Electronics Production | November 05, 2008

Incap with increased revenue for fiscal January-September period

Revenue for January-September 2008 was €68.1 million or 20.2% higher than during the comparable period in 2007 (Jan-Sep 2007: €56.7 million). Many new products entered actual serial production from the prototype and pre-production stages during the report period.
Revenue and earnings in January-September 2008
Discontinued telecommunication sector products were manufactured for the customer's stock, which increased the revenue. Operating profit, EUR 2.4 million negative, was slightly weaker than during the comparable period in 2007 (EUR 1.7 million negative) and as a percentage of revenue it was 3.5% negative (3.0% negative). The increases in electronics components and metal material prices had mainly been transferred to customer prices by the end of the report period. The operating profit for the report period includes approx. EUR 1.0 million of non-recurring costs connected with the organisation changes and the streamlining of the Group structure. During the comparable period the non-recurring costs amounted to EUR 0.6 million.

Net profit for the report period amounted to EUR 3.5 million negative (EUR 2.6 million negative). Net profit was particularly affected by an increase in financing expenses. Earnings per share amounted to EUR 0.29 negative (EUR 0.21 negative), while equity per share stood at EUR 1.24 (EUR 1.46).

Revenue and earnings in July-September 2008
Revenue during the third quarter was EUR 21.4 million (7-9/2007: EUR 20.6 million) or approximately 4% higher than during the comparable period in 2007. Compared to the second quarter of the year, revenue decreased due to the softened demand for telecommunications products in July-August. Demand for the energy efficiency segment, on the other hand, developed favourably.

The operating profit was EUR 0.4 million negative (EUR 0.6 million negative) and as a percentage of revenue it was 2.1% negative (2.8% negative). The operating profit improved compared to the previous quarters due to a relative increase in the sales margin and reduced fixed costs.

Development of operations
Several new delivery agreements were signed during the report period. In the field of energy efficiency, collaboration in the manufacturing of subassemblies for electric motors was increased. The scope of delivery was also extended in the manufacturing of well-being and security products. The manufacturing of telecommunications products increased temporarily as products to be discontinued were manufactured for the stock of a customer.

The six new customers in India proceeded from prototype and pre-production runs to volume production. The Indian factory's production mainly comprises integrated product entities for the energy technology and industrial electronics. The construction of new production facilities in Tumkur is proceeding and they are supposed to be completed during the first quarter of 2009.

The value of inventories increased at the end of the report period due to components required for final deliveries to customers operating in the telecommunications sector. When the production of these products ends, the value of the material inventory is estimated to decrease by approximately EUR 4 million by the end of the year.

Incap sold the entire share capital of its subsidiary Ultraprint Oy to the operative management of the subsidiary on 16 July 2008. The subsidiary's revenue in 2007 amounted to about EUR 1.2 million and it had 12 employees.

Reorganisation programme
In August 2008, Incap launched a reorganisation programme aimed at strengthening the financial base of the company. The programme emphasises the improvement of profitability and the working capital ratio and also the adaptation of the cost structure. Profitability is to be improved by expanding the service selection, eliminating low-margin or unprofitable assignments, and further increasing the role of Indian and Estonian plants in service production. The capacity of production services will be adapted in response to demand, the roles of plants will be specialised and fixed costs will be reduced. The reorganisation programme will be implemented by the end of 2008.

The implementation of the programme has proceeded according to plans. Production capacity has been adjusted to match demand in, e.g., the Vuokatti factory, where the number of personnel has been cut in accordance with reduced demand. On the other hand, resources were added in Vaasa and Helsinki for the manufacturing of energy and well-being technology products. Transfers of products to the Estonian factory are being carried out in accordance with plans agreed with the customers. Service capacity is being improved, particularly in terms of the start-up of new products and customer production takeover projects and design services.

Low-margin or unprofitable assignments and customer relationships have been disposed of in a controlled way. Fixed costs are being reduced in both production units and corporate functions. A marketing project to gain new customers, particularly among leading energy efficiency and well-being sector manufacturers and other growing sectors in Europe, started in September.

Financing and cash flow
The Group's equity ratio was 29.4% (31.2%). Interest-bearing net liabilities totalled EUR 20.1 million (EUR 22.0 million) and the gearing ratio was 132.6% (124.3%). Net financial expenses were EUR 1.1 million (EUR 0.9 million) and depreciation expenses were EUR 2.1 million (EUR 2.0 million).

The Group's equity at the close of the period under review was EUR 15.2 million (EUR 17.7 million). Debt totalled EUR 36.4 million (EUR 39.1 million), of which interest-bearing debt amounted to EUR 20.7 million (EUR 23.5 million). The Group's quick ratio was 0.6 (0.7) and the current ratio 1.5 (1.6). Cash flow from operations was EUR 0.3 million positive (EUR 4.1 million negative) and the change in cash and cash equivalents was a decrease of EUR 0.3 million (an increase of EUR 1.0 million).

At the end of the report period, Incap Group had 755 employees (778), of whom 166 were officials and 589 were employees. At the end of the report period, 47% of personnel worked in Finland, 25% in Estonia and 28% in India. In addition, a total of 64 leased employees worked in the company.

The co-determination negotiations at the Vuokatti unit were concluded after the close of the report period in October. As a result, 13 people will be made redundant and a total of 67 will be temporarily laid off in three phases.

Outlook for the rest of 2008
Incap's estimates of its future business development are mainly based on its customers' estimates. In spite of a significant deterioration in the global economic outlook, Incap's customers have estimated their demand to remain at the previously predicted levels, even though the situation could change quickly should the financial crisis become critical. On the other hand, of the customers, equipment manufacturers in energy technology and electrotechnology have reported that their demand will develop favourably also in 2009 due to their outstanding orders.

Incap estimates that its revenue in 2008 will increase clearly from last year's EUR 83.0 million. Profitability is expected to improve further during the last quarter of the year and operating profit from operations in 2008 is expected to be on the same level than the previous year, when it was EUR 2.8 million negative.

In the earlier statement on 6 August 2008, Incap estimated that the Group's revenue would exceed last year's EUR 83.0 million. Then, the company further estimated that profitability will improve during the second half of the year compared to the first half of the year, and the operating profit from operations in 2008 is expected to be on the same level as 2007.
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