INCAP GROUP INTERIM REPORT, JANUARY-JUNE 2004

 

net turnover was up 25% on the same period a year earlier and was EUR 37.2 million (Jan-Jun 2004: EUR 29.9 million)

operating profit was EUR 0.9 million (EUR -1.2 million), i.e. the earnings improved by 172%

earnings per share were EUR 0.05 (EUR 0.13 negative)

co-operation with a number of customers was expanded

 

 

Net turnover and financial performance in April-June

 

Net turnover in April-June was EUR 18.0 million, up 23.5% on the same quarter a year earlier (Apr.-June 2003: EUR 14.6 million).

 

Second-quarter operating profit was EUR 0.3 million. Compared with the same period of 2003, the operating result improved by 152% (Apr.-June 2003: a loss of EUR 0.6 million). Earnings per share were EUR 0.01 (0.07 negative).

 

 

 

 

Net turnover and financial performance in January-June

 

Net turnover in January-June totalled EUR 37.2 million, up 24.6% on the same period a year earlier (Jan.-June 2003: EUR 29.9 million).

 

The operating profit for the first half of the year was up 172% to EUR 0.9 million (a loss of 1.2 million), i.e. 2.4% of the net turnover (-4.1%).

 

Earnings per share were EUR 0.05 (0.13 negative) and equity per share was EUR 1.11 (1.39). The Group's equity ratio was 36.9% (40.9%) and total assets were EUR 36.7 million (41.4 million).

 

 

 

 

 

Trend in the operating environment

 

Demand for manufacturing services remained at the level seen in the second half of 2003. Customers' need to lower product costs fed through across the entire supply chain and the competitive situation among contract manufacturers was still tight. Pressures for efficiency-boosting were reflected in production reorganisation moves.

 

 

Development of Incap's operations

 

Net turnover in the January-June period was up 25% year on year. Total demand remained at the same level as towards the end of 2003, though the trend varied by customer during the period. In the end of the period, growth in net turnover was slowed down somewhat by the fact that some customers deferred deliveries.

 

The customer mix remained balanced, and the largest individual customer group - equipment manufacturers in the telecommunications sector - accounted for about 40% of net turnover.

 

Profitability improved from the corresponding period last year. The result was affected by the fact that the net turnover of the second quarter included sales of inventories in connection with the programme for stepping up materials management. The capacity utilisation rate grew, productivity improved and fixed costs fell.

 

Prices of certain electronics components rose and delivery times lengthened somewhat. Prices of raw materials for mechanical fabrication rose markedly.

 

The unit in Estonia was operating full tilt and manufacturing volumes showed steady growth. On the basis of customers' increased demand, a decision was taken in March to expand the electronics production capacity in Kuressaare. Planning of the extension of the present facilities is underway and construction will be started in early autumn. The additional capacity is scheduled to be in use at the beginning of 2005.

 

In line with the increase in demand for chemically milled products, it was decided to purchase a new copper chemical milling line for the Ultraprint Oy unit in Kempele that manufactures such products. The new line will go into operation in September, quadrupling the chemical milling capacity and bringing a big improvement in the company's quality assurance capability.

 

Within manufacturing operations, Incap continued the process of going over to a RoHS process in co-operation with customers and network companies. The Vuokatti unit's first manufacturing line employing the lead-free process will be commissioned this year. Furthermore, product- and component-specific traceability was further developed within electronics manufacture.

 

Sales and bidding activities continued at a brisk pace. In accordance with its strategy, Incap is seeking to grow its net turnover primarily by strengthening its role as a partner of present customers, and during the report period delivery agreements were expanded to both new products and larger integrated deliveries. Inputs into customer service were made by beefing up personnel resources for both sales and design operations.

 

 

Business development priorities

 

Incap's production structure and operational model are best suited to the kinds of products that are manufactured in several different versions in small and medium-sized production series. Within such "high mix - low volume" products, Incap's flexibility and ability to respond quickly give it a significant competitive advantage. The continuous shortening of the life cycle of electronics products favours their manufacture in small and medium-sized series, and customers' product palettes are very extensive. This is why the product mix in such manufacturing varies by both product type and volume.

 

To lift the efficiency of materials management, a project was launched in June with the aim of improving substantially the stock turn rate and delivery accuracy, whilst shortening production lead times. The development effort will focus on the entire order-delivery process, and new ways of working will be sought, particularly for optimising forecasting practice and production planning.

Incap is developing its operations by increasing its own capacity as well as by engaging in more extensive co-operation with network companies. For example in design services, very positive experiences have been obtained through working together with partners in co-operation.

 

Manufacturing capacity will be increased during 2004 at Kuressaare and Kempele in line with customer demand. In addition, modernising the stock of machinery at the manufacturing facility in Helsinki is in the planning pipeline. When realised, it will improve the ability to supply mechanical fabrication and bring a further rise in the capacity utilisation rate. 

 

 

Financing

 

The Group's liquidity was satisfactory. The quick ratio was 0.7 (0.7) and the current ratio 1.6 (1.7). The stock volume declined to EUR 13.1 million (13.7 million).

 

Cash flow from operations was EUR 0.6 million (3.9 million). The change in cash flows was a decrease of EUR 0.8 million (an increase of 1.1 million).

 

Consolidated shareholders' equity amounted to EUR 13.5 million at the close of the report period (17.0 million). Liabilities totalled EUR 23.2 million (24.4 million), of which interest-bearing liabilities amounted to EUR 12.0 million (EUR 14.2 million) and non-interest-bearing liabilities to EUR 11.2 million (EUR 10.1 million). Net financial expenses were EUR 0.3 million (0.4 million) and depreciation EUR 1.4 million (1.8 million). The net debt fell to EUR 12.0 million (14.5 million) and the gearing was 84.7% (73.8%). The equity ratio was 36.9% (40.9%).

 

The Group's liquid assets at 9 August 2004 amounted to EUR 2.1 million, of which EUR 1.5 million consisted of unused credit facilities. The company estimates that available funds will suffice at least in accordance with the liquidity plan that has been drawn up for the next 12 months.

 

 

Capital expenditures

 

The Group's gross capital expenditures totalled EUR 0.2 million (0.3 million), or about 0.6% of net turnover (1.0%).

 

 

Research and development

 

Incap's research and development effort consists mainly of the development of the Group's own manufacturing processes. Spending on research and development during the report period amounted to EUR 0.9 million (0.9 million), or 2.5% of net turnover (3.0%). Research and development expenditure has been booked to expenses for the period.

 

 

Personnel and management

 

At the beginning of the year the Incap Group had a payroll of 551 employees and at the end of the report period it had 557 employees. At the end of the period a total of 29 people had been laid off (51 employees at the start of the year).

 

 

Corporate Governance

 

 

 

Annual General Meeting

The Annual General Meeting was held on 20 April 2004 in Oulu. The Annual General Meeting adopted the consolidated and parent company financial statements for 2003 and granted release from liability to the responsible officers. The Annual General Meeting passed a resolution, in accordance with the Board of Directors' proposal, that no dividend be paid out for the 2003 financial year.

 

The Annual General Meeting authorised the Board of Directors for one year from the meeting to decide on increasing the share capital through one or more rights issues and/or the floating of one or more issues of convertible bonds and/or stock options such that the authorisation provides for raising the company's share capital by a maximum of 4,092,775.68 euros (not an exact figure).

 

Seppo Arponen, Kalevi Laurila, Jorma Terentjeff and Juhani Vesterinen were re-elected to seats on the Board of Directors, and Timo Leinilä and Sakari Nikkanen were elected new members. From amongst its number, the Board of Directors re-elected Jorma Terentjeff chairman. The Annual General Meeting elected as the company's auditor Ernst & Young Oy, with Rauno Sipilä, Authorised Public Accountant, acting as principal auditor.

 

 

Stock option scheme 2004

 

The Board of Directors of Incap Corporation decided, on the basis of the authorisation granted by the Annual General Meeting, to introduce in May a new share ownership-tied stock option scheme. A total of 630,000 option rights were granted, entitling their holders to subscribe for an equal number of shares. On the basis of the subscriptions, Incap's share capital can rise by a maximum of EUR 1,058,400 (not an exact figure). In the first phase, stock options were distributed to thirteen Incap Group key employees, who at the same time gave their commitment to abide by the terms of the company's long-term share ownership programme.

 

The 2004 stock options are divided into three series: 2004A, 2004B and 2004C. The subscription price for the A and B warrants is the share turnover-weighted average price of Incap's share in May 2004, or EUR 2.22. The subscription price with the 2004C warrants is the corresponding average Incap share price in March 2006. The share subscription period with the 2004A warrants is from 1 April 2007 to 30 April 2009, with the 2004B warrants, from 1 April 2008 to 30 April 2010 and with the 2004C warrants, from 1 April 2009 to 30 April 2011. Subscription for the shares will not, however, commence until the two-month turnover-weighted average price of the Incap share exceeds certain limits. With the 2004A warrants, the average price must be at least 3 euros and with the 2004B warrants at least 4.20 euros. The minimum level required for subscription with the 2004C warrants will be determined by the Board of Directors by 30 June 2006.

 

At the time of issuance, all the 2004C option rights as well as those 2004A and 2004B option rights that have not been distributed to key employees were given to Incap Corporation's wholly-owned subsidiary, which can distribute stock options to persons in the Group's employ or to new recruits.

 

 

Valid authorisations of the Board of Directors

 

At the close of the report period, the Board of Directors has a valid authorisation to raise the share capital by a maximum of EUR 3,034,375.68 (not an exact figure).

 

 

Share and share price trend

 

The number of shares is 12,180,880. The price of the Incap Corporation share varied in the range of EUR 2.59 to EUR 1.80 during the report period, and the share price at the close of the period was EUR 2.19. Share turnover was 19.6%.

 

Incap's company and Finnish ISIN code on Helsinki Exchanges changed as from 1 April 2004: the new company code is ICP and the Finnish ISIN code is ICP1V.

 

At the end of the report period, the company had 996 shareholders, or 19% more than at the beginning of the year (834 shareholders). The company's market capitalisation at 30 June 2004 was EUR 26.7 million.

 

 

Adoption of IFRS standards (IAS)

 

The Incap Group will adopt financial reporting in accordance with IFRS standards in its 2005 financial statements, and the first IAS/IFRS interim reports will be published in 2006.

 

 

Outlook for the future

 

The market outlook for the latter part of the year is cautiously positive. On the basis of volume forecasts made by customers, Incap's net turnover in 2004 is estimated to grow in step with market growth. The full-year operating result is expected to remain in the black.    

 

Incap's Interim Report for January-September 2004 will be published on Wednesday, 10 November 2004.

 

 

INCAP CORPORATION

Board of Directors

 

 

Juhani Hanninen

President and CEO

 

For additional information, contact:

Juhani Hanninen, President and CEO, tel. +358 (0)50 556 7199

Tuula Ylimäki, Chief Financial Officer, tel. +358 (0)40 347 2025

Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 (0)40 504 8296

 

 

Press conference

 

Incap will arrange a conference for the press, securities analysts and investors on Wednesday, 11 August 2004 at 10.00 a.m. at the World Trade Center Helsinki, 3rd floor in Meeting Rooms 7-8 at the address Aleksanterinkatu 17, 00100 Helsinki. The press conference will be held in Finnish. The presentation material is available at the corporate website both in Finnish and in English.

 

 

 

DISTRIBUTION
Helsinki Exchanges

Principal media

 

 

 

ANNEXES

1.     Consolidated profit and loss account

2.     Consolidated balance sheet

3.     Statement of sources of funds

4.     Group key figures and contingent liabilities