Incap Corporation: Incap Group’s Business Review for January–September 2020: Back on track with good growth and profitability

Incap Corporation                                                
Stock Exchange Release
Business Review Q3 2020                              25 November 2020 at 8.30 a.m. (EET) 

Incap Group’s Business Review for January–September 2020: Back on track with good growth and profitability

July–September 2020 highlights

• The revenue of the third quarter amounted to EUR 28.1 million, showing an increase of 59.9% (7– 9/2019: EUR 17.6 million).
• Excluding revenue from AWS Electronics Group acquired in January 2020, the revenue increased organically by 10.7%.
• Adjusted EBIT was EUR 3.6 million (EUR 2.4 million), corresponding to 12.9% of revenue (13.7%).
• AWS Electronics Group acquisition related purchase price allocation (PPA) amortisation amounted to EUR 0.4 million (EUR 0.0 million) and non-recurring costs were EUR 0.0 million (EUR 0.2 million).

• Operating profit (EBIT) was EUR 3.3 million (EUR 2.2 million), an increase of 46.0%, corresponding to 11.6% of revenue (12.7%).
• Net profit for the period was EUR 2.4 million (EUR 1.8 million), an increase of 33.7%.
• In November 2020, Incap’s rights issue was completed successfully with gross proceeds of approximately EUR 10.9 million.
• In November 2020 Incap revised its outlook for 2020. Incap estimates that the revenue for 2020 will be significantly higher than in 2019 and the operating profit (EBIT) in 2020 will be higher than in 2019. The Group specifies that the estimated revenue in 2020 will be approximately EUR 105–107 million and the operating profit (EBIT) approximately EUR 10.5–11.5 million.

January–September 2020 highlights

• The closure of the factory in India and other effects of the COVID-19 pandemic had a negative impact on the organic revenue growth and the profitability in April–June 2020.
• Incap Group revenue amounted to EUR 74.9 million, up 36.8% on the corresponding period of the previous year (EUR 54.8 million).
• Excluding revenue from AWS Electronics Group, the revenue decreased organically by 12.9%.
• Adjusted EBIT was EUR 9.1 million (EUR 8.2 million), corresponding to 12.1% of revenue (14.9%).
• AWS Electronics Group acquisition related purchase price allocation (PPA) amortisation amounted to EUR 1.5 million (EUR 0.0 million) and non-recurring costs were EUR 0.1 million (EUR 0.2 million).
• The Group’s operating profit (EBIT) amounted to EUR 7.5 million (EUR 8.0 million), down 5,9%, corresponding to 10.0% of revenue (14.6%).
• Net profit for the period amounted to EUR 5.1 million, down 16.6% on the corresponding period (EUR 6.1 million).
• Acquisition of AWS Electronics Group with production facilities in the UK and Slovakia was completed in January 2020.

The information in this business review concerns the development of Incap Group in January–September 2020 and in the corresponding period of 2019, unless otherwise stated. The figures are unaudited.

Key figures

EUR million	7–9/2020	7–9/2019	Change	1–9/2020	1–9/2019	Change	2019
Revenue	28.1	17.6	59.9%	74.9	54.8	36.8%	71.0
Operating profit (EBIT)	3.3	2.2	46.0%	7.5	8.0	-5.9%	10.1
EBIT, % of revenue	11.6%	12.7%		10.0%	14.6%		14.2%
Adjusted EBIT*	3.6	2.4	50.5%	9.1	8.2	11.2%	10.8
Adjusted EBIT*, % of revenue	12.9%	13.7%		12.1%	14.9%		15.2%
Net profit for the period	2.4	1.8	33.7%	5.1	6.1	-16.6%	6.3

*Adjusted EBIT is an alternative performance measure. Adjusted EBIT excludes the non-recurring items and the purchase price allocation amortisation. Adjusted EBIT provides comparable information between different financial years on operating profit adjusted for acquisition-related expenses.

Outlook for 2020

Due to better visibility for the full-year performance, Incap revised its outlook for 2020 on 11 November 2020. Incap estimates that the revenue for 2020 will be significantly higher than in 2019 and the operating profit (EBIT) in 2020 will be higher than in 2019. The Group specifies that the estimated revenue in 2020 will be approximately EUR 105–107 million and the operating profit (EBIT) approximately EUR 10.5–11.5 million.

The increase in the estimated operating profit (EBIT) is based on good development primarily at the Indian factory. After the COVID-19 pandemic related closure of the Indian factory, the backlog has been cleared and the demand from some existing customers has increased more than previously estimated. The estimated revenue growth is mainly driven by the AWS Electronics Group acquisition finalised in January 2020.

In 2019, Incap’s revenue amounted to EUR 71.0 million and the operating profit (EBIT) was EUR 10.1 million. In January-September 2019, the company’s revenue amounted to EUR 54.8 million and the operating profit (EBIT) was EUR 8.0 million.

The estimates are given provided that there are no major negative changes in the COVID-19 pandemic situation, currency exchange rates or in component availability and they are based both on Incap’s customers' forecasts and the company's own assessments of the business development.

Incap’s outlook for 2020 as published on 11 November 2020:

“Due to better visibility for the full-year performance, Incap revises its outlook for 2020. Incap estimates that the revenue for 2020 will be significantly higher than in 2019 and the operating profit (EBIT) in 2020 will be higher than in 2019. The previous outlook published in the half-year financial report estimated that the revenue for 2020 will be significantly higher than in 2019 and operating profit (EBIT) in 2020 will be approximately on the same level as in 2019.”

Otto Pukk, President and CEO of Incap Group:

Following a tough second quarter that was affected by the negative consequences of the COVID-19 pandemic the business recovered during the third quarter. Our revenue grew organically over 10 percent, as we cleared our backlog in our Indian factory while at the same time the demand from existing customers increased more than previously estimated. COVID-19  pandemic delayed our growth plans for 2020, but we are happy that we are now back on track and were able to announce an improved outlook for our operating profit, which we estimate will be higher than in 2019.

As a consequence of the good demand from existing and new customers, we announced in August that we are further expanding our factory in India. We expect the original factory expansion to be finalised early 2021 and the further expansion is expected to be completed by the end of 2021.

The EMS sector remains highly fragmented and we see no shortage of opportunity for growth through consolidation, as well. We want to be an active player in the sector, and to prepare ourselves for consolidation, we successfully completed our rights issue of 10,9 million euros in November. With the rights issue we will be able to strengthen our capital structure, balance sheet and financial position and thus create conditions for the implementation of our growth strategy. The oversubscribed offering indicates indeed a strong confidence in our growth strategy. I would like to warmly thank all those who took part in the offering for their interest to make Incap a more significant player in our field.

The integration of AWS Electronics Group in the UK, which was acquired in January, is progressing according to plan despite e.g. travel restrictions related to the pandemic. As we are approaching 2021 and the UK’s exit from the EU, we are preparing for a transformation period and securing availability of certain critical components by increasing stock levels for these parts.

As we publish this report, the COVID-19 pandemic continues to have a negative impact on societies in all our markets. Despite the growing number of cases and concerns about the health of our personnel, we have managed to keep our factories up and running. The markets are expected to remain uncertain due to the pandemic. Nevertheless, we are today more confident as we are learning to operate with the presence of the pandemic and related uncertainties.

I would like to express my sincere gratitude to all our employees who yet again have showed outstanding resilience and flexibility as we adapt to changes and uncertainties in our operating environment. We continue to take strict measures to protect our personnel from the spread of the virus. This continues to require special efforts from all our employees. At the same time the good growth and profitability achieved during the third quarter is an indication that we are doing the right things and stand on a solid basis to achieve our targets for this year and beyond.

Financial performance

Incap’s financial performance developed well in July–September, primarily due to the high activity level at the Indian factory. The revenue growth was mainly related to the AWS Electronics acquisition finalized in January 2020 but the revenue grew also organically.

In July–September 2020, revenue improved by 59.9 percent compared to the corresponding period a year ago and amounted to EUR 28.1 million (EUR 17.6 million). In January–September 2020, revenue improved by 36.8 percent compared to the corresponding period a year ago and amounted to EUR 74.9 million (EUR 54.8 million).

July–September operating profit (EBIT) was EUR 3.3 million (EUR 2.2 million). July–September adjusted operating profit (EBIT) was EUR 3.6 million (EUR 2.4 million). The net profit for the period totalled EUR 2.4 million (EUR 1.8 million). Adjusted operating profit (EBIT) increased by 50.5% and net profit for the period increased by 33.7%. The adjusted operating profit margin decreased slightly from 13.7% to 12.9%. 

The increase in the operating profit (EBIT) for the third quarter of 2020 was related to clearing of the backlog at Incap’s Indian factory and increasing demand from existing customers. The purchase price allocation amortisation relating to the AWS acquisition and the acquisition related non-recurring costs amounted to EUR 0.4 million (EUR 0.2 million).

January–September 2020 operating profit (EBIT) was EUR 7.5 million (EUR 8.0 million). January–September adjusted operating profit (EBIT) was EUR 9.1 million (EUR 8.2 million). The net profit for the period totalled EUR 5.1 million (EUR 6.1 million). Adjusted operating profit (EBIT) increased by 11.2% and net profit for the period decreased by 16.6%. The adjusted operating profit margin decreased from 14.9% to 12.1%. 

The company’s financial position remained strong. The equity ratio decreased and was at 35.4% (57.4%) at the end of September 2020. The decrease was mainly related to the AWS acquisition related increase in indebtedness.

Financial reporting in 2021

Incap will publish the financial statement bulletin for January–December 2020 on 24 February 2021.

INCAP CORPORATION
Board of Directors

For additional information, please contact:
Otto Pukk, President and CEO, tel. +372 508 0798

DISTRIBUTION
Nasdaq Helsinki Ltd.
Principal media
The company’s home page www.incapcorp.com 

INCAP IN BRIEF
Incap Corporation is a trusted partner and full-service provider in Electronics Manufacturing Services. As a global EMS company Incap supports customers ranging from large multinationals and mid-sized companies to small start-ups in their complete manufacturing value chain. Incap offers state-of-the-art technology backed up by an entrepreneurial culture and highly qualified personnel. The company has operations in Finland, Estonia, India, Slovakia, the UK and Hong Kong and employs approximately 1,300 people. Incap’s share has been listed on Nasdaq Helsinki Ltd stock exchange since 1997.