Incap Reports 26% Revenue Growth in 2016

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Incap Group’s revenue in 2016 increased by 26% and the operating profit grew by 19% year-on-year. The construction work of the factory expansion in India was completed on schedule. 

Key figures in January-December 2016  

• The Group’s revenue amounted to EUR 38.6 million, up 26% year-on-year (2015: EUR 30.6 million).
• The Group’s operating profit (EBIT) amounted to EUR 4.4 million, increasing by 19% year-on-year (EUR 3.7 million).
• Net profit for the financial period amounted to EUR 2.7 million, i.e. 36% higher than in 2015 (EUR 2.0 million).
• Following the share capital reduction carried out in 2016, there are limitations to distribution of dividends. The Board of Directors will propose to the Annual General Meeting that no dividend be paid.
• The company estimates that the Group’s revenue in 2017 will be higher than in 2016 and that the operating profit (EBIT) will be somewhat higher than in 2016. 

Key figures in July-December 2016 

• The revenue during the second half of the year amounted to EUR 20.8 million, showing an increase of 20% compared with the corresponding period last year (7-12/2015: EUR 17.3 million) and up 16% compared with the first half of the year (1-6/2016: EUR 17.9 million).
• Operating profit (EBIT) for the second half of the year was EUR 2.2 million, i.e. approximately at the same level than in the corresponding period last year (7-12/2015: EUR 2.2 million) and on the first half of the year (1-6/2016: EUR 2.2 million). 

The accounting principles for the financial statements

This financial statement release has been prepared in accordance with international financial reporting standards (IFRS) – IAS 34 Interim Financial Reporting standard. When preparing the release, the same principles have been used as in the 2015 financial statement. Unless otherwise stated, the comparison figures refer to the same period in the previous year. The information in this financial statement report is unaudited. 

Ville Vuori, President and CEO of Incap Group:

“Business of Incap continued its strong development in 2016 after the change of strategy and the growth leap seen in the previous year. Our operations model has now been stabilised offering a solid basis for further expansion of operations. 

During the financial period 2016 the company’s target was to gain new customers and new products to production, while at the same time securing the continued high level of operational efficiency and quality. Here we have succeeded. Our factories in Estonia and in India have developed their manufacturing capacity and enhanced their sales operation. The construction work of the factory expansion in India was completed on schedule and now we are ready to take new products into production. The increased interest of our customers augurs well for the continued good development.

Thanks to the new operations model we are able to react fast to the fluctuations in customers’ demand, which enhances our position in continuously changing market situations.

Our revenue grew by 26% year-on-year and also the profitability in terms of EBIT improved by 19%. Our equity ratio continued to improve and was close to 40% at year end. Extremely price-sensitive marketplace and the general moderate profitability levels in electronics manufacturing business are posing a challenge for keeping up the EBIT level. We continued with the strict cost management and did not lose our grip in tailwind either.

India is according to publicly available information currently the fastest growing economy in the world with over 7% annual growth. The government of India has set initiatives such as “Make in India” -program to facilitate the rise of India as a manufacturing location for example in electronics. We have a great opportunity and established position in this emerging marketplace. Further, we trust that with our lean and efficient operations model we can win projects also in highly competed European electronics market.

This been said, we aim at continued organic growth with a good rate while at the same time keeping the profitability among the highest in the peer group. Company’s business model and strengthened financial position enable considerations on expansion also by M&As.”

Business environment in 2016

The business environment of Incap Group continued challenging, because the competition in the global market for manufacturing services was fierce. Financial prospects in Europe and Asia affected the customers’ business. General cost level remained stable in countries where Incap has operations. Prices of components and raw materials showed a moderate trend.

Incap Group’s revenue and earnings in July-December 2016

Revenue for the second half of the year amounted to EUR 20.8 million, showing an increase of 20% year-on-year (7-12/2015: EUR 17.3 million) and being 16% higher than in the first half of the year (1-6/2016: EUR 17.9 million). The revenue increased from previous year both in Estonia and in India. Positive development in the factory in Estonia was strengthened towards the end of the year both by revenue and by profitability.

The operating profit (EBIT) for the second half of the year amounted to EUR 2.2 million, i.e. at the same level than in the corresponding period in 2015 (7-12/2015: EUR 2.2 million) and during the first half of the year (1-6/2016: EUR 2.2 million). The net result for the second half of the year was EUR 1.5 million, compared with EUR 1.2 million on the corresponding period last year and EUR 1.3 million in the first half of the year 2016.

Incap Group’s revenue and earnings in 2016

Revenue for the financial period amounted to EUR 38.6 million, by approx. 26% more than in 2015 (1-12/2015: EUR 30.6 million). The increase in revenue was a result of growing demand of present customers and the production for new customers. The weakening of Indian Rupee in relation to Euro decreased the revenue by EUR 1.2 million year-on-year.

The profitability of Incap Group remained at good level. The full-year operating profit (EBIT) amounted to EUR 4.4 million (EUR 3.7 million), being 11% out of revenue  which in the company’s business, Electronics Manufacturing Services, is in general terms considered to be on high level. The net result for the year 2016 was weakened by EUR 0.2 million due to the weakening of Indian Rupee in relation to Euro.

Thanks to the lean operational model of the company, the overhead costs remained low ensuring profitable operations and continued competitive edge.

Personnel expenses in the reporting period amounted to EUR 3.5 million (EUR 3.2 million). The growth was caused by increased manufacturing volumes and was clearly more moderate than the growth rate of revenue. Other business costs increased slightly year-on-year. As a result of the increasing business volume the value of inventories increased from EUR 5.2 million to EUR 6.3 at the end of the reporting period. 

Net financial expenses amounted to EUR 0.6 million (EUR 0.5 million). Depreciation amounted to a total of EUR 0.4 million (EUR 0.3 million).

Net profit for the period was EUR 2.7 million (EUR 2.0 million). Earnings per share were EUR 0.63 (EUR 0.52). 

Investments

Investments in 2016 totalled EUR 1.0 million (EUR 0.9 million) and they were mainly connected with the construction of the factory expansion in India.  

Quality assurance and environmental issues

Incap Group’s both factories have environmental management and quality assurance systems certified by Bureau Veritas. The systems are used as tools for continuous improvement. Incap is implementing the year 2015 versions of the quality standards. Incap’s environmental management system in India complies with ISO 14001:2004, and its quality assurance system complies with ISO 9001:2008. These will be updated to the 2015 versions during the year 2017. The environmental management system in the Estonian factory complies with ISO 14001:2015, and its quality assurance system complies with ISO 9001:2015. In addition, the Kuressaare factory has ISO 13485:2003 quality certification for the manufacture of medical devices, which will be updated to the 2015 version in spring 2017.

Balance sheet, financing and cash flow

The balance sheet total on 31 December 20165 stood at EUR 21.7 million (EUR 18.1 million). The Group’s equity at the close of the financial period was EUR 8.5 million (EUR 5.6 million). The parent company’s equity totalled EUR 9.8 million, representing 983% of the share capital (EUR 9.4 million, 46%). The Group’s equity ratio improved by over 8 percentage points to 39.4% (31.2%).

Reducing the share capital of the parent company and transferring funds to the unrestricted equity reserve was resolved in the Annual General Meeting on 6 April 2016, when it was resolved to reduce the share capital of the company from EUR 20,486,769.50 by EUR 19,486,769.50 to cover the losses and to transfer funds to the unrestricted equity reserve. The losses accumulated during previous financial periods were covered by decreasing the unrestricted equity reserve by EUR 16,804,218.62, the share premium account by EUR 44,316.59 and the share capital by EUR 11,118,952.29.  After covering the losses the remaining share capital was further decreased by EUR 8,367,817.21 by transferring the funds to the unrestricted equity reserve. After the reduction the new share capital of the company is EUR 1,000,000 and the unrestricted equity reserve EUR 8,367,817.21. The reduced share capital was recorded into Trade Register on 31 August 2016.

Liabilities increased slightly to EUR 13.1 million compared with previous year (EUR 12.5 million), of which EUR 8.0 million (EUR 7.9 million) were interest-bearing liabilities.

Net debt remained at the same level than in previous year, amounting to EUR 5.6 million (EUR 5.6 million). Net gearing improved and was 66% (98%).

The Group rearranged in April 2016 its interest-bearing debt with the Finnish bank. Following the arrangement the Group’s costs for debt decreased and the management was streamlined. The covenants of the new loans are among others equity ratio and the Group’s interest-bearing debt in relation to EBITDA, and their status is reviewed every six months. In the review on 31 December 2016 the target level of interest-bearing debt in relation to EBITDA was below 2.5 and the equity ratio 25%. The company met these covenants and the actual figure interest-bearing debt/EBITDA on the review date was 1.7 and the equity ratio 39.4%.

The Group’s non-current interest-bearing liabilities amounted to EUR 3.8 million (EUR 4.6 million) while the current interest-bearing liabilities were EUR 4.2 million (EUR 3.3 million). Out of the interest-bearing liabilities EUR 2.4 million are related to the Indian subsidiary (EUR 2.7 million). Other liabilities include EUR 3.4 million of bank loans and limits granted by the company’s Finnish bank and EUR 2.2 million of factoring financing used in Estonia.

As to the loans granted by the Indian bank the company has committed to follow ordinary covenants and the bank’s general loan conditions.  

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