INCAP CORPORATION STOCK EXCHANGE RELEASE 8 August 2007, 9 a.m.
* 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%).
Comparison by report 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/
period (EUR thousands) 2007 2007 2006 2006 2006 2006
Revenue 19 130 16 982 24 014 21 810 22 486 21 038
Operating profit/loss 44 -1 188 -331 599 1 163 1 396
Net profit/loss for the -139 -1 342 -376 728 1 320 1 553
period
Earnings per share, EUR -0.01 -0.11 -0.03 0.06 0.11 0.13
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).
Comparison by report period 1-6/2007 1-6/2006 1-12/2006
(EUR thousands)
Revenue 36 112 43 524 89 347
Operating profit/loss -1 144 2 559 2 828
Net profit/loss for the period 1 481 2 873 3 225
Earnings per share, EUR -0.12 0.24 0.26
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.
Personnel
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.
Management
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.
INCAP CORPORATION
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
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 Aleksanterinkatu 17, FI-00100 Helsinki.
INCAP IN BRIEF
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
www.incap.fi
ANNEXES
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
CONSOLIDATED INCOME
STATEMENT (IFRS) 1-6/2007 1-6/2006 Change % 1-12/2006
(EUR thousands, unaudited)
REVENUE 36 113 43 524 -17 89 347
Manufacture for own use 99 0
Changes in inventories of
finished goods and work in
progress -118 133 -189 1 409
Other operating income 6 335 -98 383
Raw materials and
consumables used -24 352 -28 886 -16 -61 634
Costs of employee benefits -7 458 -7 941 -6 -16 245
Depreciation, amortisation
and impairment losses -1 277 -1 092 17 -2 284
Other operating expenses -4 156 -3 514 18 -8 149
OPERATING PROFIT/LOSS -1 144 2 559 -145 2 828
Financial income and
expenses -353 -193 83 -505
PROFIT/LOSS BEFORE TAXES -1 496 2 366 -163 2 323
Income taxes 15 506 -97 902
PROFIT/LOSS FOR THE PERIOD -1 481 2 873 -152 3 225
Earnings per share (EPS)
calculated from profit
attributable
to equity holders of the
parent:
Earnings per share,
undiluted (EUR), continuing
operations -0.12 0.24 -150 0.26
Earnings per share, diluted
(EUR), continuing
operations -0.12 0.24 -150 0.26
Average number of shares:
-undiluted 12 180 880 12 180 880 12 180 880
-diluted 12 197 834 12 180 880 12 199 034
Annex 2
CONSOLIDATED BALANCE SHEET
(IFRS) 30.6.2007 30.6.2006 Change % 31.12.2006
(EUR thousands, unaudited)
ASSETS
NON-CURRENT ASSETS
Goodwill 1 158 164 606 164
Other intangible assets 1 627 305 433 331
Property, plant and equipment 13 594 7 508 81 11 571
Non-current receivables 10 0 0
Deferred tax assets 4 310 4 055 6 4 310
Other non-current investments 12 15 -20 15
TOTAL NON-CURRENT ASSETS 20 711 12 047 72 16 391
CURRENT ASSETS
Inventories 17 034 13 862 23 14 626
Trade and other receivables 13 707 15 174 -10 13 994
Cash and cash equivalents 2 178 306 612 500
TOTAL CURRENT ASSETS 32 918 29 342 12 29 120
TOTAL ASSETS 53 629 41 389 30 45 511
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
Share capital 20 487 20 487 0 20 487
Share premium account 44 44 0 44
Translation differences -48 0 0
Retained earnings -1 627 -666 144 -206
TOTAL EQUITY 18 856 19 865 -5 20 325
NON-CURRENT LIABILITIES
Deferred tax liabilities 132 288 -54 147
Non-current interest-bearing
liabilities 16 237 5 053 221 6 806
NON-CURRENT LIABILITIES 16 369 5 340 207 6 953
CURRENT LIABILITIES
Current interest-bearing
liabilities 4 694 3 900 20 2 613
Trade and other payables 13 711 12 284 12 15 620
CURRENT LIABILITIES 18 404 16 184 14 18 233
EQUITY AND LIABILITIES 53 629 41 389 30 45 511
Annex 3
CONSOLIDATED CASH FLOW STATEMENT (IFRS)
(EUR thousands, unaudited)
1-6/2007 1-6/2006 1-12/2006
Cash flow from operating activities
Operating profit -1 144 2 559 2 828
Adjustments to operating profit 591 1 211 1 996
Change in working capital -831 -5 685 -1 420
Interest and other payments made -299 -166 -411
Interest received 89 25 22
Cash flow from operating activities -1 594 -2 056 3 015
Cash flow from investing activities
Investments in property, plant and -765 -692 -1 547
equipment and intangible assets
Gains on the sale of property, plant and 0 5 15
equipment and intangible assets
Acquisition of subsidiary -8 261 0
Cash flow from investing activities -9 026 -687 -1 532
Cash flow from financing activities
Proceeds from borrowings 13 641 2 080 -
Repayments of borrowings -671 -750 -1 235
Repayments of obligations under finance -672 -494 -1 961
leases
Cash flow from financing activities 12 298 836 -3 196
Change in net cash 1 678 -1 907 -1 713
Cash and cash equivalents at beginning of 500 2 213 2 213
period
Cash and cash equivalents at end of 2 178 306 500
period
Annex 4
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (IFRS)
(EUR thousands, unaudited)
Share Share premium Retained Total
capital account earnings
Equity on 1 January 2006 20 487 44 -3 566 16 965
Option and share-based - - 27 27
compensation
Net income (loss) recognised - - 27 27
directly in equity
Result for the report period - - 2 873 2 873
Total income and expenses for - - 2 900 2 900
the report period
Equity on 30 June 2006 20 487 44 -666 19 865
Equity on 1 January 2007 20 487 44 -206 20 325
Option and share-based - - 60 60
compensation
Translation differences - - -48 -48
Net income (loss) recognised - - 12 12
directly in equity
Result for the report period - - -1 481 -1 481
Total income and expenses for - - -1 469 -1 469
the report period
Equity on 30 June 2007 20 487 44 -1 675 18 856
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:
EUR millions Fair value Balance sheet value
Property, plant and equipment 1.8 1.8
Advance payment for building 1.0 1.0
Customer contracts and associated 1.2
customer relationships (incl. in
other intangible assets)
Inventories 2.1 2.1
Trade and other receivables 2.6 2.6
Total assets 8.7 7.5
Trade and other payables -1.4 -1.4
Net assets 7.3 6.0
Acquisition cost 8.3
Goodwill 1.0
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
GROUP KEY FIGURES AND CONTINGENT LIABILITIES (IFRS)
1-6/2007 1-6/2006 1-12/2006
Revenue, EUR millions 36.1 43.5 89.3
Operating profit, EUR millions -1.1 2.6 2.8
% of revenue -3.2 5.9 3.2
Profit before taxes, EUR millions -1.5 2.4 2.3
% of revenue -4.1 5.4 2.6
Return on investment (ROI), % -6.1 19.4 10.5
Return on equity (ROE), % -15.1 31.2 17.3
Equity ratio, % 35.2 48.0 44.7
Gearing, % 99.5 43.5 43.9
Net debt, EUR millions 18.9 6.0 10.7
Interest-bearing net debt, EUR 18.8 8.6 8.9
millions
Average number of share 12 180 880 12 180 880 12 180 880
issue-adjusted shares during report
period
Earnings per share (EPS), euros -0.12 0.24 0.26
Equity per share, euros 1.55 1.63 1.67
Investments, EUR millions 0.6 1.6 7.1
% of revenue 1.6 3.7 8.0
Average number of employees 568 489 521
CONTINGENT LIABILITIES (EUR millions) 30.6.2007 30.6.2006 31.12.2006
FOR OWN LIABILITIES
Mortgages 12.8 8.6 6.0
Other liabilities 9.6 9.7 10.2
INCAP GROUP INTERIM REPORT JANUARY-JUNE 2007: LAUNCH OF MANUFACTURING OPERATIONS IN INDIA PROVIDES BASIS FOR FUTURE GROWTH
| Source: Incap Oyj
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