Incap Group Interim report January-March 2010: profitability was burdened by structural change
Incap Corporation Stock Exchange Release 5 May 2010 at 8:30 a.m.
INCAP GROUP INTERIM REPORT JANUARY-MARCH 2010: PROFITABILITY WAS BURDENED BY STRUCTURAL CHANGE
- Incap decided to close down operations in Vuokatti factory and to centralise company's European electronics manufacturing in Estonia - in order to get out of overlapping and to increase efficiency of operations
- Revenue in the first quarter stood at EUR 13.4 million, or 27% lower than during the comparable period in the previous year (1-3/2009: EUR 18.5 million)
- Operating profit (EBIT) was EUR -1.7 million (EUR -0.5 million)
- Planned cost savings from structural change did not reflect in full in the result of the period
- Earnings per share were EUR -0.16 (EUR -0.08)
- Directed share issue carried out after the review period was subscribed in full
This unaudited interim report has been prepared in accordance with international financial reporting standards (IFRS). Unless otherwise stated, the comparison figures refer to the same period the previous year.
Sami Mykkänen, the President and CEO of Incap Group: "The market situation continued to be difficult, with the first months of the year being more quiet than usual for a number of customers. Demand for both electric power and well-being products remained at a low level."
"Our primary objective is to improve profitability. The centralisation of electronics production at the Kuressaari plant is making good progress towards our goal of completing the production transfer in the autumn. The structural change is aimed at achieving significant cost savings which start realising towards the end of the year."
"We have seen positive indications that the number of quotations is increasing with intensive negotiations over the manufacture of new products and the new customer relationships. We can increase our manufacturing capacity quickly according to demand with no need for further investments. I trust that, as the market situation improves, our business volumes will increase while the negotiations held over the manufacture of new products will result in concrete orders."
Revenue and net profit during January-March 2010
Revenue in the first quarter stood at EUR 13.4 million, or 27% lower than during the comparable period in 2009 (1-3/2009: EUR 18.5 million).
The operating profit was EUR -1.7 million (EUR -0.5 million), comprising -12% of the revenue (-3%).
| Quarterly comparison |
| Net profit/loss ||-1,899||-3,926||-810||-1,035||-949|
|Earnings per share, EUR|| |
The slow recovery of the general market situation was not yet reflected in the total demand for Incap services. The order volumes of some of the largest customers in well-being products were clearly lower than in the previous year. The demand from customers in the energy efficiency industry was lower than normal in Europe. The revenue of the Indian unit was clearly higher than in the corresponding period last year, as expected.
Decrease in revenue had the most impact on profitability. Cost structure could not be adapted according to decreased revenue in the same time scale, because the product transfers required partial overlapping in the operations of electronics factories in Vuokatti and Kuressaare.
The availability of specific components and materials declined in the global market, causing additional challenges for the procurement organisation and creating pressure for an increase in component prices.
Operations were adjusted through temporary lay-offs in all of the company's functions. Accordingly, personnel expenses over the review period were about EUR 0.2 million lower than during the corresponding period last year. We continued our savings measures and reduced other operating expenses by EUR 0.1 million.
Inventories stood 11% lower compared to the previous year and amounted to EUR 13.1 million (EUR 14.7 million). Compared with the end of the year 2009, the amount of inventories increased by EUR 1.7 million (31 December 2009: EUR 11.4 million), which was mainly caused by the electronics manufacturing reserve stocks established for product transfers.
The change in the production structure proceeded according to the company's strategy. Cooperation negotiations at the Vuokatti plant were completed in March as it was decided that the company's European electronics production will be centralised to the Estonian plant during 2010. Centralised production will improve operational efficiency and is aimed at achieving cost savings of EUR 3 million in 2011, compared with 2009. After closing the Vuokatti plant, Incap's Finnish functions cover mechanics manufacturing and product assembly operations in Helsinki and Vaasa.
Net financing costs dropped to EUR 0.2 million (EUR 0.4 million) because the Indian rupee strengthened during the review period. Depreciation stood at EUR 0.7 million (EUR 0.7 million) Losses before tax amounted to EUR 1.9 million (EUR 0.9 million). The loss for the period was EUR 1.9 million (0.9 million).
Return on investment was -22% (-5%) and return on equity was -138% (-30%). Earnings per share were EUR -0.16 (EUR -0.08).
The balance sheet total fell by EUR 4.0 million to EUR 40.8 million. The Group's equity at the close of the period under review was EUR 4.5 million (EUR 6.4 million at the end of 2009, and EUR 12.3 million on 31 March 2009). Liabilities stood at EUR 36.3 million (EUR 33.3 million at the end of 2009, and EUR 32.6 million on 31 March 2009), of which EUR 22.1 million comprised interest-bearing liabilities (EUR 21.3 million at the end of 2009, and EUR 19.9 million on 31 March 2009). Of liabilities, current liabilities took up EUR 25.5 million (EUR 22.2 million at the end of the year, and EUR 20.8 million on 31 March 2009). The parent company's equity decreased to EUR 11.1 million, comprising 54% of the share capital. The directed share issue carried out after the review period, i.e. a total of 2,000,000 new shares, was subscribed in full.
The Group's equity ratio was 11.1% (27.4% on 31 March 2009). Interest-bearing net liabilities totalled EUR 21.7 million (EUR 18.6 million) and the gearing ratio was 477% (151%).
Financing and cash flow
The Group's quick ratio was 0.5 (0.6) and the current ratio 1.0 (1.3). Cash flow from operations was EUR -0.3 million (EUR 0.8 million) and the change in cash and cash equivalents showed a decrease of EUR 0.1 million (an increase of EUR 0.8 million).
Investment cash flow amounted to EUR 0.05 million (EUR 0.2 million).
At the end of the review period, Incap Group employed 774 people. The average number of personnel was 734 (728). Compared with the end of 2009, the number of personnel was reduced by nine employees. At the end of the review period, approximately 39% of the personnel worked in Finland, 23% in Estonia and 38% in India.
The 2009 option programme
The criteria set for the option programme directed at the President and CEO, and the other management team in 2009 were not met in 2009 with regard to operating profit and working capital. In March 2010, the Board of Directors adjusted the option programme's distribution principles, emphasising the fulfilment of each personal objective, and decided to distribute 25,000 B-options to the President and CEO, and a total of 100,000 C-options to the management team members.
The 2004 option programme
The subscription period of option rights 2004B expired after the review period on 30 April 2010. Option rights were not used for subscriptions, because the target share price was not realised according to the terms.
Annual General Meeting
Incap Corporation's Annual General Meeting was held in Helsinki on 13 April 2010, after the review period. The Annual General Meeting confirmed the consolidated financial statements over the financial period ended on 31 December 2009. Following the Board of Directors' decision, the Annual General Meeting decided that no dividend would be paid and the loss for the accounting period (EUR 3,825,364.89) be left in equity.
The AGM discharged the Board members and the President and CEO from liability. Kari Häyrinen, Kalevi Laurila, Susanna Miekk-oja and Lassi Noponen were re-elected as Board members, and Raimo Helasmäki was elected as a new member. In the new Board's organisation meeting, Kalevi Laurila was elected as Chairman and Susanna Miekk-oja as Deputy Chairman.
Ernst & Young Oy, Authorised Public Accountants, was selected again as the company's auditor after a competitive bidding.
The Annual General Meeting amended the Articles of Association in accordance with the Corporate Governance code so that the notice of a meeting is to be sent no later than 21 days before the AGM date, instead of 17 days before the AGM date as prescribed in the current Articles of Association.
The Annual General Meeting authorised the Board to decide upon an increase in share capital by one or more new issues within one year from the Annual General Meeting so that the aggregate number of shares subscribed on the basis of the authorisation will be no more than 1,500,000 shares.
Directed share issue
The Annual General Meeting held after the financial period on 13 April 2010 decided, according to the Board of Directors' proposal, upon increasing the share capital through a directed share issue where a maximum of 2,000,000 new shares were, deviating from the pre-emptive right of the current shareholders, offered to the company's Board of Directors, President and CEO, management team members, and those of the current shareholders who, at the beginning of the offering on 13 April 2010, held at least 100,000 shares in the company.
The subscription price of the shares subscribed in the offering was EUR 0.64 which was the volume-weighted average price of the company's share on the Helsinki Stock Exchange in March 2010.
The Board of Directors approved the subscriptions in its meeting held after the review period on 3 May 2010. The Board of Directors, President and CEO and management team members subscribed a total of 9.4% of new shares. Seven of the biggest shareholders subscribed a total of 1,812,200 new shares. As a result, all of the shares offered, i.e. a total of 2,000,000 shares, were subscribed. The new shares comprise 16.4% of the company's all shares prior to the share issue.
Shares and shareholders
Incap Corporation has one series of shares and the number of shares is 12,180,880. During the review period, the share price varied between EUR 0.60 and EUR 0.75 (EUR 0.43 and 0.68). The closing price for the period was EUR 0.67 (EUR 0.47). During the review period, the trading volume was 15% of outstanding shares (3%).
At the end of the review period, the company had 1,158 shareholders (1,018). Foreign or nominee-registered owners held 0.9% (3.1%) of all shares. The company's market capitalisation on 31 March 2010 was EUR 8.0 million (EUR 5.7 million). The company does not own any treasury shares.
Short-term risks and factors of uncertainty concerning operations
The risks and factors of uncertainty relating to Incap's operations are described in more detail in the report by the Board of Directors dated 23 February 2010. No significant changes have taken place with regard to these factors during the review period.
The most significant short-term risks are connected with the volume of business, financial arrangements and the costs of materials.
The development of customer-specific revenue is the most significant factor affecting the company's result. The successful acquisition of new customers also plays an important part in the future earnings development.
In contract manufacturing, the management of material costs has a great impact on competitiveness. As a result, the availability of materials and changes in market prices have an influence on Incap's delivery capacity and costs.
The company's financing is influenced by the trends in the general financial market and the company's future earnings development. The company's financial capacity is ensured by efficient working capital management while different financing options are being investigated to secure financing.
The parent company's equity decreased to EUR 11.1 million over the review period, comprising 54% of share capital. The directed share issue carried out after the review period was subscribed in full, strengthening the company's financial position.
Outlook for the rest of 2010
Incap's estimates on future business development are based on its customers' forecasts and the company's own assessments. The operating environment is estimated to remain challenging in 2010. Even though there are signs of recovery on the market, the general financial situation is estimated to remain uncertain in the near future.
By the end of 2010, the company has implemented most of the strategic restructuring, which was initiated in autumn 2008 and creates a basis for profitable international business operations.
Incap will repeat its previous guidance according to which the company estimates that its revenue in 2010 will increase from EUR 70 million in 2009. The Group's full-year operating profit (EBIT) in 2010 is expected to be clearly higher than in 2009 (EUR -5.0 million).
Board of Directors
For additional information, please contact
Sami Mykkänen, President and CEO, tel. +358 40 559 9047
Eeva Vaajoensuu, Chief Financial Officer, tel. +358 40 763 6570
Hannele Pöllä, Director of Communications and Human Resources, tel. +358 40 504 8296
NASDAQ OMX Helsinki Oy
The company's website: www.incap.fi
Incap will arrange a conference for the press and financial analysts on 5 May 2010 at 10:00 a.m. at the World Trade Center Helsinki, in Meeting Room 4 on the 2nd floor at Aleksanterinkatu 17, FI-00100 Helsinki.
1 Consolidated Income Statement
2 Consolidated Balance Sheet
3 Consolidated Cash Flow Statement
4 Consolidated Statement of Changes in Equity
5 Group Key Figures and Contingent Liabilities
6 Quarterly Key Figures
INCAP IN BRIEF
Incap Corporation is an internationally operating contract manufacturer whose comprehensive services cover the entire lifecycle of electromechanical products from design and manufacture to maintenance services. Incap's customers are leading equipment suppliers in energy-efficiency and well-being technology, for which the company produces competitiveness as a strategic partner. Incap has operations in Finland, Estonia and India. The Group's revenue in 2009 amounted to around EUR 70 million, and the company currently employs approximately 780 people. Incap's shares are listed on the NASDAQ OMX Helsinki Oy. For additional information, please contact www.incap.fi.
|CONSOLIDATED INCOME STATEMENT (IFRS)|
|(EUR thousands, unaudited)||1-3/2010||1-3/2009||Change %||1-12/2009|
|Work performed by the enterprise and capitalised|
|Change in inventories of finished goods and|
|work in progress||629||-26||-2,475||-1,499|
|Other operating income||56||55||2||342|
|Raw materials and consumables used||9,581||12,506||-23||45,654|
|Depreciation and amortisation||722||700||3||2,869|
|Other operating expenses||1,857||1,988||-7||8,924|
|OPERATING PROFIT/LOSS||-1,670||-518||222||- 4,970|
|Financing income and expenses||-229||-429||-47||-1,780|
|PROFIT/LOSS BEFORE TAX||-1,899||-947||100||-6,750|
|Income tax expense||0||-2||-100||29|
|PROFIT/LOSS FOR THE PERIOD||-1,899||-949||100||-6,721|
|Earnings per share||-0.16||-0.08||100||-0.55|
|Options have no dilutive effect|
|in accounting periods 2009 and 2010|
|OTHER COMPREHENSIVE INCOME||1-3/2010||1-3/2009||Change %||1-12/2009|
|PROFIT/LOSS FOR THE PERIOD||-1,899||-947||100||-6,721|
|OTHER COMPREHENSIVE INCOME:|
|Translation differences from foreign units||-7||35||-119||19|
|Other comprehensive income, net||-7||35||-119||19|
|TOTAL COMPREHENSIVE INCOME||-1,906||-914||108||-6,702|
|Shareholders of the parent company||-1,906||-914||108||-6,702|
|CONSOLIDATED BALANCE SHEET (IFRS)|
|(EUR thousands, unaudited)||31 Mar. 2010||31 Mar. 2009||Change %||31 Dec. 2009|
|NON-CURRENT ASSETS|| |
|Property, plant and equipment||9,690||10,759||-10||10,247|
|Other intangible assets||960||1,253||-23||1,008|
|Other financial assets||14||15||-6||14|
|Deferred tax assets||4,203||4,153||1||4,156|
|TOTAL NON-CURRENT ASSETS||15,900||17,155||-7||16,402|
|Trade and other receivables||11,444||11,585||-1||11,261|
|Cash and cash equivalents||415||1,388||-70||661|
|TOTAL CURRENT ASSETS||24,943||27,713||-10||23,303|
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT|
|Share premium account||44||44||0||44|
|Deferred tax liabilities||70||99||-29||70|
|Interest-bearing loans and borrowings||10,777||11,649||-7||10,999|
|Trade and other payables||14,137||12,544||13||11,925|
|Current interest-bearing loans and borrowings||11,316||8,293||36||10,269|
|TOTAL EQUITY AND LIABILITIES||40,842||44,868||-9||39,706|
|CONSOLIDATED CASH FLOW STATEMENT||1-3/2010|| |
|(EUR thousands, unaudited)|
|Cash flow from operating activities|
|Adjustments to operating profit||728||713||4,342|
|Change in working capital||883||1,034||2,929|
|Cash flow from operating activities||-297||832||529|
|Cash flow from investing activities|
|Capital expenditure on tangible and|
|Proceeds from sale of tangible|
|and intangible assets||0||120||17|
|Acquisition of subsidiary||0||0||0|
|Shares of subsidiaries sold||0||0|
|Repayments of loan receivables||1||1||2|
|Cash flow from investing activities||-51||-175||-1,054|
|Cash flow from financing activities|
|Drawdown of loans||965||1,940||5,683|
|Repayments of borrowings||-450||-1,558||-3,868|
|Repayments of obligations under finance leases||-258||-252||-1,255|
|Cash flow from financing activities||257||130||560|
|Change in cash and cash equivalents||-91||787||35|
|Cash and cash equivalents at beginning of period||661||641||641|
|Effect of changes in exchange rates||-142||-41||-17|
|Changes in fair value (cash and cash equivalents)||-13||0||2|
|Cash and cash equivalents at end of period||415||1,388||661|
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (IFRS) |
(EUR thousands, unaudited)
|Share capital||Share premium account||Exchange differences||earnings||Total|
|Equity on 1 Jan. 2009||20,487||44||-478||- 6,864||13,189|
|Change in exchange differences||35||35|
|Options and share-based compensation||7||7|
|Net income and losses recognised||35||7||42|
|directly in equity|
|Total income and losses||35||-943||-907|
|Equity on 31 Mar. 2009||20,487||44||-442||-7,806||12,283|
|Equity on 1 Jan. 2010||20,487||44||-459||-13,629||6,443|
|Change in exchange differences||-7||-7|
|Options and share-based compensation||5||5|
|Net income and losses recognised|
|directly in equity||-7||5||-2|
|Profit or loss for the period||-1,899||-1,899|
|Total income and losses||-7||-1,895||-1,901|
|Equity on 31 Mar. 2010||20,487||44||-466||-15,523||4,542|
|GROUP KEY FIGURES AND CONTINGENT LIABILITIES (IFRS)||31 Mar. 2010|| |
31 Mar. 2009
|31 Dec. 2009|
|Revenue, EUR million||13.4||18.5||69.8|
|Operating profit, EUR million||-1.7||-0.5||-5.0|
|% of revenue||-12.4||-2.8||-7.1|
|Profit before taxes, EUR million||-1.9||-0.9||-6.7|
|% of revenue||-14.1||-5.1||-9.7|
|Return on investment (ROI), %||-21.5||-4.9||-15.9|
|Return on equity (ROE), %||-138.3||-29.8||-68.5|
|Equity ratio, %||11.1||27.4||16.2|
|Net debt, EUR millions||24.4||19.6||21.3|
|Net interest-bearing debt, EUR millions||21.7||18.6||20.6|
|Average number of shares during the report|
|period, adjusted for share issues||12,180,880||12,180,880||12,180,880|
|Earnings per share (EPS), euro||-0.16||-0.08||-0.55|
|Equity per share, euro||0.37||1.01||0.53|
|Investments, EUR million||0.1||0.1||1.1|
|% of revenue||0.4||0.6||1.5|
|Average number of employees||734||728||751|
|CONTINGENT LIABILITIES, EUR millions|
|FOR OWN LIABILITIES|
|Nominal value of currency options EUR thousands||455.5||842.4||0|
|Fair values of currency options, EUR thousands||-4.1||-0.2||0|
| QUARTERLY KEY FIGURES (IFRS)|
|Revenue, EUR million||13.4||17.7||16.6||16.9||18.5|
|Operating profit, EUR million||-1.7||-3.7||-0.3||-0.5||-0.5|
|% of revenue||-12.4||-20.7||-1.9||-2.8||-2.8|
|Profit before taxes, EUR million||-1.9||-4||-0.8||-1.0||-0.9|
|% of revenue||-14.1||-22.3||-4.9||-6.1||-5.1|
|Return on investment (ROI), %||-21.5||-47.3||-4||-2.1||-4.9|
|Return on equity (ROE), %||-138.3||-160||-27.5||-33.9||-29.8|
|Equity ratio, %||11.1||16.2||24.6||26.4||27.4|
|Net debt, EUR millions||24.4||21.3||20.6||19.7||19.6|
|Net interest-bearing debt, EUR millions||21.7||20.6||18.1||18.6||18.6|
|Average number of share issue-adjusted shares during the financial period||12,180,880||12,180,880||12,180,880||12,180,880||12,180,880|
|Earnings per share (EPS), euro||-0.16||-0.32||-0.07||-0.08||-0.08|
|Equity per share, euro||0.37||0.53||0.86||0.92||1.01|
|Investments, EUR million||0.1||0.1||0.4||0.5||0.1|
|% of revenue||0.4||0.6||2.2||2.9||0.6|
|Average number of employees||734||776||770||732||728|