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


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.
(EUR thousands) 1-9/


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. "


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

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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:

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Source: Incap Oyj via Globenewswire