Incap Posts Strong Revenue Growth for H1 2018

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General risks related to the company's business operations and sector include the development of customer demand, price competition in contract manufacturing, successful acquisition of new customers, availability and price development of raw material and components, sufficiency of funding, liquidity and exchange rate fluctuations.

The company's financial position is good and the sufficiency of financing and working capital are posing no risk.

In the definition of internal transactions, the actual value added and the so-called "arm's length" principle are considered. After the cumulative losses in India were covered during the latter half of 2015, it is possible to repatriate profits of the Indian subsidiary also through distribution of dividends.

The value of the shares in subsidiaries in the parent group has a significant impact on the parent company's equity and therefore on, for example, equity ratio. Based on the value calculations in connection with the financial statements for 2017 there is no need to decrease the value of the shares in subsidiaries. However, the company estimates that there is a risk connected with the valuation of the shares of the Estonian subsidiary because of the previous unprofitable operations of the subsidiary. There is no similar risk connected with the valuation of the business of the subsidiary in India.

Demand for Incap's services and the company's financial position are affected by global economic trends and the fluctuation among customer industries. The risks connected with the demand and liquidity of customers are followed and estimated by customer. The management considers the customer relationship management to be of special importance and is putting an extra effort into it.

The company's sales are spread over several customer sectors balancing out the impact of the economic fluctuation in different industrial sectors. In January-June 2018, 85% of the total revenue of the Group came from four biggest customers.

The company's operating segment, electronics manufacturing services, is highly competitive and there are major pressures on cost level management. The company has succeeded in increasing the efficiency of its operations and in lowering the costs remarkably. Furthermore, the company's production is located in countries with competitive levels of wage and general costs.

The most significant exchange rate risk of the company is related to the Indian subsidiary. A remarkable part of the Group's operations is located in India. The fluctuation in the exchange rates between Indian Rupee and Euro may have a remarkable effect on revenue and result.

The Indian subsidiary of the company had a tax audit in 2016 and based on that the tax authorities do not approve the depreciations made on the capitalized customer contracts during accounting periods 2008/2009-2012/2013 and the transfer costs during the accounting period 2011/2012. The estimated tax effect with eventual interests is amounting to a maximum of EUR 0.4 million. The complaint raised by the company is still in the process of tax authorities. The tax debt is presented in the off-balance sheet liabilities in the balance sheet.

Strategy and Targets

Incap's good profitability trend has enabled the strong operations development, which ensures the stable organic growth. The efficient operational model of the company embraces fast decision-making and high operational flexibility. In 2018 the company is targeting at growing the volume of business further and at exploring opportunities for the expansion of operations also by mergers and acquisitions.

Outlook for 2018

Incap's estimates for future business development are based both on its customers' forecasts and on the company's own assessments.

The company updates its previous guidance and estimates that the Group's revenue and operating profit (EBIT) in 2018 will be higher than in 2017, provided that there are no major changes in exchange rates or in material availability. The company estimated previously that the revenue and operating profit would be at the same level or somewhat higher than in 2017. The Group's revenue in 2017 was EUR 48.5 million and the operating profit (EBIT) EUR 4.5 million.

About Incap Corporation

Incap Corporation is an international contract manufacturer. 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, and the company currently employs approximately 670 people. Incap's share is listed on the Nasdaq Helsinki Ltd. as from 1997. For more information, click here.

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