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Electronics Production | May 05, 2010

Incap's profitability was burdened by structural change in Q1

Finland based EMS provider Incap's revenue in the first quarter stood at EUR 13.4 million, or 27% lower than during the comparable period in 2009.
The operating profit was EUR -1.7 million (EUR -0.5 million), comprising -12% of the revenue (-3%). 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%).

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