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Electronics Production | August 12, 2007

Incap revenue down 17%

Incap's interim report January-June 2007 shows that the company's revenue was EUR 36.1 million, down 17% on the same period in 2006 (January-June 2006: EUR 43.5 million).
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."

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%).

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).

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 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.

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.

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.

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