43 and 0.68). The closing price for the period was EUR 0.67 (EUR 0.47). During the review period, the trading volume was 15% of outstanding shares (3%).

 

At the end of the review period, the company had 1,158 shareholders (1,018). Foreign or nominee-registered owners held 0.9% (3.1%) of all shares. The company’s market capitalisation on 31 March 2010 was EUR 8.0 million (EUR 5.7 million). The company does not own any treasury shares.

 

Short-term risks and factors of uncertainty concerning operations

The risks and factors of uncertainty relating to Incap’s operations are described in more detail in the report by the Board of Directors dated 23 February 2010. No significant changes have taken place with regard to these factors during the review period.

 

The most significant short-term risks are connected with the volume of business, financial arrangements and the costs of materials.

 

The development of customer-specific revenue is the most significant factor affecting the company’s result. The successful acquisition of new customers also plays an important part in the future earnings development.

 

In contract manufacturing, the management of material costs has a great impact on competitiveness. As a result, the availability of materials and changes in market prices have an influence on Incap’s delivery capacity and costs.

 

The company’s financing is influenced by the trends in the general financial market and the company’s future earnings development. The company’s financial capacity is ensured by efficient working capital management while different financing options are being investigated to secure financing.

 

The parent company’s equity decreased to EUR 11.1 million over the review period, comprising 54% of share capital. The directed share issue carried out after the review period was subscribed in full, strengthening the company’s financial position.

 

Outlook for the rest of 2010

Incap’s estimates on future business development are based on its customers’ forecasts and the company’s own assessments. The operating environment is estimated to remain challenging in 2010. Even though there are signs of recovery on the market, the general financial situation is estimated to remain uncertain in the near future.

 

By the end of 2010, the company has implemented most of the strategic restructuring, which was initiated in autumn 2008 and creates a basis for profitable international business operations.

 

Incap will repeat its previous guidance according to which the company estimates that its revenue in 2010 will increase from EUR 70 million in 2009. The Group’s full-year operating profit (EBIT) in 2010 is expected to be clearly higher than in 2009 (EUR -5.0 million).

 

INCAP CORPORATION

Board of Directors

 

 

For additional information, please contact

Sami Mykkänen, President and CEO, tel. +358 40 559 9047

Eeva Vaajoensuu, Chief Financial Officer, tel. +358 40 763 6570

Hannele Pöllä, Director of Communications and Human Resources, tel. +358 40 504 8296

 

 

DISTRIBUTION

NASDAQ OMX Helsinki Oy

Principal media

The company’s website: www.incap.fi 

 

 

PRESS CONFERENCE

Incap will arrange a conference for the press and financial analysts on 5 May 2010 at 10:00 a.m. at the World Trade Center Helsinki, in Meeting Room 4 on the 2nd floor at Aleksanterinkatu 17, FI-00100 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 contract manufacturer whose comprehensive services cover the entire lifecycle of electromechanical products from design and manufacture to maintenance services. Incap’s customers are leading equipment suppliers in energy-efficiency and well-being technology, for which the company produces competitiveness as a strategic partner. Incap has operations in Finland, Estonia and India. The Group’s revenue in 2009 amounted to around EUR 70 million, and the company currently employs approximately 780 people. Incap’s shares are listed on the NASDAQ OMX Helsinki Oy. For additional information, please contact  www.incap.fi.

 


Annex 1

 

CONSOLIDATED INCOME STATEMENT (IFRS)        
(EUR thousands, unaudited) 1-3/2010 1-3/2009 Change % 1-12/2009
         
REVENUE  

13,436
18,479 -27  

69,767
Work performed by the enterprise and capitalised        
Change in inventories of finished goods and        
work in progress 629 -26 -2,475 -1,499
Other operating income 56 55 2 342
Raw materials and consumables used 9,581 12,506 -23 45,654
Personnel expenses 3,629 3,831 -5 16,132
Depreciation and amortisation 722 700 3 2,869
Other operating expenses 1,857 1,988 -7 8,924
OPERATING PROFIT/LOSS -1,670 -518 222 – 4,970
Financing income and expenses -229 -429 -47 -1,780
PROFIT/LOSS BEFORE TAX -1,899 -947 100 -6,750
Income tax expense 0 -2 -100 29
PROFIT/LOSS FOR THE PERIOD -1,899 -949 100 -6,721
         
Earnings per share -0.16 -0.08 100 -0.55
Options have no dilutive effect        
in accounting periods 2009 and 2010        

 

OTHER COMPREHENSIVE INCOME 1-3/2010 1-3/2009 Change % 1-12/2009
         
PROFIT/LOSS FOR THE PERIOD -1,899 -947           100   -6,721
         
OTHER COMPREHENSIVE INCOME:        
Translation differences from foreign units -7 35 -119 19
Other comprehensive income, net -7 35 -119 19
         
TOTAL COMPREHENSIVE INCOME -1,906 -914 108 -6,702
         
Attributable to:        
Shareholders of the parent company -1,906 -914 108 -6,702
Minority interest 0 0   0


Annex 2

 

CONSOLIDATED BALANCE SHEET (IFRS)        
(EUR thousands, unaudited) 31 Mar. 2010 31 Mar. 2009 Change % 31 Dec. 2009
         
ASSETS        
         
NON-CURRENT ASSETS    

 
   
Property, plant and equipment 9,690 10,759 -10 10,247
Goodwill 1,033 974 6 977
Other intangible assets 960 1,253 -23 1,008
Other financial assets 14 15 -6 14
Deferred tax assets 4,203 4,153 1 4,156
TOTAL NON-CURRENT ASSETS 15,900 17,155 -7 16,402
         
CURRENT ASSETS        
Inventories 13,083 14,740 -11 11,381
Trade and other receivables 11,444 11,585 -1 11,261
Cash and cash equivalents 415 1,388 -70 661
TOTAL CURRENT ASSETS 24,943 27,713 -10 23,303
         
TOTAL ASSETS 40,842 44,868 -9 39,706
         
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT        
COMPANY        
Share capital 20,487 20,487 0 20,487
Share premium account 44 44 0 44
Exchange differences -466 -442 5 -459
Retained earnings -15,523 -7,806 99 -13,629
TOTAL EQUITY 4,542 12,283 -63 6,443
         
NON-CURRENT LIABILITIES        
Deferred tax liabilities 70 99 -29 70
Interest-bearing loans and borrowings 10,777 11,649 -7 10,999
NON-CURRENT LIABILITIES 10,847 11,748 -8 11,069
         
CURRENT LIABILITIES        
Trade and other payables 14,137 12,544 13 11,925
Current interest-bearing loans and borrowings 11,316 8,293 36 10,269
CURRENT LIABILITIES 25,453 20,837 49 22,194
         
TOTAL EQUITY AND LIABILITIES 40,842 44,868 -9 39,706
         

 


Annex 3

CONSOLIDATED CASH FLOW STATEMENT 1-3/2010  

1-3/2009
1-12/2009
(EUR thousands, unaudited)      
         
Cash flow from operating activities      
Net income -1,670 -518 -4,970
Adjustments to operating profit 728 713 4,342
Change in working capital 883 1,034 2,929
Interest paid -247 -409 -1,812
Interest received 9 11 40
Cash flow from operating activities -297 832 529
       
Cash flow from investing activities      
Capital expenditure on tangible and      
intangible assets -51 -296 -1,064
Proceeds from sale of tangible      
and intangible assets 0 120 17
Acquisition of subsidiary 0 0 0
Loans granted -1 0 -9
Shares of subsidiaries sold 0 0  
Repayments of loan receivables 1 1 2
Cash flow from investing activities -51 -175 -1,054
       
Cash flow from financing activities      
Drawdown of loans 965 1,940 5,683
Repayments of borrowings -450 -1,558 -3,868
Repayments of obligations under finance leases -258 -252 -1,255
Cash flow from financing activities 257 130 560
       
Change in cash and cash equivalents -91 787 35
Cash and cash equivalents at beginning of period 661 641 641
Effect of changes in exchange rates -142 -41 -17
Changes in fair value (cash and cash equivalents) -13 0 2
Cash and cash equivalents at end of period 415 1,388 661
       

 

Annex 4

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (IFRS)

(EUR thousands, unaudited)
       
           
        Retained  
  Share capital Share premium account Exchange differences earnings Total
           
Equity on 1 Jan. 2009 20,487 44 -478 – 6,864 13,189
Change in exchange differences     35   35
Options and share-based compensation       7 7
Net income and losses recognised     35 7 42
directly in equity          
           
Net profit/loss       -949 -949
Total income and losses     35 -943 -907
           
Equity on 31 Mar. 2009 20,487 44 -442 -7,806 12,283
           
Equity on 1 Jan. 2010 20,487 44 -459 -13,629 6,443
Change in exchange differences     -7   -7
Options and share-based compensation       5 5
Other changes                      
Net income and losses recognised          
directly in equity     -7 5 -2
Profit or loss for the period       -1,899 -1,899
Total income and losses               -7 -1,895 -1,901
           
Equity on 31 Mar. 2010 20,487 44 -466 -15,523 4,542

 

 


Annex 5

GROUP KEY FIGURES AND CONTINGENT LIABILITIES (IFRS) 31 Mar. 2010  

 

31 Mar. 2009
31 Dec. 2009
       
Revenue, EUR million 13.4 18.5 69.8
Operating profit, EUR million -1.7 -0.5 -5.0
  % of revenue -12.4 -2.8 -7.1
Profit before taxes, EUR million -1.9 -0.9 -6.7
  % of revenue -14.1 -5.1 -9.7
Return on investment (ROI), % -21.5 -4.9 -15.9
Return on equity (ROE), % -138.3 -29.8 -68.5
Equity ratio, % 11.1 27.4 16.2
Gearing, % 477.3 151.1 319.8
Net debt, EUR millions 24.4 19.6 21.3
Net interest-bearing debt, EUR millions 21.7 18.6 20.6
Average number of shares during the report      
period, adjusted for share issues 12,180,880 12,180,880 12,180,880
Earnings per share (EPS), euro -0.16 -0.08 -0.55
Equity per share, euro 0.37 1.01 0.53
Investments, EUR million 0.1 0.1 1.1
  % of revenue 0.4 0.6 1.5
Average number of employees 734 728 751
       
CONTINGENT LIABILITIES, EUR millions      
FOR OWN LIABILITIES      
Mortgages 12.0 12.0 12.0
Other liabilities 2.9 7.8 4.6
       
Nominal value of currency options EUR thousands 455.5 842.4 0
Fair values of currency options, EUR thousands -4.1 -0.2 0

 

Annex 6

QUARTERLY KEY FIGURES (IFRS)

 
  1-3/

2010
10-12/

2009
7-9/

2009
4-6/

2009
1-3/

2009
           
Revenue, EUR million 13.4 17.7 16.6 16.9 18.5
Operating profit, EUR million -1.7 -3.7 -0.3 -0.5 -0.5
  % of revenue -12.4 -20.7 -1.9 -2.8 -2.8
Profit before taxes, EUR million -1.9 -4 -0.8 -1.0 -0.9
  % of revenue -14.1 -22.3 -4.9 -6.1 -5.1
Return on investment (ROI), % -21.5 -47.3 -4 -2.1 -4.9
Return on equity (ROE), % -138.3 -160 -27.5 -33.9 -29.8
Equity ratio, % 11.1 16.2 24.6 26.4 27.4
Gearing, % 477.3 319.8 173.8 164.9 151.1
Net debt, EUR millions 24.4 21.3 20.6 19.7 19.6
Net interest-bearing debt, EUR millions 21.7 20.6 18.1 18.6 18.6
Average number of share issue-adjusted shares during the financial period 12,180,880 12,180,880 12,180,880 12,180,880 12,180,880
Earnings per share (EPS), euro -0.16 -0.32 -0.07 -0.08 -0.08
Equity per share, euro 0.37 0.53 0.86 0.92 1.01
Investments, EUR million 0.1 0.1 0.4 0.5 0.1
  % of revenue 0.4 0.6 2.2 2.9 0.6
Average number of employees 734 776 770 732 728