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2008-03-04 07:30:00 CET 2008-03-04 07:30:30 CET REGULATED INFORMATION Incap - Financial Statement ReleaseINCAP GROUP'S FINANCIAL STATEMENTS FOR 2007: BUSINESS OPERATIONS ESTABLISHED IN INDIA, DEMAND FOR TELECOMMUNICATIONS NETWORK PRODUCTS DECREASEDINCAP CORPORATION Stock Exchange Release 4 March 2008 at 8.30 a.m. * revenue amounted to EUR 83.0 million, which was about 7% lower than the previous year (EUR 89.3 million in 2006) * the revised operating profit totalled EUR 0.3 million (EUR 2.8 million), or 0.4% of revenue (3.2%) * net profit for the financial year was EUR -1.1 million (EUR 3.2 million) * earnings per share amounted to EUR -0.09 (EUR 0.26) * business operations in India were started after a business acquisition, which was financed by convertible promissory notes amounting to EUR 6.75 million * a capital gain of EUR 3.1 million was recorded on the sale of the premises of Helsinki factory Juhani Hanninen, President and CEO of the Incap Group: "The expansion of our operations into the growing Asian markets marked a significant step in the implementation of our strategy focused on international expansion and growth. The structure of the company's revenue underwent a remarkable change due to a sharp decline in demand for telecommunications network products. Our revenue grew after the first quarter in each quarter during the year, but it was not sufficient to compensate for the slide early in the year.""The start-up of manufacturing operations in India significantly improved our competitive position as a partner to international customers and will provide new opportunities for growing our operations. The central objective for 2008 is to improve the company's profitability, and we will also continue the programme started last year for boosting operational efficiency." Revenue and earnings in October-December 2007 Fourth-quarter revenue totalled EUR 26.3 million (EUR 24.0 million), or 9.5% more than in the same period in 2006. Operating profit amounted to EUR 2.0 million (EUR -0.3 million), representing 7.7% of revenue (-1.4%). Operating profit was affected by a capital gain of EUR 3.1 million recorded for the period. The actual operational result during the period amounted to EUR -1.1 million. Quarterly 10-12/ 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ comparison 2007 2007 2007 2007 2006 2006 2006 2006 (EUR thousands) Revenue 26 304 20 593 19 130 16 982 24 014 21 810 22 486 21 038 Operating 2 025 -578 44 -1 188 -331 599 1 163 1 396 profit Net profit 1 450 -1 071 -139 -1 342 -376 728 1 320 1 553 for the financial year Earnings per 0.12 -0.09 -0.01 -0.11 -0.03 0.06 0.11 0.13 share, EUR Revenue and financial performance in 2007 The Incap Group's revenue amounted to about EUR 83.0 million (EUR 89.3 million in 2006). The decrease in revenue was mainly a result of a sharp decline in the delivery volumes of telecommunications products during the first quarter of the year. Incap's revenue with the customers from the telecommunications sector was about EUR 15 million lower than in 2006. Sales to other customer sectors had a favourable trend and Incap received a large number of new products for manufacturing. After the first quarter, the revenue grew every quarter. In particular, deliveries to the equipment manufacturers in energy technology as well as security and healthcare sectors grew. Consolidated operating profit totalled EUR 0.3 million (EUR 2.8 million), or 0.4% of revenue (3.2%). Operating profit was improved by a capital gain of EUR 3.1 million recorded on the sale of the shares of the property company owning the Helsinki factory. The result of actual operations, less the above-mentioned capital gain, amounted to EUR -2.8 million, or about -3.4% of revenue. The result was weakened by non-recurring expenses of about EUR 0.6 million related to the development of operations and the implementation of Incap's growth strategy. Net loss for the financial year was EUR 1.1 million (net profit of EUR 3.2 million). The result included a deduction of EUR 0.05 million in deferred tax assets. The profitability was weakened by the decrese in revenue and the measures related to the internationalisation process and the operations development. Earnings per share were EUR -0.09 (EUR 0.26) and equity per share was EUR 1.57 (EUR 1.67). Financial year comparison 2007 2006 Change, % (EUR thousands) Revenue 83 010 89 347 -7 Operating profit 303 2 828 -89 Net profit for the financial year -1 102 3 225 -134 Earnings per share, EUR -0,09 0,26 -135 Development of operations in 2007 In accordance with its strategy, which was defined more clearly in the spring of 2007, Incap is aiming at strong, profitable growth and a more international profile in its operations. At the end of the year, over half of the company's personnel worked outside Finland. Incap acquired the electronics contract manufacturing business of TVS Electronics Limited in India on 31 May 2007, whereby the factory manufacturing electronics and integrated products and a related design unit were transferred to Incap Contract Manufacturing Services Pvt. Ltd., a subsidiary of Incap operating in Bangalore. The total acquisition cost of the business amounted to about EUR 8.3 million, which includes the additional land required for expanding the operations in India and immediate expenses connected with the acquisition. The revenue generated by the operations in India during June-December totalled EUR 4.9 million. The start-up of manufacturing operations in Asia improves Incap's market position and enables it to offer competitive services to customers with global operations. There was a positive trend in interest towards Incap's services, and the acquisition of new customers in India took off well. Tendering activities were brisk and, in the end of the year, there were higher number of new products in the prototype and preseries production stage than before. Project management competence was increased at the end of the year in order to speed up the transfer of these products into production and the take-over of customers' production. Incap's customer mix continued to become more balanced. The share of revenue generated by the company's largest customer sector, telecommunications, fell from the previous year's 48% to about 34%. Measures initiated for the boosting of profitability began to have an effect on the company's result at the end of the year. Focal areas included the reduction of materials costs and fixed expenses and the improvement of productivity and the turnover of working capital. Financing and cash flow The Group's equity ratio was 35.3% (44.7%). Interest-bearing net liabilities totalled EUR 19.7 million (EUR 8.9 million) and the ratio of net liabilities to equity (gearing) was 103.2% (43.9%). Net financial expenses amounted to EUR 1.4 million (EUR 0.5 million) and depreciation to EUR 2.8 million (EUR 2.3 million). The Group's equity totalled EUR 19.1 million (EUR 20.3 million) at the close of the financial year. Liabilities amounted to EUR 35.1 million (EUR 25.2 million), of which interest-bearing liabilities amounted to EUR 20.7 million (EUR 9.4 million). The Group's liquidity was satisfactory: the quick ratio was 0.8 (0.8) and the current ratio 1.4 (1.6). Cash flow from operations totalled EUR -4.0 million (EUR 3.0 million) and the change in cash and cash equivalents was an increase of EUR 0.5 million (a decrease of EUR 1.7 million). The change in cash and cash equivalents was influenced in particular by non-recurring items and an increase in working capital. The Group issued convertible promissory notes in May for the financing of the acquisition in India and future investments. The total amount of the convertible bonds was 6,750,000 euros and it includes the right to convert the bonds into a total of 2,500,000 pieces of Incap's shares. The convertible promissory notes were subscribed in full by the deadline. Research and development Incap's research and development expenses totalled EUR 0.3 million (EUR 0.5 million). Capital expenditures The Group's capital expenditures in the financial year, without the business acquisition in India, totalled EUR 1.5 million (EUR 7.1 million), or about 1.8% of revenue (8.0%). Incap implemented the most extensive measures for the modernisation of production capacity at the Kuressaare factory, while at other units it mostly made replacement investments. Finance leases accounted for EUR 0.2 million (EUR 5.6 million) of the investments. Environmental issues All of Incap's factories employ environmental and quality assurance systems certified by Lloyd's, and these are used as tools for continuous improvement. The environmental system complies with the ISO 14001:2004 standard, while the quality assurance system complies with the ISO 9001:2000 standard. The Helsinki, Kuressaare and Vuokatti factories have been granted certificates of compliance with the ISO 13485:2003 standard, which is widely applied to the manufacture of medical devices. Personnel At the beginning of the year, the Incap Group employed 541 people and, at the end of the year, 810. On average, there were 678 (521) people on the payroll in 2007. The number of personnel grew by about 33% compared with the previous year. The majority of the increase came from the acquisition in India, as a result of which 228 people were transferred to Incap's payroll. At the close of the year, about 45% of all personnel worked in Finland, 27% in Estonia and 28% in India. At the end of the year, 326 of Incap's personnel were women and 484 were men. Permanently employed staff numbered 614 and fixed-term employees 196. There were 12 part-time employment contracts at the end of the year. The average age of the personnel is 37 years. As a result of the codetermination negotiations held at the Vuokatti unit, the company terminated the employment contracts of 53 people at the unit. The factory's personnel strength was reduced by a total of 48 employees during the year. Group Management The company's president and CEO during the financial year was Juhani Hanninen, M.Sc. (Engineering). In addition to him, the members of the Group Management Team included Liam Kenny (Materials and Logistics), Sami Mykkänen (Manufacturing Services), Hannele Pöllä (Communications and Investor Relations), Niklas Skogster (Business Development), Anne Sointu (Finance and Administration), Jukka Turtola (Global Sales and Marketing) and Tuula Ylimäki (Ultraprint Oy). Anja Rouhiainen (Manufacturing Services, until 28 February) and Petri Saari (Sales and Marketing, until 30 September) also served with the Group Management Team for a part of the year. The management at the Helsinki, Kuressaare and Vuokatti factories was reorganised. Jarmo Kolehmainen was appointed Managing Director of the Indian subsidiary Incap Contract Manufacturing Services Pvt. Ltd. as from 1 January 2008. Events after the close of the financial year The structure of the Group's organisation was revamped in February to better correspond to the company's current operational model. The new organisation is based on customer-orientated focus and includes three business units: Europe, India and New Business. Resolutions of the Annual General Meeting The Annual General Meeting of Incap Corporation was held on 3 April 2007 in Oulu. The Annual General Meeting adopted the consolidated and parent company financial statements for 2006 and granted release from liability to the responsible officers. No dividend was paid for the 2006 financial year. The Annual General Meeting authorised the Board of Directors to decide on increasing the share capital through one or more rights issues and on granting stock options so that the total number of new shares to be subscribed for on the basis of the authorisation is a maximum of 2,500,000 shares. The Board of Directors exercised the authorisation in full on 21 May 2007, when it issued convertible promissory notes for the financing of the acquisition in India and future investments. Board of Directors and Auditors The Annual General Meeting re-elected Juha-Pekka Kallunki, Kalevi Laurila and Sakari Nikkanen to seats on the Board of Directors. Susanna Miekk-oja and Jukka Harju were elected as new members of the Board. From amongst its number, the Board of Directors elected Kalevi Laurila as Chairman and Susanna Miekk-oja as Vice Chairman. Jari Pirinen, (LL.M.), served as secretary to the Board of Directors. The Board of Directors met 20 times in 2007 and the average attendance of the directors at the meetings was 99 per cent. The firm of independent accountants Ernst & Young Oy were the company's auditors, with Rauno Sipilä, Authorised Public Accountant, acting as principal auditor. Shares and shareholders Incap Corporation has one series of shares, and the number of shares in issue is 12,180,880. The price of the Incap Corporation share varied in the range of EUR 1.25 to EUR 2.67 during the financial year, and the share price at the close of the year was EUR 1.34. The trade volume was 54% of the shares outstanding. At the end of the report year, the company had 1,004 shareholders. Nominee-registered owners held 6.1% of all shares. The company's market capitalisation at 31 December 2007 was EUR 16.3 million. The company does not hold any of its own shares. Announcements in accordance with chapter 2, section 9 of the Securities Market Act Ingman Finance Oy Ab announced on 26 January that its holdings had exceeded 10% of the share capital and votes of Incap Corporation. OKO Bank plc announced on 31 January that its holdings of the share capital of Incap Corporation had decreased below 5%. Ilmarinen Mutual Pension Insurance Company announced on 24 May that if it exercises its subscription right to Incap's convertible promissory notes in its entirety, its holdings of the share capital of Incap Corporation will exceed 5%. OP Bank Group Central Cooperative announced on 28 May that if the investment funds managed by its subsidiary OP Fund Management Company Ltd exercise their subscription right to Incap's convertible promissory notes in its entirety, the OP Bank Group Central Cooperative's holdings of the share capital and votes of Incap Corporation will exceed 5%. Etra Invest Oy announced on 10 October that its holdings of the share capital of Incap Corporation first exceeded 15%, then 25%. Irish Life International announced on 16 October that its holdings of the share capital and votes of Incap Corporation have decreased under 5%. Share options The Incap Group currently runs a share option scheme that was introduced in 2004 and that commits key employees to long-term share ownership. There are a total of 630,000 option rights, entitling their holders to subscribe for an equal number of shares. On the basis of the subscriptions, Incap's share capital can be increased by a maximum of about EUR 1,058,400. At the close of the year, the option scheme covered 9 key employees. Short-term risks and factors of uncertainty concerning operations Risks are grouped in Incap's risk management policy into risks related to the operating environment, operational risks and liability and financing risks. Incap's risk management focuses primarily on risks that threaten the objectives and continuity of business operations. In order to utilise business opportunities, Incap is prepared to take risks that can be managed within the limits of the Group's risk management resources. Cyclical fluctuations in the global economy and customer sectors affect Incap's demand and financial position. Incap's sales come from several customer sectors, which evens out the effect of industry sectors' cyclical fluctuations. The customer sector mix is further balanced so that dependence on a single customer or several customers operating in the same sector does not expose the company to a substantial financial risk. Incap's sector, contract manufacturing, is highly competitive and places great pressures on the management of cost levels. The company strives to manage risks by constantly monitoring and controlling operational efficiency and cost levels. Incap has enhanced the flexibility of its cost structure by spreading its production to different countries and coordinating manufacturing operations between Finland and other countries where it has operations. Incap constantly assesses the organisation of different functions and the adequacy and quality of human resources. This is done to ensure that the organisation functions efficiently and competence is at an adequate level, and that the company can offer its customers the services they need and attend to its responsibilities towards other stakeholders without interruptions, while maintaining high quality. The availability of labour and the trend in labour costs in the countries where Incap has operations are of material importance to the company's competitiveness. The quality, manufacturing and distribution problems of materials suppliers and changes in the world market prices of materials affect the availability and prices of materials used by Incap. A large number of materials procurements are linked to customer contracts, which further minimises risks concerning the prices of materials. The company makes efforts to eliminate as much as possible the adverse effects of changes in financing markets on the Group's performance and cash flow. The acquisition of a new business unit in India has increased the Group's exposure to financing risks. The Group's interest and currency rate risks are managed with a special financing structure, based on financing instruments with fixed and variable interest rates and denominated in selected currencies. The company regularly checks its insurance cover as a part of risk management. The operating environment is expected to remain challenging during the current financial year. The profitability improvement program which is currently in progress is aimed at improving the company's cost structure and increasing flexibility. Objectives for 2008 Incap's objective is to grow its operations and improve its profitability. The company will focus on organic growth as a means for achieving its growth target for 2008. Incap aims to increase the scope of deliveries to current customers and seeks to take over the outsourcing of the entire production of its customers. The focus in European operations is on boosting the efficiency of operations and improving productivity. In India, the main objective will be to increase revenue by acquiring new customer relationships. Outlook for 2008 Incap's customers have produced positive estimates of the trend in their own demand. New customer relationships acquired in 2007 will proceed to the serial production stage during 2008, so the basis for growth in revenue is good. However, order backlog and market visibility is very short, which is typical for the business. Incap estimates that the Group's revenue will grow in 2008 compared with last year (2007: EUR 83.0 million) and that its profit from actual operations will improve (2007: EUR -2.8 million without the capital gain in the sale of property). Board of Directors' proposal for the disposal of profits The parent company's net loss for the financial year amounts to EUR 717,875.93. The Board of Directors will propose to the Annual General Meeting to be held on 10 April 2008 that no dividend be distributed and that the result of the financial year be transferred to retained earnings. Annual General Meeting in 2008 The Annual General Meeting of Incap Corporation will be held at 2.00 p.m. on Thursday 10 April 2008, at Sokos Hotel Arina in Oulu, at the address Isokatu 24, 3rd floor, 90100 Oulu. Helsinki, 4 March 2008 INCAP CORPORATION Board of Directors For additional information, please contact: Juhani Hanninen, President & CEO, tel. +358 50 556 7199 Anne Sointu, CFO, tel. +358 40 347 2059 Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 40 504 8296 DISTRIBUTION OMX Nordic Exchange Helsinki Principal media NEWS CONFERENCE Incap organises a news conference to financial analysts and media representatives today at 10 a.m. in the World Trade Center Helsinki (Room 1, 2nd floor) at Aleksanterinkatu 17, 00100 Helsinki. INCAP IN BRIEF Incap Corporation is a fast-growing electronics contract manufacturer whose comprehensive service covers the entire product life cycle from design and manufacture to repair and maintenance services. The company's main customers are leading equipment suppliers in telecommunications, electrical power technology, the automation and process industries as well as measurement technology, safety electronics and health care. The Incap Group's revenue in 2007 amounted to approx. EUR 83 million and the company currently employs approx. 810 persons. Incap's share is listed on the OMX Nordic Exchange Helsinki. For additional information, please visit www.incap.fi ANNEXES 1 Consolidated Income Statement 2 Consolidated Balance Sheet 3 Consolidated Cash Flow Statement 4 Consolidated Statement of Changes in Equity 5 Notes to the Financial Statement 6 Group Key Figures and Contingent Liabilities Annex 1 CONSOLIDATED INCOME STATEMENT (IFRS) (EUR thousands, audited) Jan.-Dec./2007 Jan.-Dec./2006 Change % REVENUE 83 010 89 347 -7 Manufacture for own use 99 Changes in inventories of finished goods and work in progress -999 1 409 -171 Other operating income 3 166 383 727 Raw materials and consumables used 56 896 61 634 -8 Personnel expenses 15 979 16 245 -2 Depreciation, amortisation and impairment losses 2 753 2 284 21 Other operating expenses 9 343 8 149 15 PROFIT/LOSS 303 2 828 -89 Financial income and expenses -1 356 -505 169 PROFIT/LOSS BEFORE TAXES -1 053 2 323 -145 Income taxes -49 902 -105 PROFIT/LOSS FOR THE REPORT PERIOD -1 102 3 225 -134 Earnings per share -0.09 0.26 -135 Share options did not have a dilutive effect in the 2007 and 2006 financial years. Annex 2 CONSOLIDATED BALANCE SHEET (IFRS) (EUR thousands, audited) Jan.-Dec./2007 Jan.-Dec./2006 Change % ASSETS NON-CURRENT ASSETS Tangible assets 12 883 11 571 11 Goodwill 1 326 164 709 Other intangible assets 1 575 331 376 Other financial assets 21 15 40 Deferred tax assets 4 223 4 310 -2 TOTAL NON-CURRENT ASSETS 20 028 16 391 22 CURRENT ASSETS Inventories 14 882 14 626 2 Trade and other receivables 18 367 13 994 31 Cash and cash equivalents 944 500 89 TOTAL CURRENT ASSETS 34 192 29 120 17 TOTAL ASSETS 54 220 45 511 19 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital 20 487 20 487 0 Share premium account 44 44 0 Exchange differences -216 0 Retained earnings -1 188 -206 477 TOTAL EQUITY 19 127 20 325 -6 NON-CURRENT LIABILITIES Deferred tax liabilities 121 147 -18 Interest-bearing loans and borrowings 11 188 6 806 64 NON-CURRENT LIABILITIES 11 309 6 953 63 CURRENT LIABILITIES Trade and other payables 14 294 15 620 -8 Interest-bearing loans and borrowings 9 490 2 613 263 CURRENT LIABILITIES 23 784 18 233 30 TOTAL EQUITY AND LIABILITIES 54 220 45 511 19 Annex 3 CONSOLIDATED CASH FLOW STATEMENT (IFRS) Jan.-Dec./2007 Jan.-Dec./2006 (EUR thousands, audited) Cash flow from operating activities Operating profit 303 2 828 Adjustments to operating profit -372 1 996 Change in working capital -3 070 -1 420 Interest and other payments made -977 -411 Interest received 142 22 Cash flow from operating activities -3 974 3 015 Cash flow from investing activities Investments in tangible and intangible assets -1 974 -1 547 Gains on the sale of tangible and intangible assets 3 118 15 Acquisition of subsidiary -8 261 0 Cash flow from investing activities -7 117 -1 532 Cash flow from financing activities Drawdowns of loans 14 316 0 Repayments of borrowings -1 116 -1 235 Repayments of obligations under finance leases -1 643 -1 961 Cash flow from financing activities 11 557 -3 196 Change in net cash 466 -1 713 Cash and cash equivalents at beginning of period 500 2 213 Effects of changes in exchange rates -22 0 Cash and cash equivalents at end of period 944 500 Annex 4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (IFRS) (EUR thousands, audited) Share Share Exchange Retained Total capital premium differences earnings equity account Equity at 1 January 2006 20 487 44 0 -3 566 16 965 Option and share-based compensation 0 0 0 135 135 Net income (loss) recognised directly in equity 0 0 0 135 135 Result for the financial year 0 0 0 3 225 3 225 Total income and expense for the report period 0 0 0 3 360 3 360 Equity at 31 December 2006 20 487 44 0 -206 20 325 Equity at 1 January 2007 20 487 44 0 -206 20 325 Change in exchange differences 0 0 -216 0 -216 Option and share-based compensation 0 0 0 120 120 Net income (loss) recognised directly in equity Result for the financial year 0 0 -216 120 -95 Total income and expense for the report period 0 0 0 -1 102 -1 102 Option and share-based compensation 0 0 -216 -982 -1 197 Equity at 31 December 2007 20 487 44 -216 -1 188 19 127 Annex 5 NOTES TO THE FINANCIAL STATEMENTS Acquired operations Incap Corporation's subsidiary Incap Contract Manufacturing Services Pvt. Ltd., established in India in April 2007, acquired a business unit manufacturing electronics and box-build products from TVS Electronics Limited on 31 May 2007. The number of personnel transferred in the business acquisition was approx. 230, and the revenue for seven months, EUR 4.9 million is included in the 2007 income statement. The total acquisition cost was EUR 8.3 million, paid in cash. In addition to the cash consideration, a total of EUR 0.5 million in consultancy fees and other costs immediately associated with the acquisition are included in the acquisition cost. Part of the acquisition cost exceeding the balance sheet value, EUR 1.2 million, was allocated to intangible rights by calculating fair values for the acquired customer base. The remaining goodwill of 1.2 million euros is based on Incap's improved position in the Asian contract manufacturing markets. Goodwill in the financial statements 2007 includes 0.2 million euros of revaluation of inventories based on the contract of business transfer. The following assets and liabilities were recognised for the acquired object: million euros Fair value Balance sheet value Property, plant and equipment 1.8 1.8 Advance payment for building 1.0 1.0 Customer contracts and associated customer relationships (incl. in other intangible assets) 1.2 0 Inventories 1.9 1.9 Trade and other receivables 2.6 2.6 Total assets 8.6 7.3 Trade and other payables -1.5 -1.5 Net assets 7.1 5.9 Acquisition cost 8.3 Goodwill 1.2 There are no temporary tax differences to be recognised on the allocated intangible rights. Acquisition cost paid in cash 8.3 Cash and cash equivalents of acquired subsidiary 0 Effect on cash flow 8.3 Annex 6 GROUP KEY FIGURES AND CONTINGENT LIABILITIES (IFRS) Jan.-Dec./2007 Jan.-Dec./2006 Revenue, EUR millions 83.0 89.3 Operating profit, EUR millions 0.3 2.8 % of revenue 0.4 3.2 Profit before taxes, EUR millions -1.1 2.3 % of revenue -1.3 2.6 Return on investment (ROI), % 1.3 10.5 Return on equity (ROE), % -5.6 17.3 Equity ratio, % 35.3 44.7 Gearing, % 103.2 43.9 Net debt, EUR millions 15.8 10.7 Interest-bearing net debt, EUR millions 19.7 8.9 Average number of share issue-adjusted shares during the financial year 12180880 12180880 Earnings per share (EPS), euros -0.09 0.26 Equity per share, euros 1.57 1.67 Investments, EUR millions 1.5 7.1 % of revenue 1.9 8.0 Average number of employees 678 521 CONTINGENT LIABILITIES (EUR millions) FOR OWN LIABILITIES Mortgages 12.3 6.0 Other liabilities 7.4 10.2 |
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