Incap 2021: questions and answers
Could you talk about your perception of the real underlying demand growth vs. build-up of customers inventories?
A: Majority of the growth is related to real underlying demand growth as typically our customers are optimizing the level of inventories rather than building up stocks.
How much are increased raw material costs and prices driving your revenue growth?
A: We estimate that the impact in revenue growth is approximately 10%.
Regarding your new factory in India: What type of products do you expect to manufacture and will automation increase and impact your profitability? How long do you think it will take to fill this new capacity?
A: Incap estimates that the third factory will be fully finished by the end of this year. Production is estimated to ramp-up in the end of 2022 & beginning of 2023. New factory will have modern production lines and automated processes. Incap will keep producing similar products in the new factory as in the other two factories. Typically ramping up production and filling capacity takes 3-6 months.
What are your next plans for increasing organic growth?
A: We are analyzing for example different quality and efficiency improvement projects in each unit. Incap will keep investing in the latest technology in all factories in order to respond to the latest customer requirements.
You have a debt covenant of 3 * EBITDA. That should mean that you have a financing capacity of almost EUR 90m if the right target emerges. Is it likely that you would use debt or rather issue new shares in the case of an acquisition? How does your M&A pipeline look like?
A: Incap is in a solid financial position and therefore, depending on the nature and size of a potential acquisition, we have several good options for financing them. We are actively looking for targets that would fit Incap´s criteria.
Given your strong cash flow and healthy margins, I find your balance sheet a bit conservative. How are you addressing this in terms of capital allocation? Where do you want to invest excess cash?
A: Incap´s organic growth is strong currently. This requires a lot of cash as big part of the business is materials which we need to buy in advance. Investment in India is also a major milestone for Incap and filling the factory requires capital.
On Note’s call, they said that they rarely meet you in different new customer bids but often meet Kitron, Scanfil and Hanza etc. Why is that so? Are you targeting other customers and products? Which competitors do you meet in bids? I mean, you are both relatively big EMS companies here in Europe.
A: Incap operates in the same market as all above mentioned companies and we compete with all of them one way or another. Incap, as EMS provider, doesn´t have major limitations when it comes to production of different electronics. This means Incap can produce very different products and competition is often very project specific and different companies are participating in the tender process.
How many of your 4 largest customers are in the Greentech area? Are all key customers expecting growth in the years ahead? Have you lost any significant customers recently?
A: We cannot give too detailed information about our customers, but we expect growth in our 2022 outlook, which is naturally based on the growth expectations of our customers in Greentech and other industries.
What shall we think about the tax rate? Is 20% a fair tax rate going forward? When will Indian taxes increase again, and what should then be your tax rate?
A: 20% is a good estimate going forward. With the current information available, there are no immediate risk that the tax rate in India will increase in the near future.
