Incap - Interim Management statement

Incap Group Interim Management Statement for 1 January - 13 November 2014

Incap Corporation
Interim Management Statement   13 November 2014 at 8.30 am (EET)


INCAP GROUP INTERIM MANAGEMENT STATEMENT FOR 1 JANUARY - 13 NOVEMBER 2014


Turning point in profitability - the operating result for January-September was
positive. The revenue decreased compared with the corresponding period last year
as estimated. The financing position showed a positive trend but remained
challenging.

Unless otherwise stated, the figures in this Interim Management Statement of
Incap Group refer to the period of January-September 2014 and the comparison
figures to the corresponding period in the year 2013. The figures are unaudited.

Key figures in January-September 2014

  * The Group's revenue was EUR 17.6 million, down approximately 39% year-on-
    year (1-9/2013: EUR 28.7 million). The decrease was expected and was caused
    by the decreased production volumes in the company's factories in Europe.
  * The operating result (EBIT) was positive and amounted to EUR 0.3 million (1-
    9/2013: EUR -2.2 million). The improvement was a result of comprehensive
    actions taken to increase the efficiency.
  * Net profit for the period improved remarkably but remained negative being
    approx. EUR -0.3 million (EUR -4.5 million) due to financing costs.



                            |  1-9/|  1-9/|  1-6/|  1-6/|  1-3/|  1-3/| 1-12/
(EUR thousands)             |  2014|  2013|  2014|  2013|  2014|  2013|  2013
                            |      |      |      |      |      |      |
----------------------------+------+------+------+------+------+------+------
Revenue                     |17,664|28,743|11,332|20,537| 5,460|10,654|36,757
----------------------------+------+------+------+------+------+------+------
Operating profit/loss (EBIT)|   285|-2,177|   -79|-1,847|  -191|-1,432|-5,859
----------------------------+------+------+------+------+------+------+------
Net profit/loss             |  -303|-4,537|  -572|-3,056|  -374|-1,885|-8,527
----------------------------+------+------+------+------+------+------+------
Earnings per share, EUR     |-0.003| -0.10| -0.01| -0.14|-0.003| -0.09| -0.14


Key events of the period 1 January - 13 November 2014

The Group continued activities for increasing the operational efficiency in line
with the Turnaround program, which was launched in the previous year. The
company was focusing on the core business and on ensuring the customer
deliveries. At the same, tasks with no remarkable added value to customers were
eliminated. Thanks to the program, the delivery accuracy has improved
significantly and the operational efficiency was enhanced both in manufacturing
units and in support functions. The group organisation was reduced to cover only
essential functions and the production capacity was adjusted to meet with the
actual demand. The organisation structure was streamlined and the manufacturing
units took an increasing role as profit centres.

Personnel cuts and trimming other costs have had the most important impact on
the improved profitability. Especially the efficiency measures related to the
number of personnel have reflected into the result of the Group more clearly
during the latter half of the year 2014.

After the end of the actual Turnaround program the company has concentrated on
stabilizing its operations and financial position. In the operations the main
focus has been in further development of key areas like delivery reliability and
quality. In order to improve the financial position the company was negotiating
with its Finnish bank. As a result of the negotiations, the loan instalment plan
was mitigated so that the loan instalments were decreased to a half of the
previous plan during the second half of the year 2014. Also the financial
covenants were modified and include now only the EBITDA of the last 6 months. In
order to secure the component purchases the credit limit of the company has been
increased by EUR 0.5 million with validity until 9 March 2015, and the
subsidiary in Estonia has opened an own factoring limit in an Estonian bank.

The payment arrangement with the Finnish Tax Administration was finalized
according to the contract in August, and after that a new arrangement of EUR
0.3 million has been made. According to the new arrangement a loan instalment of
EUR 20,500 will be paid monthly until September 2015.
Because the equity of Incap Group's parent company had decreased to less than
one half of the share capital, the Board of Directors prepared extraordinary
accounts, which were published on 8 October 2014. At the same time, the company
convened the Extraordinary General Meeting, which took place on 29 October 2014
in Helsinki. The extraordinary accounts of Incap Group and the report of the
Board of Directors for the period from 1 January 2014 to 30 June 2014 as well as
the actions to improve the financial position of the company were presented to
the Extraordinary General Meeting. The management of the company will continue
with the already started measures to improve profitability, to ensure the
financing and liquidity as well as the sufficiency of working capital, and to
develop the customer acquisitions.

The Group's equity ratio on 30 September 2014 was 3.6%, whereas on 30 June 2014
it was 0.6%. The parent company's (Incap Corporation) equity was EUR 8.1
million, representing 39.4% of the share capital.

Mr Ville Vuori, (B.Sc.Eng. and eMBA), was appointed President and CEO for Incap
Corporation as from 23 June 2014.

The Board of Directors of Incap continues evaluating strategic options and
eventual alliances for further development of the company's business.

Risks and factors of uncertainty


General risks related to the company's business operations and sector include
the development of customer demand, price competition in contract manufacturing,
ability to acquire new customers, availability and price development of raw
material and components, sufficiency of funding, liquidity and exchange rate
fluctuations. Of these, the most significant risks at the moment are the
development of revenue, liquidity and the sufficiency of funding.

In connection with the extraordinary accounts on 8 October 2014 the company
estimated, based on a 12-month cash flow projection, that the company's working
capital will not cover the requirement for the next 12 months. According to the
company's estimate, approximately EUR 1.5-2 million of additional working
capital is needed for the company's European functions. However, the working
capital will be sufficient for the next 12 months if the following criteria are
met:

· repatriation of profits from India to the parent company succeeds as planned
and/or

· the company succeeds in acquiring new customers and the company's cash flow
from operations develops positively and/or

· the company succeeds in negotiating on the amount and schedule of instalments
as well as other financing arrangements with financiers.

Additionally, the company has started evaluating a possibility to announce a
share issue in order to increase financial flexibility required in capturing new
business opportunities.

The covenants of the company's loans were mitigated and include now only the
EBITDA for the last 6 months. The target level for EBITDA was set on EUR 66,000
on 30 June 2014 and this was met. The target level of EBITDA on 31 December
2014 is EUR 613,000 and the company estimates that also this covenant level will
be met, provided that the revenue will develop as estimated.

In order to ensure the sufficiency of funding and the liquidity the company is
constantly discussing the alternative options with the financing parties. Also
the repatriation of profits from India to the parent company according to the
plan is an essential factor in ensuring the sufficiency of working capital in
Europe operations. The company has also initiated proactive measures in new
customer acquisition in order to secure the positive development of operational
cash flow.

Outlook for 2014

Incap's estimates for future business development are based both on its
customers' forecasts and on the company's own assessments. The business
environment is estimated to remain challenging in 2014 as the economic growth
worldwide is forecasted to be low.

The company's sector, contract manufacturing, is highly competitive, and all the
players in the market are facing pressures on decreasing the costs. The high-
class service to current customers and the new customer acquisition are of high
importance for reaching the targets set for 2014. The company has succeeded in
improving the efficiency remarkably in its operations, and thanks to this the
profitability is expected to improve in 2014 compared with the year 2013.

The company keeps its financial guidance for 2014 unchanged and estimates that
the Group's revenue in 2014 will be significantly smaller than in 2013 when the
revenue amounted to EUR 36.8 million. The company estimates that the full-year
operating result (EBIT) is positive. In 2013, the result was negative amounting
to EUR -5.9 million.

Ville Vuori, President and CEO of Incap Group:"The systematic work that has been done during the past 12 months is now bearing
fruit and reflects positive in the profitability of the company. On the revenue
side, the manufacturing volumes in the electronics factory in Kuressaare are on
the increase whereas the sheet-metal production in Vaasa is suffering from the
weak demand. The development in India continues strong. New government of India
has announced their aim to improve local business environment, and this is
expected to support Incap's growth ambitions particularly in the local market.

Even in the times of difficult structural changes we have ensured that the
operations connected with the customer service remain in a good level and are
enhanced further. We have received respective positive feedback from customers
and trust that their confidence in us has recovered and will strengthen further.
Now when our operations are on a more stable basis, our special focus is in
sales and customer relationship management. Our organisation has been adjusted
accordingly, by for example accelerating the quotation process. "



INCAP CORPORATION

Ville Vuori
President & CEO

For additional information, please contact:
Ville Vuori, President and CEO, tel. +358 400 369 438
Kirsti Parvi, CFO, tel. +358 50 517 4569

DISTRIBUTION
NASDAQ OMX Helsinki Ltd
Principal media
The company's home page www.incap.fi

INCAP IN BRIEF

Incap Corporation is an international contract manufacturer whose comprehensive
services cover the entire life-cycle of electromechanical products from design
and sourcing to actual manufacture and further to maintenance services. Incap's
customers are leading suppliers of high-technology equipment in their own
business segments, and Incap increases their competitiveness as a strategic
partner. Incap has operations in Finland, Estonia, India and China. The Group's
revenue in 2013 amounted to approximately EUR 36.8 million, and the company
currently employs approximately 500 people. Incap's share is listed on the
NASDAQ OMX Helsinki Ltd. Additional information: www.incap.fi.


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