Incap Corporation
Stock Exchange Release     15thMay 2014     at 11.30 a.m.

INCAP GROUP INTERIM MANAGEMENT STATEMENT FOR 1 JANUARY – 15 MAY 2014

Incap Group today issues the following Interim Management Statement for the period from 1st Jan 2014 to 15th May 2014. Unless otherwise stated, trends and figures highlighted below refer to the first quarter of year 2014 and the corresponding period last year.  

Revenue developed according to the estimates. EBIT and net loss compared to last year's figures improved as a result of Turnaround program. Negotiations with Finnish bank reached a successful end.

Financial highlights in January-March 2014

  • The Group's revenue was EUR 5.5 million, down approximately 51% year-on-year (Q1/2013: EUR 10.7 million) due to the decreased manufacturing volumes in the company's factories in Europe. The revenue was according to the estimate. Incap is expecting the revenue for 2014 to be significantly smaller than in 2013 when the revenue amounted to EUR 36.8 million.
  • Despite the decrease in revenue the operating result (EBIT) was improving year-on-year (EUR -1.4 million in Q1/2013) being EUR -0.2 million as a result of activities improving cost-efficiency.
  • Net profit was also improving remarkably year-on-year (EUR -1.9 million in Q1/2013) being EUR -0.4 million.

Incap Group's key figures

Quarterly comparison
(EUR thousands)		 1-3 /
2014		 10-12/
2013		 7-9/
2013		 4-6/
2013		 1-3/
2013		 10-12/
2012		 7-9/
2012		 4-6/
2012		 1-3/
2012
Revenue 5,460 8,014 8,206 9,883 10,654 14,498 15,701 18,378 15,564
Operating profit/loss (EBIT) -191 -3,682 -331 -415 -1,432 -628 280 13 -345
Net profit/loss -374 -3,990 -1,481 -1,172 -1,885 -4,616 44 352 -711
Earnings per share, EUR -0.003 -0.06 -0.03 -0.05 -0.09 -0.23 0.00 0.02 -0.04

Key events of the period

As announced on 2 January 2014 Inission AB did not exercise its option to combine the operations of Inission AB with Incap Corporation in line with the respective agreement. As Inission later on indicated to the Board its continued interest on the merger, the Board of Directors of Incap started evaluating strategic options for further development of the company's business. The respective assessment of eventual strategic alliances is on-going.

When evaluating the efficiency of the actions in the Turnaround program, which was launched earlier in 2013, the Board of Directors noted that the main objectives of the program were met. The delivery accuracy improved significantly, the operational efficiency was enhanced both in manufacturing units and in support functions, the group organisation was streamlined to cover only essential functions and the production capacity was adjusted to meet with the actual demand. The organisation structure was renewed and the manufacturing units now operate as self-sufficient profit centres having full responsibility of their own operations and sales.

Incap reached in April a new financing agreement with its Finnish bank regarding the loan instalment plan and the covenants related to financing. The re-negotiated schedule decreased the loan instalments to a half of the previous plan during the second half of the year 2014. The financial covenants were mitigated and include only the EBITDA of the last 6 months. The targeted EBITDA level on 30 June 2014 is EUR 66,000 and on 31 December 2014 EUR 613,000. Based on the re-negotiated financing agreement Incap changed the estimate in regard to the sufficiency of working capital announcing on 10th April 2014 that the company's working capital for next 12 months is on a sufficient level.

Incap held its Annual General Meeting on Thursday 10th April 2014. The Annual General Meeting decided that no dividend will be distributed and that the loss for the financial year will be recognised in equity. The Annual General Meeting also decided to change the paragraph of Articles of Association regarding the number of the Board members so that the minimum number of the members of the Board will be three (3) and maximum seven (7). The Annual General Meeting re-elected the previous members of the Board and adopted the proposal of the Board of Directors to decrease the fees of the members of the Board of Directors.

The company continued to adjust the operations to meet with the customer demand. As announced on 9 May 2014, the personnel number in the Vaasa factory will be reduced through termination of job contracts as well as through temporary lay-offs.

Incap also launched the recruitment of a new permanent CEO in April. The recruitment process is still in progress and it is estimated to be finalised in June 2014 at the latest.

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 and the sufficiency of funding.

Based on the successful financing negotiations with the company's Finnish bank, the financial position of Incap Group has improved. The loan instalments have been postponed so that the previously estimated instalments for the second half of the year were decreased to a half. Further, the covenants were re-negotiated and include now only the EBITDA for the last 6 months. As the company is tracking plan on the revenue, profitability and working capital the company estimates that the covenants are met in the next testing date on 30 June 2014.

The Group's equity ratio on 31 March 2014 was 2,9%. The parent company's equity was EUR 10.2 million, representing 49,6% of the share capital.

Based on April 2014 reporting the parent company's equity is less than one half of the share capital.  Therefore the Board of Directors of Incap has started the actions according to the Limited Liability Companies Act: The Board of Directors will immediately start the preparation to draw up financial statements and annual report in order to ascertain the financial position of the company. If according to the balance sheet the equity of the company is less than one half of the share capital, the Board of Directors shall without delay convene a General Meeting to consider measures to remedy the financial position of the company. The extraordinary general meeting shall be held within three months of the date of the financial statements.

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 will remain challenging in 2014 as the economic growth worldwide is forecasted to be low. The company's sector, contract manufacturing, is highly competitive, and there are major pressures on cost level management. The high-class service for current customers as well as the acquisition of new customers is of high importance in reaching the targets for 2014.

Thanks to the improved efficiency gained in the Turnaround program the company's profitability is expected to improve in 2014 and the actions of the program are estimated to reflect in the result in full in the latter part of the year 2014.

The company keeps its financial guidance for 2014 unchanged: The company 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.
  

Fredrik Berghel, President and CEO of Incap Group:
"The first months of 2014 have been full of activities to improve our operations. The factory level has been focusing on daily operations and achieved good results for example in improving the delivery accuracy and productivity. Also small but very important savings in daily activities have been found. The company's top management has been focusing on improving the sufficiency of funding and the good relationships with customers and other stakeholders. There still is a lot to do but I am sure that after all the changes and improvements we are in a good position to reach our targets for this year."

Helsinki, 15th May 2014

INCAP CORPORATION
Fredrik Berghel
President & CEO

For additional information, please contact:
Fredrik Berghel, President and CEO, tel. +46 73 202 2210
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 470 people. Incap's share has been listed on the NASDAQ OMX Helsinki Ltd since 1997. Additional information: www.incap.fi.

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Source: Incap Oyj via Globenewswire
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