Incap 1H 2024: questions and answers
In connection with our half-year report on 26 July, we organised a webcast on our results. This is a summary of the questions and answers in the webcast.
Q: How big an impact did the largest customer have on Q2 revenue and what will be the impact in Q3?
Antti: The volumes have started to pick up slowly during Q2. In 2023 the figures were really high during Q2 but decreased during Q4 and Q1 this year (compared to Q2 2023). Now the volumes of the biggest customer have turned back to growth track. We expect the growth to continue. We analyse our biggest customer very closely and those data points that we collected demonstrate, that the second half of this year will exceed the first half.
Q: What was the organic growth in Q2 and can you open up a little bit your organic growth?
Antti: The impact of the Pennatronics acquisition was EUR 9 million, if we exclude this and compare it to the second quarter a year ago, volumes decreased. If we take into account the impact of the turnover from the largest customer and the acquisition, we were close in those numbers. Revenue from the other customers increased.
Otto: To accelerate organic growth, we have developed our activities with other existing and new customers. According to our DNA, we always serve both existing and new customers so well that our customer base grows. Keeping existing customers is usually an easier way to grow than getting new ones because it takes time to get new ones.
Q: Are there differences in organic growth between units?
Otto: The differences are not big. Units themselves are different. UK and US are more focused on low-volume prototype factoring and quick service. Estonia has bigger volumes and India is our mass production site. All the units are growing organically and attracting new customers.
Q: What is the current utilization rate in India, and do you have capacity there for other than the biggest customer?
Otto: We still have capacity in the India factory. We have started using the new factory, but there is still capacity. We have done that investment future in our mind. We always try to keep some capacity available to offer to our existing and new customers.
Q: What is the M&A firepower you can use for possible acquisition, and do you have a target ROI percentage for acquisitions?
Otto: We are looking at a lot of different factors in acquisitions. We are not interested in any turnaround cases, so we want to acquire solid and well-performing businesses. The culture of the company is very important to us. We look at units, that can run themselves and qualified people, who can take responsibility and make decisions. An innovative culture and human factors are actually more important than fluctuations of a few percent in key figures.
Q: Do you have plans to expand into fast-growing markets in the Middle East, such as Saudi Arabia or the Emirates? Could you elaborate more on geographic expansion?
Otto: The US remains in our focus. We are now well established in that market, but it is a large market and still has potential. The same is situation for the Indian market. There is still a lot of potential there. The Middle East, as well as Africa, are interesting markets and we will not exclude them if interesting opportunities arise. But our focus remains on Europe, the US and Asia Pacific.
Q: How do you actually assess the company’s culture and fit in an acquisition?
Otto: A huge part of the evaluation process is visiting the company and meeting the management and the key persons. We assess the compatibility with Incap’s culture at an early stage, as there is no point in continuing negotiations if the cultures do not match.
Q: The renewable industry has been in trouble for some time. Is the end market of your biggest customer growing?
Otto: Our biggest customer is active in many different markets. I am quite sure that their market is growing, and positive development continues. Our customer overestimated the speed of development, which led to too high a level of inventories and reduced stock, but they are already back on track for growth.
Q: Do you still see significant growth in headcount in India during the rest of the year?
Otto: We increase or decrease our headcount as needed. A change of a few hundred people in the workforce is normal. We have increased our headcount already in India and, according to the order book, there is no reason for significant increases at present.
Q: What explains your relatively strong growth compared to other EMS companies?
Otto: I believe it is based on our service offering and the way we deliver our services. The right size of an organisation gives us a big advantage. In addition, each of our clients has a dedicated team to take care of the client. Our understanding of our customers’ needs is generally good. The other factor is that our employees are motivated by the responsibility they are given and the opportunity to develop their skills. We have a very loyal workforce and many long-term contracts. The third thing is not carrying too much overhead. We do things more efficiently and do not spend money on administration or things that don’t add value.
Q: Your guide now for higher revenue. Can you quantify, what a higher revenue growth range now implies?
Antti: Higher means up to 20 percent growth.
Q: You mentioned that profitability will improve with higher volumes in the second half. Does this mean that the EBIT margin will improve?
Otto: There are several factors here. In principle higher volumes mean that we can allocate our fixed costs on more volume and that means higher EBIT margin. But our profitability also depends on our product mix.
Q: Can you open up a little bit of new customer acquisition, increasing sales to existing customers and gross-selling opportunities?
Otto: After the acquisition in the USA, many of our customers see us as a global player. This creates opportunities for us both in the US unit and other units. We have customers who are interested in using more of our units in the future.
