Incap Corporation’s President and CEO Otto Pukk
Incap’s first half 2023 was relatively strong. However, at the same time, our largest customer announced that it would have to temporarily reduce its orders due to overstocking. Our focus has been on new customer acquisition, increasing sales to existing ones and opening up new opportunities through an acquisition in the USA.
At the beginning of July, we announced an acquisition, which opens new opportunities for us and our customers and creates a foothold for further expansion in the United States. The acquired company Pennatronics is an experienced and profitable contract manufacturer of electronics and has created long-term customer relationships in its business in several different industries. Pennatronics has six customers with a revenue of more than one million euros, while the corresponding figure for Incap was 22 in the year 2022. With the acquisition, Incap’s customer base will thus expand and diversify.
As demand grows, we have continued to invest in our factories at the beginning of the year. Apart from our largest customer, most of our customers have continued to increase their orders. We have started production in our sustainably designed third Indian factory, and as we have stated before, we expect to reach full utilisation a bit later than initially planned. In Estonia, we upgraded two existing production lines and commissioned a new production line, which increased the factory’s total SMT production capacity by more than 50 per cent. In Slovakia, we completed the investment to increase the factory’s production capacity in box build production and started also recruiting additional personnel to support expected growth.
In April, we announced that our largest customer had to postpone some of our orders until 2024 because their inventory levels became too high. For this reason, we have to adjust our production volume at Indian factories during the year and lower our estimate of business development for the current year. However, we see that our client’s financial situation is strong, and their business outlook remains good. The effects of our customer’s inventory reductions were only partially visible in the second quarter result, and most of the impacts this year will be visible in the second half.
Our net sales decreased by 7.8 per cent in the second quarter and our profitability remained good thanks to our flexible operating model. Excluding acquisitionrelated and other non-recurring items, our profitability was 14.7 per cent. We also focused on cutting costs and reduced the temporary workforce at our factories in India. A big thank you goes to our personnel for their flexibility and hard work in a challenging situation.
I am very happy to welcome Pennatronics’ team of 102 professionals to Incap and to appoint David Spehar, long-time Head of operations at Pennatronics, to lead Incap’s US business. In accordance with our operating model, Incap Electronics US will continue its operations within the Group as a very independent unit under the Incap brand. I am convinced that together with our team in the USA, we can create added value for our customers and owners. The acquisition opens up new opportunities to find synergies in our operations and expand in line with our growth strategy.
Our focus on responsible business operations has received recognition in both Estonia and India. In India, we were honoured with two gold awards in the HSE Excellence and Sustainability Awards. The recognition highlights Incap India’s commitment to sustainable practices in the manufacturing industry, and its focus on implementing best practices in health, safety, and the environment. This year, the Responsible Business Forum in Estonia awarded a golden label to Incap in recognition of the organisation’s social, economic, and environmental responsibility. As a result of the acquisition, we have already started to align our activities in the USA with Incap’s sustainability programme, including Code of Conduct training.
The acquisition of Pennatronics is estimated to have a positive impact on Incap Corporation’s net sales and a slightly positive impact on profitability. We continue to estimate that our revenue and operating profit in 2023 will be lower than in 2022. In the long term, EMS business outlook remains positive, and we continue to focus on sales efforts and pursue M&A activities. I am also convinced that with our highly decentralised operating model and committed team, we can maintain a good level of profitability in the future.