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Electronics Production | May 06, 2011

Incap with increased revenue

First quarter revenue for Finland-based Incap stood at EUR 16.0 million or 19% higher than during the comparable period in 2010 (1-3/2010: EUR 13.4 million).
Main Points

- revenue in the first quarter stood at EUR 16.0 million, or 19% higher than during the comparable period in the previous year (1-3/2010: EUR 13.4 million)
- revenue increased particularly in product packages delivered to well-being technology customers
- operating profit (EBIT) was EUR -0.4 million (EUR -1.7 million)
- increase in material costs burdened the result
- earnings per share were EUR -0.05 (EUR -0.16)
- after the review period, Incap has signed financing agreements for a total of EUR 3.8 million

Sami Mykkänen, President and CEO of Incap Group:

"Revenue developed favourably in all customer segments and despite the global shortage of materials, we were mainly able to satisfy the needs of our customers."

"Although the financial result for the period showed a significant improvement year-on-year, we still cannot be satisfied with our profitability. Operating profit excluding non-recurring entries remained at the same level as in the previous quarter."

"The global shortage of components led to an increase in the price of materials and logistics and slowed especially deliveries of well-being technology products, in which the demand was bigger than expected. We were confident the situation would gradually improve by spring 2011, but the reduction in production capacity in Japan further impaired the availability of certain electronics components."

"Incap's outlook is now clearly better than a year ago, giving good conditions for achieving profitable growth. In order to improve profitability and to secure positive earnings development, we will increase materials procurement from Asia, use competitive tendering to select materials suppliers and pass on the increases in costs to customer prices".

Revenue and earnings in January-March 2011

Revenue stood at EUR 16.0 million or 19% higher than during the comparable period in 2010 (1-3/2010: EUR 13.4 million). Revenue increased steadily in each month during the review period, reaching almost the same level as in the previous quarter October-December 2010. The company's delivery capacity improved during the review period, although a shortage of materials continued to hamper production planning and deliveries.

Revenue from well-being technology products exceeded expectations, and the order book for the next few months is at a good level. Demand for rotor components picked up markedly, although the total demand by European energy efficiency customers remained somewhat below targeted levels. The revenue of the Indian unit developed at a level higher than in the corresponding period last year.

Negotiations were conducted with several customers on starting cooperation or expanding existing scope of deliveries, and new products reached prototype and testing stage. Incap and Kemppi Oy signed a contract on cooperation on manufacturing services, and the first volume deliveries from Incap's Indian unit took place in March. Cooperation covering design and manufacture of a smart charging device for electric cars with a remarkable Indian manufacturer of electric cars is proceeding favourably.

Profitability improved compared with the corresponding period last year and the operating result for January-March was EUR -0.4 million (EUR -1.7 million), representing -3% of the revenue (-12%). Profitability continued to be burdened by the poor availability of certain components, which temporarily increased material and logistics costs. In order to adjust capacity to the fluctuating materials flow, the company increased the share of outsourced work, which temporarily weakened the sales margin.

Personnel expenses decreased by some 20% or EUR 0.7 million year-on-year, which was mainly attributable to the merger of two electronics plants. Incap expects the merger to generate cost savings of some EUR 3 million in 2011 compared with 2009.

Incap joined the Cleantech Finland network, a global network for Finnish companies providing ecological solutions and technology, coordinated by Finpro. Manufacturing services for equipment in energy efficiency and environmental technologies are a strategic focus area of Incap, and global demand for products in this field is expected to grow strongly.

Negotiations on the sale of the sheet-metal mechanics manufacturing business in Helsinki ended without result in February. The company's intention remains to develop the Helsinki plant into a unit that specialises in assembly.

Measures aimed at selling the Vuokatti factory building were continued. The price estimate by an external valuer clearly exceeds the book value of the property.

The value of inventories decreased by some 2% to EUR 12.8 million (EUR 13.1 million). Compared with the turn of the year, the value of inventories decreased by some EUR 0.3 million (31 December 2010: EUR 13.1 million).

Net finance costs increased to EUR 0.5 million (EUR 0.2 million). Depreciation stood at EUR 0.6 million (EUR 0.7 million). Losses before tax amounted to EUR 1.0 million (EUR -1.9 million). The loss for the period was EUR 1.0 million (-1.9 million).

Return on investment was -4% (-22%) and return on equity was -75% (-138%). Earnings per share were EUR -0.05 (EUR -0.16).

Personnel

At the end of the review period, Incap Group had a payroll of 721 employees (774). The average number of personnel was 727 (734). Compared with the end of 2010, the number of personnel was reduced by 46 employees. At the end of the review period, approximately 22% of the personnel worked in Finland (39%), 29% in Estonia (23%) and 49% in India (38%).

Outlook for the rest of 2011

Incap's estimates for future business development are based on its customers' forecasts and the company's own assessments. The general economic situation has improved, and demand for Incap's services is expected to develop favourably. However, the shortage of certain semiconductor components is predicted to continue, which may affect Incap's deliveries and revenue development.

Incap will repeat its guidance issued on 23 February 2011 according to which the company estimates that its revenue in 2011 will increase from the EUR 59.2 million achieved in 2010. The Group's full-year operating result (EBIT) in 2011 is expected to be positive and, thus, clearly higher than in 2010 (EUR -3.2 million).

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