INCAP 1Q 2024: Questions and answers
Following the release of our Q1 report on 8 May 2024, we hosted a webcast to discuss our results. Below is a summary of the questions and answers from the webcast.
Q: How satisfied are you with the profitability in the first quarter? How do you expect the profitability to evolve in 2024 and 2025? And do you believe the profitability can be raised back to even big-year levels?
A: If profitability is in double digits, as ours, you need to be satisfied. The key is to understand that it is exceptional to have this kind of high EBIT thanks to our operating model and our flexible set-up. When it comes to exact numbers it depends a lot on the product mix but the setup itself gives us the possibility to remain at double digit level.
Q: How much did you grow excluding the largest customer and Pennatronics’ M&A in 2023?
A: Excluding the impact of the largest customer, revenue grew 38%.
Q: How would you describe your visibility to the end of 2024 and 2025?
A: Component availability has improved significantly, and we don’t have big crises like pandemics, thus the visibility has declined a bit. There is no point for our customers to have long-term forecasts.
Q: Major trends & changes, demand drivers such as outsourcing and green investments. Do you believe your growth in the coming years will probably be based on certain sectors or trends?
A: Our growth is impacted by different global megatrends and new political situations. We have earlier indicated that over 80% of our business has to do with green transition. Different environmental trends have an effect on Incap and many customers are in a sweet spot regarding these trends. We also see a clear increase in the demand for defence sector related electronics and electric vehicle related products.
Q: It seems that many other EMS companies have faced growth and profitability challenges in recent years, but Incap has consistently grown strongly and profitably except for its largest customer. What are the reasons for the positive development of your smaller customers?
A: It comes down to how we operate in the company. Business decisions are made locally, and we have dedicated teams for every customer, small or large. We don’t prioritise on a headquarters level. And that gives us three things: The perception of our customer service is highly appreciated meaning that we have managed to give good customer service, we have given responsibility to our people in different units meaning that we have very dedicated people, and we don’t have any big headquarters meaning lower overheads and better profitability.
Q: Do you expect to close any M&A during 2024? Is there some kind of dream target geography that you are looking at?
A: We have now entered the US market and that is a huge market, and I would not be surprised in the coming years if we managed to expand further. The German market is the biggest one in Europe and always in focus. In Asia, we are represented in India but there are also other interesting countries. Would say, South-East Asia, the US and Germany are some kinds of target markets. But we don’t make any deals if there is no sense. It always depends on what kind of value an M&A project creates and brings.
Q: After now about a year of experience with the US acquisition, could you share the benefits and lessons learned of this acquisition and has the acquisition met your expectations?
A: The US acquisition has met our expectations and even gone beyond. We have had a good integration with them. Values are very important; we have very similar values with them and that makes integration much easier. It’s not only numbers you need to match on a financial level, but you need to look at the softer part of an acquisition as well.
Q: You have indicated that you have seen a little price pressure on prices and margins. Has the market stabilised in this respect now?
A: I think there is still pressure in that sense. We don’t see an impact in our current numbers, and it depends on what product groups we are talking about. We don’t see any big impact but the materials are available for everybody. Many companies have moved out production from China and that gives opportunities in the short term as these companies try to defend their market positions.
Q: How confident are you in your current guidance in terms of revenue and EBIT?
A: I am very confident in the current guidance. We will see how the year develops but I would not expect it to develop negatively. We are on track, and we have grown quarter to quarter as we expected. In that sense, I have full confidence in the current guidance. If we have better visibility and better understanding, then we will update the guidance as well.
Q: What is your priority for your daily work for 2024?
A: TOP3 of Finance: 1) Acquisitions (we have a very ambitious plan for executing acquisitions and growth through organic methods). 2) Major size investments (like IT and ERP-related investments). 3) Financial management of different activities, such as improving cash flow.
TOP3 of CEO: 1) Keep on helping units and facilitating their business. 2) Continue to develop the company. 3) Helping and supporting our people.
