Electronics Production | November 03, 2010

Incap's 3Q revenue declined 17% YoY

The third-quarter revenue amounted to EUR 13.7 million, representing a fall of some 17% from the corresponding period last year.
The heaviest decrease occurred in the Well-being sector products, and the demand for slot machines in particular declined significantly compared with the corresponding period last year. Problems in the availability of materials also delayed deliveries until the end of the year.

The third-quarter operating profit was EUR -0.5 million (7-9/2009: EUR -0.3 million). This is clearly better than in the previous quarters in 2010, yet somewhat weaker than in the corresponding period last year. The operating result includes a non-recurring provision of approximately EUR 0.7 million for the closure of the Vuokatti plant.

Net profit for the third quarter amounted to EUR -1.1 million (EUR -0.8 million). Earnings per share were EUR -0.08 (EUR -0.07).

Revenue and earnings in January-September 2010

Revenue in January-September stood at EUR 43.0 million, which was 17% lower than in the comparable period in 2009 (1-9/2009: EUR 52.0 million). The trend in revenue was affected especially in the beginning of the year by the decline in demand due to the general economic uncertainty. The longer delivery times for raw materials caused delays in deliveries to customers, which decreased the revenue in the third quarter in particular.

The demand for energy efficiency products developed favourably during the review period, and the delivery volume of rotor components used in large motors increased in particular. The demand for design services remained at a good level, and resources in the Bangalore design unit were increased as planned.

Profitability dropped from last year's comparable period. Operating profit amounted to EUR -3.2 million (EUR -1.3 million), representing -7.5% of revenue (-2.5%). Profitability was mainly affected by the decline in revenue. The cost structure could not be adjusted to fully match the lower revenue, since the merger of two electronics factories, related to the Group's structural change, required the maintenance of partly overlapping resources. However, the cost savings targeted with the structural change began to have an impact on the result from August onwards.

The availability of certain materials and components weakened clearly, raising market prices and increasing logistics costs.

Net profit for the period totalled EUR -4.5 million (EUR -2.8 million). Net finance costs were decreased by approximately EUR 0.3 million as a result of the Indian rupee strengthening. Depreciation stood at EUR 2.2 million (EUR 2.1 million).

Return on investment was -15% (-5%) and return on equity was -95% (-32%). Earnings per share were EUR -0.33 (EUR -0.23), while equity per share stood at EUR 0.33 (EUR 0.86).

The Group's balance sheet total was EUR 41.9 million. The Group's equity at the close of the period was EUR 6.1 million (EUR 10.4 million). Liabilities totalled EUR 35.8 million (EUR 32.0 million), of which EUR 21.9 million (EUR 19.3 million) comprised interest-bearing liabilities. Of liabilities, current liabilities took up EUR 25.6 million (20.6 million). The parent company's equity totalled EUR 6.1 million, representing 29.9% of the share capital.

The Group's equity ratio was 14.6% (24.6%). Interest-bearing net liabilities totalled EUR 20.7 million (EUR 18.1 million) and the gearing ratio was 338% (174%).


At the end of the review period, Incap Group employed 798 people, of whom 86 were on term of notice with no obligation to work. The average number of personnel was 784 (743). The number of employees grew in India and Estonia. At the end of the review period, 40% of the personnel worked in India, 36% in Finland and 24% in Estonia.

Operations were adjusted throughout the company's operations during the review period. Cooperation negotiations concerning the entire personnel in Finland were launched in August and the negotiations resulted in temporary layoffs varying from 11 days to three months, scheduled to take place by the end of the year.

Owing to the merger of the Finnish and Estonian electronics production, the head count at the Vuokatti plant has gradually decreased as the periods of notice have expired. At the end of the review period, the unit employed 103 people on term of notice, of whom 17 were subject to the obligation to work.

Outlook for the rest of 2010

By the end of 2010, Incap has implemented most of the structural change, which has included the focusing on the selected customer segments, the reduction of manufacturing locations, the shift of operational focus to Asia and the enhancement of design services. The cost savings targeted with the merger of the two electronics plants began to show in the result from August 2010 onwards, and their impact will become more marked towards the end of the year.

Incap expects the Group's fourth-quarter revenue to be higher than in the previous quarters of 2010. A turn is also expected in the profit development, and the fourth-quarter operating profit is expected to be positive or at least at the same level as in the third quarter. Incap estimates that the company's full-year revenue for 2010 will be approximately EUR 59-62 million and the operating profit (EBIT) for 2010 approximately EUR -2.7 to -3.5 million.

In its earlier guidance given in the January-June interim report on 4 August 2010, Incap estimated that the company's revenue in 2010 will be smaller or at the same level as 2009, when it was EUR 70 million. At that time, profitability was expected to improve in the third quarter, and operating profit (EBIT) was expected to be positive in the latter half of 2010. The Group's full-year operating profit was expected to be in the red, yet to be clearly better than in 2009 when it was EUR -5.0 million.
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