Here are the questions presented in the Inderes analytics platform to Otto Pukk, President and CEO of Incap Corporation, regarding the 3Q 2022 results, and answers for these questions.
Q: Could you talk about your perception of real underlying demand growth vs. build-up of customer inventories?
A: Based on our analysis, the majority of our increased deliveries are due to a real underlying demand growth. Our customers typically optimise their inventories rather than build them up.
Q: Do you see any risk of your customers building up inventory too much and hence slow down orders from you?
A: We don´t see any material risk in our customers building up their inventories.
Q: How has your order book and order intake developed during the quarter?
A: Orderbook and order intake have developed positively.
Q: Earlier, customers have been placing orders and forecasts for more extended periods of time with their contract manufacturers than before. How has that factor developed now in the last month? Are customers still placing orders for a significantly longer time ahead?
A: We still have good visibility on our customers’ future delivery requirements for our products.
Q: How much are increased raw material costs and prices driving your revenue growth?
A: The impact in the third quarter was approximately +5%.
Q: Provisions of EUR 0.6 million for inventory in the quarter. Where do the write-offs stem from? How much more of your inventory is at risk since you recorded a write-off of EUR 0. 5 million also in the second quarter? Adjusted for this, is your underlying EBIT margin 0.8 percentage points higher?
A: We are constantly evaluating and following our inventories. Much of the write-off provision relates to one customer which is in a debt refinancing process, and we have booked provisions against this risk. Without the write-off provisions, EBIT margin for the third quarter would have been 0.8 percentage points higher.
Q: I noticed that at the end of the first half of 2022 you had decreased the number of employees in India compared to the end of 2021. Should we interpret that so that you are at full utilisation in your Indian factory?
A: Even though we don´t disclose the headcount numbers per quarter, the number of personnel in India increased during the third quarter.
Q: Are you able to satisfy your Indian customers´ demand since they are growing so fast, or do you lack capacity and hence they’re outsourcing part of their production to other EMS?
A: We don´t see this happening at our Indian unit, on the contrary, we have actually been able to attract new customers there as well.
Q: Regarding your capacity, could you talk about your flexibility of quickly scaling up capacity in your factories?
A: We are increasing our flexibility by constantly investing in our factories. Ramping up production in the EMS industry is relatively straightforward and usually takes from three to six months, once needed machinery and equipment have been received.
Q: Regarding your impressive margins. You have significantly higher margins than many of your peers, which you have due to your hard work and efficient operations. Are your customers “okay” with this or do you think that they want a piece of your cake?
A: Incap´s sales margins typically don´t differ from those of our EMS peers, but our efficiency and low overheads due to our lean organisation structure contributes to higher profitability.
Q: When can we expect the first shipments to be made from your new Indian factory?
A: We are expecting to ramp up the production in our third factory in India in the first quarter of 2023.
Q: How long do you think it will take before the new factory will be fully utilised? Have you confirmed orders already?
A: We will give an update on the progress of the third factory ramp-up in our upcoming releases.
Q: How much will your capacity increase in India when you are up and running with your new factory?
A: Currently our floorspace in India is 16,000 sqm, and the third factory will add another 8,500 sqm.