Inscape Announces Second Quarter Results

Inscape (TSX:INQ) today announced financial results for its second quarter ended October 31, 2012.

The second quarter of fiscal 2013 ended with a modest profit, compared with a net loss of $0.2 million or 2 cents per share in the same quarter of last year. Despite a 16.7% drop in the sales comparing to the same quarter of last year, the current quarter benefited from favourable product mix, lower commodity prices and continued improvement in production efficiencies.

On a year-to-date basis, the six-month period ended October 31, 2012 had a net income of $0.1 million or 1 cent per share, compared to a net loss of $1.9 million or 13 cents per share a year earlier. Year-to-date sales were 4.6% lower than the same period of last year. The significant increase in net income despite a lower sales volume is attributable to the higher gross profit and lower selling, general and administrative expenses ("SG&A") as discussed below.

"Our profitability situation has improved over last year," said Rod Turgeon, President and Chief Executive Officer. "While we are disappointed with our revenue performance for the quarter, improved manufacturing performance and expense management, as well as a strong product mix have contributed to the bottom line."

The decrease in sales was mainly caused by a drop in project volume during the quarter. The adverse impact of lower volume was partially abated by higher realized selling prices.

Gross margin percentage in the second quarter of fiscal year 2013 increased 2.9 points from last year's 25.9% to the current quarter's 28.8%. Year-to-date gross profit was higher than last year by $1.9 million. Gross margin percentage increased 5.9 points from 21.2% to 27.1%. The higher gross margin percentages were attributable to favourable product mix, lower commodity prices, more efficient production processes and higher realized net selling prices. The gains were partially reduced by unfavourable overhead absorption due to lower volume.

"We have several new products in our pipeline that will enhance our market reach and expect our sales and marketing initiatives to help improve our topline performance in future quarters," said Mr. Turgeon. "We are building a strong team and have made progress on improving our operational performance. We remain committed to investing in our growth and are optimistic about our future."

SG&A in the second quarter of fiscal year 2013 were $5.1 million or 28.1% of sales, compared to $5.9 million or 27.2% of sales in the same quarter of last year. The decrease of $0.8 million in the quarter's SG&A consisted of $0.3 million variable selling expenses and $0.5 million of lower administrative and discretionary expenditures. The lower variable selling expense was due to lower sales volume and a higher proportion of corporate projects. The drop in overheads included a $0.26 million charge in last year for the settlement of a wound-up defined benefit pension plan and reduced discretionary expenses.

Year-to-date SG&A of $10.4 million were $26.4% of sales, compared to $11.6 million or 28.2% of sales in the previous fiscal. The total expense was lower by $1.3 million consisting of $0.4 million variable selling expenses and $0.9 million overheads. In addition to the above-mentioned expense items, share-based compensation during the six-month period was $0.2 million lower than the same period of last year.

With the Company's commitment to investing in selling capability, it is expected that SG&A for the remaining part of this fiscal year will be higher than the run-rate for the first six-month period.

At the end of the second quarter of fiscal year 2013, the Company was debt-free with cash and cash equivalents at $8.0 million and liquid short-term investments at $10.2 million.

Inscape Corporation
Summary of Interim Consolidated Financial Results
(Unaudited) (in thousands except EPS)
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