Incap 1Q 2025: Questions and answers
Incap 1Q 2025 webcast on 25 April 2025 at 11:00 a.m.
Q: What was the main reason for the slow start of the year? Was the impact based solely on tariffs, and does it impact all units or especially European units?
A: In the European units, the start was a bit slower, but I would still say that the impact is global. Currently, there is a lot of uncertainty in the air due to the US administration and tariffs. The political negotiations are ongoing, and the tariffs are in place, and everybody in the market is waiting to see how things will settle after that. I don’t think the tariffs will impact only the European units.
There is a lot of hesitation because there are no clear rules on the market at the moment, which is affecting Incap’s business as well. Both Incap and our customers have operations in and exports to the US, and therefore, the situation will affect us both directly and indirectly. Companies are now considering what is the optimal geographical location for manufacturing regarding their customers, as they are also optimising. We also need to keep in mind that many of the components still come from China, so the tariffs will affect the product export to the US regardless of the manufacturing location.
However, the situation is not unique for Incap but affects other parties in the market as well. We will have to wait and see what eventually comes to law after the negotiations. We believe that this situation won’t last forever, and there will be more clarity on the market towards the end of the second half of the year.
Q: The growth, excluding the share of Incap’s largest customer, wasn’t provided in the Q1 report. Is it possible to share that number?
A: The number was not publicly disclosed in the Q1 report. But overall, there is not a large difference to what it was on the annual level in 2024.
Q: What are your assumptions for the situation improving in the second half of the year? Is that regardless of the tariff situation or assuming cancellations of existing tariffs?
A: The estimate is made based on Incap’s forecast and the input received from Incap’s customers. There is some hesitation in the market related to, for example US market and supply chains, but I think when things settle down, then we will see more normal development. After all, there is a demand despite the hesitation. We believe that once the situation has settled, we will see an increase in the market and a stronger second half of the year.
Q: You mentioned the three factories in India as one of your opportunities, and maybe that also relates to the tariff situation now. Are there further opportunities for India and the US due to this?
A: Having factories in India gives us a great opportunity since the market itself is growing. India is the world’s biggest democracy, which sets it apart from many other countries in Asia. Therefore, I think there is a difference in having manufacturing in India compared to many other Asian countries.
Also, looking at the tariffs, India is also negotiating with the US administration about much lower levels compared to China, and therefore, I think there is a chance for a better deal than in some other markets.
Of course, having manufacturing inside the US in a situation like this is a good thing. It gives us possibilities in our US unit as well as in other units, because the customers are looking at different routes and supply chains to satisfy their needs.
Incap is in a good situation with our distributed locations. We have manufacturing in Europe, both outside and inside the European Union, as well as in the US and India, which gives our customers different possibilities.
Due to the uncertainties in the market, some of our customers are, at the moment, selling directly from their warehouses, and stock levels are getting low. There could be a cyclical bounce back coming at some stage.
Q: Order intake is a number that you don’t publish, but can you comment somehow on the order intake in the first quarter?
A: The order intake supports our view that we will have a stronger second half of the year, and we have no reason to change our steering, and we keep our positive view of the future.
Q: How would you comment on the visibility in the market?
A: The visibility is similar to what we had last year. After the component crisis, the visibility window shrunk a little bit, as expected. The industry agrees that the days are over for very long visibility of 24 months or longer that we had during the component crisis.
Q: Is the growth in inventories a signal that you are seeing growth, and could you also explain a bit about the cash flow situation in Q1?
A: We have acquired more materials in Q1 as obviously materials are first needed in order to get the future revenue and products ready for the customer. So in this market situation, it’s a signal of future volumes. The impact on the other networking capital items was mainly coming from some negative impacts on the payables. We reduced the levels of mainly supplier invoices, and therefore, the payables went down. This was based on normal business fluctuation.
Q: How does the M&A market look like, are the valuations on a supportive level, and do you have any geographical focus at the moment?
A: We have the same geographical focus that we have had, and we are still looking actively of course, on the US market. We have our foothold there now, but there is plenty of room on the North American market, and therefore it remains one of our focus markets. We also look in Europe and Southeast Asia. The M&A market is more active, and there are more cases out there that we are evaluating. The more cases, the bigger the probability of striking a deal. We are quite sure and steadfast with what we believe is appropriate to pay for companies when we’re evaluating them using our financial models. But there’s always emotions involved as well, especially when it’s a privately owned company. I’m hopeful, as we have a good pipeline and an excellent team working on it. We have in the past landed two great acquisitions and were able to integrate those very successfully. I’m quite sure that we will continue to do that in the future as well. I stress we do not want to make bad decisions just for the sake of making an acquisition. The acquisitions are about creating value for the shareholders.
