Incap Oyj (ICP1V) Earnings Call Transcript & Summary

A warm welcome to Incap's Capital Markets Day 2022. First, I would like to introduce to the stage, Incap's Chairman of the Board, Ville Vuori. Welcome.

Thank you, and welcome. It's very nice to see people in person as well after a couple of years, everything in virtual mode. But yes, let's kick it off now. My name is Ville Vuori, Chairman of the Board of Directors. And I think we have all the other Board members here as well, if I'm right. Yes, there we are. Yes, so Paivi Jokinen in there, Kaisa Kokkonen and Carl-Gustaf von Troil. Very good. The Board is lean and [ if you see ] as the whole company. Before I give it to the management, I started to reflect as we're now in this -- or next to the Slush event that is -- what Slush represents actually is rather big thing and important thing for Incap well. Because over the past years, the management has really focused on developing our service concept so that we can equally serve start-ups as well as our volume customers. And when you look at this activity, you can see that we basically start from the scratch with these customers. We could be the one building the first prototype. And then taking it from there. Sometimes the start-ups fail, but sometimes those turn into million [ accounts ]. And obviously, on the beginning, this kind of an activity is not the most profitable one, but it might turn to be so. So with this respect, we in Incap, we're actually acting a little bit like a seed investor, we are choosing cases and cases are choosing us. And so far, that has been a really good and important part of our company. It's greatly contributing to our culture, the way we work. Okay. I'm not going to steal more time here, and I'm going to give it now to, I guess, Otto, next. Sorry. Yes. Thank you.

Thank you, Ville. I still don't show for a moment here for myself. So on behalf of myself as well, a warm welcome. My name is Rose, and I will be moderating this event today. Our agenda consists today of that first, we hear from Incap CEO and CFO about Incap Rocks today and tomorrow. EMS market update by deters from In4ma, global component availability update by Hanno Septer from [ INCA ], and then we will meet the management team. And at the very end, we will have a Q&A session with everyone who has been presenting today here. [Operator Instructions]. But without further ado, I would like to ask to step on the stage, first, CEO of Incap, Otto Pukk; and then CFO of Incap, Antti Pynnonen. Welcome to the stage.

Thank you very much and also welcome from my side. I totally agree with Ville, it's nice that we can have these kinds of events again and see each other face-to-face in that sense. So let's [ swing it ].

Yes. Let's go.

Very good. As this -- the audience here is a little bit split. Some of you guys have been following us for years and our owners in Incap and some have just walked in from Slush, then let's little bit talk about what kind of company Incap is. So everybody knows. We are an EMS company. We are a global company. We have operations in Estonia, in India, in the U.K., and Slovakia. We're listed in NASDAQ since ‘97, 2,500 employees and Antti will crush numbers later, but we will end up somewhere between EUR 262 million and EUR 270 million in revenue this year. So that gives a little bit of a ballpark on who we are. We do electronics in a lot of different fields. So we are in automotive, we are in aerospace and defense. We're industrial electronics, IoT, medical and so. So electronics for us is -- if you take a hammer to an electronic device, it all looks more or less the same inside. You have a B2B, you have some buttons, private display and a mechanical envelope. So what kind of application it is. If it's a mobile phone or if it's a medical equipment, that is not -- that doesn't differ so much how we produce it. That said, very many of our products has to do with something green. Is it green energy or green like e-mobility or so. So green is some kind of common thing, not only on the PCB that are colored green inside, but also on our business. Today, EMS business is not any more simple subcontracting. We do an array of different services to our customers. We support them from everything from design to different logistics solutions, sourcing materials, engineering services to manufacturing, doing the whole box builds and testing and delivering it to the customers. So it's not so like simple subcontracting. We are a trusted partner to our clients and are very much integrated into their business. Basically, we are their production and perhaps part of their R&D department. As I said, we have global operations where people all over the world almost, at least in Europe, in Slovakia and Finland. Finland headquarters is small when we had this raised hands for the Board. So basically, if [ Jonas ] is here as well if he's down a slash, but we have 2 persons working every day in our small headquarters that is much smaller than our Slush booth downstairs in that sale. And we have factories in Slovakia and Estonia and 2 factories in India. And I know we did this survey before this event, so I would stop a little bit on the Indian project. [ Murthy ] is here, so we can answer questions and details. But everything is going on time. That was one of the questions. As you see, we have already roof on the building. We're closing the walls currently. So Q1, we are starting to ramp up with India. But you can ask Murthy much more in detail here. He's happy to answer your questions. So basically, global EMS companies, everything sounds exactly like our peer. But it's not. If you look at Incap, in our industry, on-time delivery, quality and pricing, that is hygiene factors. Everybody has those at the same level. Our industry is moving more and more into that you need to have a broader service offering. Also, almost everybody offer these kinds of services in the industry. But yet we do it differently. So it's the differentiator in the market is how you deliver these different kinds of services and how you do the business. We have chosen a totally decentralized model in Incap, and that gives us basically 3 benefits. For our customers, time to market is key. And to be able to be quick, agile, flexible and efficient in the approach to the customers is key for their business. And with our decentralized model, we have customer-oriented teams for each customer in each unit. So when Incap goes into a meeting, we always have the decision maker in that meeting. We can take the decision then and there over that business case. And for customers that appreciate that, but have a quick or need to speed the time to market and so that's a huge game changer. By doing so, by decentralizing organization, giving people in the organization possibility, to take responsibility and to take charge of the business. Many other businesses you -- in our side, you work in a silo, you're not part of the business, you just do a task. But in Incap, you can really be entrepreneurial in it. And that is where we're motivated for people. So if we look at our people, we have very let turnover, people are -- it's almost going in. If you visit one of our factories, it's like a startup mentality. People really like what we are doing. And it's not only I'm saying, you go on talk them. You have the people here as well. And of course, lastly, that model where you don't have overhead that shows on the bottom row as well. So Incap's numbers were result is not because we have higher prices or whether – it's simply because we have less cost. So it is an interesting model that to be a thing. How you earn money is today more and more important. And Incap also take very much pride in that we have signed this UN sustainable development goals. We're only one of these 17,000, I think, the companies are today that have signed those, and we are working with it. But it's tough because still in the industry and in the market, the reason standards really we have chosen doing our reporting from this reporting initiative that is this GRI. But still there's a lot to develop. And I hope many companies now appear came with us and help us to develop because the footprint, what we do in the world, both politically and socially. And eventually, I think that is really important. Before I give over to Antti here and he will start cracking the numbers. people make these numbers. We have fantastic people Incap. It's a super team that we have in each unit. And I just want to emphasize that they are behind these numbers. So I hope you all realize, and I hope you take the opportunity to meet them down at fastener team we have and also during this event. Floor is yours.

[ Thanks, Otto ]. So thank you very much, Otto, for the great introduction to Incap. Basically, easy to continue from my side, looking at the numbers every day. The customer and orientation and the success behind our employees and the fantastic team shows really concretely here in the numbers side. Here is the first 9 months report that we disclosed in early October, showing the tremendous growth in the top line, EUR 185.1 million, and that's over 56% of purely organic growth. Profitability also is extremely important for Incap. Therefore, we are very proud that we increased that by almost 50% to EUR 26.3 million, corresponding 14.2% of revenue. On this slide, we have collected a little bit history of the quarterly results. I think they speak for themselves pretty nicely. So of course, starting there from first quarter 2019, there has been tremendous growth, very rapid growth. Of course, for the ones who doesn't know Incap history that well. So worth mentioning that we acquired AWS Electronics. Incap expanded its operations to U.K. and Slovakia through this transaction, and that was completed in the first quarter of 2020. So that, of course, a bit boosted the figures onwards. But then ever since there's still a very rapid organic growth for Incap. On the right-hand side, there, we focus more on the profitability side of the company. There are a bit ups and downs in the journey. As you can see in the big picture, a couple of main reasons there. Those are related to, for example, in the acquisition, 2020 Q1, like I mentioned, there were some nonrecurring items regarding the transaction, plus, of course, the purchase price amortization elements combined almost EUR 2 million in that 1 year, impacting heavily, of course, the EBIT. Those other drops -- slight drops there are related to lockdown impacts we had in India unit. So in 2021 in first quarter and then – sorry, second quarter and then we had actually the first quarter in 2020 straight after acquisition. We were facing a lot of challenges with the lockdowns and COVID-19 hitting as a pandemic. But what a journey is still those 3 years, and their profitability is very strong on the double-digit. And mainly, I would like to highlight that, for example, this year, we're really proud that all our European units have shown growth. It's not only one unit here and there, but the whole team is performing really well. I would like to also show you the disclosed balance sheet from our first-half report. The ones who have had a look on that already when we released the report, it's nothing new, but probably just to highlight that the Incap's balance sheet is very much driven by the net working capital elements and items such as the inventories and trade receivables than on the liability side, obviously, the payables. So those are really declining Incap's balance sheet, 75-plus percent of the asset value are related to inventories and receivables. Equity ratio is very strong for Incap over 50%, well over 50% and then also something to mention here, boosting our figures and equity, for example, was the right issue we completed in 2020, later part of 2020 after the acquisition was completed. And the whole reason for that one was to get rid of the debt that we took on this acquisition and be really ready for other acquisition opportunities [ shall they ] arise. Time is money in acquisitions as well, ability to move quickly and do quick moves is appreciated in order to make good deals for the shareholders. But we are waiting still this deal. It will come sooner or later. Don't be worried. I can show my hands, I don't have any tattoos. It's part of our media team. The rest of the tattoos applied the same logic. But from the cash flow perspective, it really also shows the impact of the rapid growth. Incap has been growing so dramatically past years. It really crystallizes here in the operational cash flow, mainly the line in the change in working capital. So I have one slide later about inventories, but obviously, it's good to understand that in Incap's business, we are electronics manufacturer. Our business is, let's say, 75%, 80% even is related to materials without materials. Basically, we don't have any a product to offer to our clients. So those materials are very important. So that line is driven by the organic growth we have had. Obviously, there has been market turbulence, logistical challenges in order to get those components, and delays that also a bit impacts on the inventory values. But overall, cash flow is very much impacted by the rapid growth of our business and will remain to be so if we continue such a huge growth as we have had in the past. Inventory levels. We started 2019 collecting the data, roughly EUR 10 million. Now it's even close to EUR 90 million. A couple of main bullet points to highlight on this one. So these are very critical assets to Incap. We basically order materials based on the confirmed delivery plan from the customers and purchase orders. So every single material, item and coal we have, we will invoice from the end customer materials we have today is the business of tomorrow for Incap. That said, of course, there has been this bottleneck of materials, availability challenges, delays that drives sometimes a bit in our working process being on a higher side. But overall, the business volumes are main reason for this one. And minor impact has, of course, been the global inflation. Everybody knows the inflation levels are pretty high, applying also to the material component prices. So of course, that has limited effect also in the balance sheet value of the materials and assets for Incap. Outlook for '22, we disclosed this updated steering in early October, and then we specified this range in our quarter 3 report. And we stated that our numbers for '22 will be significantly higher than in 2021, previous year. We specified indeed the top line being EUR 262 million and EUR 270 million between this range and the EBIT profitability between the range EUR 38 million and EUR 42 million. Incap share price, this is also showing, if you look, for example, past 7 years, there was a stable phase. And now basically, we are meeting the all-time high figures also from the company valuation perspective. So I think also the market has noticed that the figures are strong and then the company is going in the right direction. So this is a [ fiscal data ]. And then I will hand over to Mr. Pukk. For your final words.

For my final word. So hopefully, I have some more minutes to live. So it's not my total final word.

I didn't mean it that way but...

A little bit about strategy as well. Perhaps you saw it in [ latest ] number, we have a profitable growth strategy that I think that has not gone by anybody. We are growing very strongly organically. As Antti said, we have good opportunities also to look at M&A. And we're not rushing into any M&A opportunities. Key is that this -- whatever moves we make are value-creating for our shareholders. And we don't want to spoil it with any turnaround cases or so. The third cornerstone in our strategy is our model. We think it's scalable. We think that we could be double the size that we are today with a very similar model without adding on too many layers in management to handle it. And that would be a very interesting proposition to the market to be a bigger EMS company somewhere we would perhaps EUR 1 billion in turnover but still have a very lean organizational model. Such one is not out there. And with that size, we could already -- and if we have a better geographical footprint perhaps than today, we could already offer Tier 1 offering, but be small and flexible. So that is what we are working on strategy-wise where we want to take the company. Always when we talk to analysts and as some of you guys here and our investors, the big risk that is pointed out with Incap is the customer dependency. And I just wanted to illustrate here, normally, Antti is the number here, but I got one slide with numbers as well. How it has looked historically. So basically, we had a much bigger dependence of our number for customers, if we go back to 2015 and see that growing. And then with the AWS acquisition that we did in 2020, we got more balance in it. And we have continued to grow the other accounts as well, but our 4 largest customers have been growing very fast. And of course, we are happy for that. But I think it's a never-ending story, how we are going to tackle this. We continue our organic growth. We continue to work closely with our customers, and we look at M&As to balance the situation out moving forward. And from our perspective, it's not a big problem to be dependent on a customer. In the EMS business, it's very difficult to go in and steal somebody else's customer. As I was describing before, we're very much integrated into our customers with our service offering and so -- so we are an integral part of their production setup. And that is not something you change overnight. To reach where we have reached with our biggest accounts, it takes years of commitment and years of building up that kind of trust that these companies basically closed down their own production, logistics, part of their R&D and then give it to Incap to take care of. And so it's not that simple to do. And if we look at also the future, we're very much integrated in the R&D process, doing already prototypes and test series for the next generation of products for many of these customers. So yes, we understand the concern on paper, but being in the business, it's quite normal. So moving forward, strong organic growth. We want to continue on that track. We have a new factory coming up in India that we intend to fill. Otherwise, we wouldn't have done the investment. We will continue to also look at possible M&A cases where we're evaluating a lot of them. But it should be the right one. The one with the right culture fit and also be a profitable company that fits into our system. And why [ Antti ], as I said before, going into new geographical markets, North America, Germany, that has been very much on our focus. So to summarize, why then to invest Incap? I think that electronics is the right industry to invest in. We have strong growth in electronics. People are putting electronics in one more crazy thing than the other today. And of course, as in our business, we produce, we don't judge where it's going to go. We also have a strong financial track record and a strong financial position to be able to execute our strategy and our plan, our growth plan. We are excellent team with the entrepreneurial spirit, and we have a value offering in our business, that no other EMS company have. So I think it's summarize, it's quite good. Why? But I think with that...

From my side, also summarizing a couple of key findings from my side and how this is. So Incap is a growth company that is shown in the figures in the past, so look at it cash flow, balance sheet, profit and loss, there are clear reasons why they look like that, and that's because of the huge growth. Then growth requires a lot of cash. That was clearly mentioned in the cash flow statement, and that will be the case, although we, of course, have some concrete actions in order to improve it, but in general, investing to the business, whether it's acquisitions, et cetera, that requires cash. And then eventually, our balance sheet is very strong. There's flexibility in order to big moves, keep investing. For example, now we are investing to the third factory in India. That's a very major acquisition – project for Incap supporting organic growth. But then eventually, like I mentioned, bigger moves such as larger size acquisitions are in our radar. So that's my 3 key takeaways for you guys if you have to remember something. So maybe those will help you.

And we will be available for questions for Antti. So you have to shoot them afterwards. And we managed quite well with the time as well. We have 16 seconds over.

As always. Thank you.

Thank you, Otto and Antti. Next up, we will hear the EMS market update from Dieter Weiss so from In4ma. So welcome, Dieter.

Thank you very much, Rose. Yes. Good evening, ladies and gentlemen. Just a short word about myself. I'm an old wreck. I have been working in the electronics industry for the last 45 years. For the last 10 years, I've been doing a lot of market research. I read more than 1,000 annual reports of EMS companies, and I allow myself to say that I am the only one in Europe who knows this industry, the best and with actual numbers. And apologies for my nonofficial slides. I just wanted to give you a short overview of what happens and what is the driver of this industry. It's miniaturization. And you can see in all my own equipment about 50 years, about my first stereo and that was really big and it was manufactured by original equipment manufacturers, so-called OEMs. And only over time that changed and nowadays, everything that is related to consumer electronics is more or less manufactured by electronics manufacturing services. And the latest development is this strange mobile phone, which is so small and is not a phone is actually much more. And I would like to give you a little explanation as well about the wording we are using. We have components, electrical or electronic components, which we use, and we have printed circuit boards, which are being assembled to printed circuit portable or called PCBA. And that is what the EMS companies have been doing in the past, but that is not enough. What actually happens is that what we see is the EMS companies are taking more and more the full production of a company over, and it's an actual fact that it's a sticky relation we have there because you -- the EMS industry is the extended workbench somehow for the customers. And you don't change that just for a little price difference because quality is what is important. You want to make sure that you have consistent quality of your product, and therefore, the relation between the OEMs and the EMS are sticky. And we're going to get to that later on what you see that there is a huge trend for the industries that the OEMs want the EMS companies to not just manufacture PCBAs, but it's a complete systems for them. So they want to give up full production for various reasons, which we're going to talk about later. Now different to other researchers and analysts, I do primary analysis with my team of people. We search the country, company registers, and we know exactly that there are about 2,200 EMS companies in Europe. And if you just go to emscout.net on the Internet, you will see all of them listed there because this is a digital buyers guide to the OEM industry. And you see 266 companies in Germany still the biggest market, followed by France. And all of the numbers I'm showing you about Europe are actual numbers because they are in a database and they get the revenues for every company out there. And the top 100 global companies have 84% of the market, there are about 16,000 EMS companies globally with EUR 2.4 million, and this is substantially growing. Europe, at the moment, has 9% of the market. So United States, about 13% and American 19%. And you see it as well. We do not know exactly how many companies are in Asia, but I can tell you, it's still very dominant. Now if we look at the global top 30 companies, in present, there is only one European company in area and that is the biggest European player at sale electronic on position 17. You see as well the biggest one. You all know them. It's HonHai or better known as Foxconn, who are the manufacturers of the Apple iPhone and the iPad and all these things. And they employ the a Taiwanese company, but majorly manufacturing in China. And we have read dated so many things about them about the coronavirus and all of that, and they employ one more than 1 million people worldwide. Now if we look at the global value chain, you see that's the biggest chunk still, and that has always been the case. It's been made with trading. But the global market for total electronic equipment is EUR 2.2 trillion. And for the PCBA, it's EUR 1.3 trillion. And still as of today, more than 50% of that in global terms and in European terms is manufactured by the OEM, which means that there is a substantial market potential for the EMS industry. If we look, once more on the short picture, you see as well, that is what today's world is about the EMS industry, and I don't want to focus too much on that. If we look at the top 100 companies, how many European companies are in there. So there is a total of 31 companies in there. And you can see Incap is on position 29, and that is based on the 2021 revenues. And you have seen it, Antti has presented it together with Otto, how much they are expecting to raise that, and I'm pretty much sure they are climbing up this ladder, and they continue to be a more important player in 2023. Now, if we actually look at this picture a little further, there is a lot of consolidation going on. In Europe, it is just 4 companies in present, who manufacture more than EUR 1 billion. And out of the 4 companies, 3 are global players such as Foxconn who have 4 factories in Europe. It is Jabil and it is Flex. And the only European one among those is Zollner Elektronik. But then comes 26 companies with EUR 250 million to EUR 1,000 million or EUR 1 billion. And you can see then there is a lot of companies at the end, and I can clearly tell you that picture will change because you see it over here. Out of the 2,200 companies I mentioned to you, it is only 305 companies who manufacture – have revenues of more than EUR 15 million annually. And if we take those companies in today represent about 88.8% of all production value in Europe. If I look backwards, and we can look backwards, we have the actual figures, you see that the same companies only had 79% of the business. So there is consolidation. There is M&A activities going on. And that is what will continue in Incap and several acquisitions themselves as well. In regards to production volume, as I said, it's similar to the previous chart, it's 17.8% of all products being manufactured in Germany. Germany is the biggest player followed by the Czech Republic, the Czech Republic being in the majority, Foxconn, then followed by Hungary, France, Poland, Great Britain, Italy, Slovakia, Romania and Austria. So this is not a map from World War 2. It just shows you how the market streams are going. And the actual fact, there are 2 streams missing at the moment. One is the French companies transfer a lot of business to Tunisia as well. There's a huge electronics cluster in Tunisia. And the reason is that they have 17.4% unemployment rate, and that is a motivating factor because employment labor is going to be a key issue in the future for all of us. And the second biggest arrow is moving towards Europe, and that is missing as well at the moment that is called reshoring. We see a lot of products coming back from -- specifically from China. I've been visiting 15 European companies over the last 2.5 weeks and nearly in every company I visited, I got the message. We have new orders coming back from China. And the important message was we can manufacture it at the same cost as it has been purchased in China in the past. So there is lots of opportunity here. If we go to the top 40 European companies, as I said before, Foxconn is the biggest. That is due to the fact, for example, as well as tether manufacturing also on TVs in Slovakia, which they took over this factory in 2009. They as well manufacture all unit packet product in [ Parovich ] in the Czech Republic. So they are very big and only on position 3 comes Zollner, but Incap on position in 39, and I assume there might be 2 in front of the position next year. Sorry, I pushed the wrong button. Now you all have heard about the problems we have been facing in the industry in the past. There are several macroeconomic factors that affected us. And then just reviewing these in a quick rush. There has been an MLCC allocation, multilayer ceramic capacitors. It's a product. It's passive component, and that has been short. But then you see the labor shortage has been an ongoing problem already for a longer period of time. But then we were hit with the corona pandemic. And shortly afterwards, all of you have probably heard about the semiconductor crisis. And I just want to go into some of those problems in brief. What you see over here is how the market developed. You see this huge collapse in 2020, which was only due to the pandemic, but as well caused by the automotive industry who, at the same time, drove down the building programs. And in 2021, the majority of companies were able to pick up the business again. What we see is over here, and I normally categorize companies by class size. XL is big companies, L and M are medium-sized, and then I have S and XS companies. And you see that the smaller the company is, the more they were hit with the problem during corona. And the biggest problem was with those companies who had a high share of automotive problems. You can see there is more or less nearly a linear dependence, the higher the automotive share of the revenues, the higher the revenue loss was in the first half of 2020, and that continued in all over 2020 as well. And still as of today, those companies are facing huge problems. And to the best of my knowledge, Incap is not having a huge and only a minor share of automotive, and that is a healthy situation. Now, why are the big EMS growing faster than the small ones? What we have seen is, if we compare 2019 to 2021, you see that on the chart there is a gap opening. You see that there are a lot of companies who have been able to increase their profits compared to 2019. But there is still 40% of companies who have not been able to get back to the 2019 revenues. And there is a lot of reasons to that. One is that customers are more and more coming and want to have vertical integration, they want to have full system builds, and that is what a small company not always is in the position to do. At the same time, when you -- a customer gives his whole production to an EMS, the other values increase and as the other value increase, the revenue of such orders is exceeding the 20% revenue limit for a single supplier. So that is the problem and that causes further consolidation. But now let's get a little bit about -- talk about the semiconductor crisis. We have seen and what you see over here in the chart is that the semiconductor industry has a little slump in 2019, manufactured 6% less but already in 2020, manufactured 8% more. And in 2021, it has been manufacturing 21.6% more. Still a lot of electronics companies, complaints that they did not have sufficient product. But the problem was simply what we call a bullwhip effect. After the pandemic in 2020, everybody was now ordering more material. And as all of a sudden, the demand for electronic products increased dramatically, it exceeded the 21.6%, which the semiconductor industry was able to supply, and that's they then call a crisis. But it is definitely not a crisis. The real crisis is what we see over here. And that is the inventory levels. And it is not just Incap had those increases in inventory levels. We have been tracking that for many years. And what you see is there is a group of 8 where Incap is in that group and you see they increased their revenue, their inventory levels, so 25% of an annual revenue for the full year of 2021. And there is a further increase in the -- after the first half of 2022. And that is a burden because too much capital is bound and that needs to be reduced. So the problem was a simple thing. It was the distributors where the EMS companies get their materials from, first of all, they extended to delivery dates, then they gave false delivery dates, and that's the answer gave no delivery data at all anymore. So the companies didn't know when they finally get their materials. And as you can imagine on such a PCBA, there is 800, 900 different components on there. And what's the industry and it's not just, as you can see, it's not just Incap. They all did it. They are that alter materials, they had on the bill of materials in order to when finally the semiconductor arrives, they were able then to finish the product. There were other smart ideas, which I don't want to go too much in detail, but were smart ideas. And if there had not been smart ideas to overcome this problem, Incap would not have been able to make revenue increases much more than what the semiconductor industry was able to supply. So again, we are seeing a split in fast-growing companies and those who still did not return to 2019 revenues. In Western Europe, in 2021, they were able to increase by 7.3%. The real big companies, a group of 8, which are called them, where Incap belongs to, they increased on average 13.9%, whereas Incap grew 59.4%. Revenues of public companies at this time, group of 4 for the first half of 2022 increased by 37.1%. Incap grew 60.6%. For 2022, we expect a revenue growth rate in Western Europe of 18.8% in which 2/3 will be quantity and 1/3 will be price increases. In summary, to me, the crisis looks different. It was not semiconductor, real semiconductor crisis. It was just the fact that there was more demand and could be supplied by the semiconductor manufacturers. The real problem is still that inventories have increased dramatically as well for the group of 8. We see as well that the material content. And Antti said it the biggest chunk on the revenues is material between 65% and 75% and then followed by labor. Those are the 2 big items. And those need to be controlled. So that material content increased, which means as well that not all price increases from material were able to be forwarded to the customers. But that is changing now. And you have seen as well what Antti showed you as well is that the EBIT improved, which is definitely not what I was able to see in all the other public companies. So as a situation in general improves, we need to now focus on the high inventory levels as they are becoming a burden because at the same time, we see that the customers pay their bills later. So a brief outlook -- everything is focusing at the moment on energy savings. So we see a huge boom on LED technologies. I've seen companies who have -- are doing EMS services only in LED, they were able to double the -- or they are able to double the revenues this year. And the automotive, I'm very careful on. I don't believe these numbers even so we are all talking about electrical vehicles, but the consumers are at the moment with rising energy costs and with inflation very careful. But where is the market potential? We have an electronic market of EUR 130 billion. Europe manufactures EUR 105 billion. The European OEMs still manufacture EUR 6 billion, that is a big chance for this industry to get better and much faster revenue increases in the normal industry. And still, I predict turbulences ahead, but it's definitely not a semiconductor crisis. It is general problems which we have to face. And they will be dependent upon a good management, and that's what I can see over here. So this year, we're going to see 15.5% of the industry growing in general, in Europe. Next year, it's going to be, again, on a normal level, so we see a consolidation again. And that finalizes my presentation, thank you very much for your time.

Okay. Thank you, Dieter. [Operator Instructions] But now without further ado, I would like to introduce to the stage, talk about global component availability update by Hanno Septer from Incap, Group Sourcing Lead. Welcome to the stage.

Yes, good evening. And I have to say that actually, this is a very good moment then to come up with my slides after Dieter's slides. I think they have been very precise and very detailed. And I think where we are today is that we can come -- as you saw from the presentation, we can go from the lower level to the more higher level when you talk about ports, then coat modules than the full devices. I think now we go one step or a couple of steps lower to see what has happened in the component markets. And of course, this has been the most, I think, spoken topic during the last couple of years. I think by the day, there is no person who doesn't know that electronic components does exist, if there is at least some headlines in the newspapers. So a couple of words about me. My name is Hanno, and I started in the Electronics business in 1993. And I spent for almost 29 years in Arrow Electronics, which is the world's biggest electronic components distributor and by day also technology distributor and a consultant company. And from August 2022, I joined Incap Corporation as a group sourcing lead. And then my target for this position is to find the synergies between our operating units to find mainstream, like processes, how we manage the supply chain, how we do the purchases, what tools we use and all these kinds of additional effects, how we can improve our already well-working operations. So of course, when you talk about the components and then the component crisis, I think before we move that, it's important maybe to cover a couple of key elements, which are actually describing in the components industry. And why I say that? Because I think the components availability is the same situation when you talk about, for example, your blood pressure. Then the blood pressure today maybe is not so important, but it's important what was maybe during last week or months in which what is the trend? Or the same thing is that whatever you compare [ P&L ] if you check the [ P&L ] today is one thing, but how it has been changing over the last quarters give you some totally different view where the company is heading to. And the same is actually also with the component market because it's a very specific market. In the peak scale, I think the first important thing to understand is that the semiconductor industry has been very long growing industry, but it's very cyclical, which means that of the very deep types, there is also even the more straight upgoing. And this has been already for tens and tens of years, since '70s, '80s where all the industry is starting to picking up. And this slide actually now describes the 0% is that if this particular year monthly semiconductor sales has been the same as the last year sales, which means that if we are above the 0, then the current sales has been bigger or higher. And if we're below the 0, then the sales has been dropping and is below the last year's level. And as you can see, it's a marvelous industry where you can face such a roller coaster where sometimes you fall 20% minus. And then already in like a couple of years, you are doing 41% up again and then 30% down. It's always going this way. And I think this is very important to understand that there is a cyclicity and the percentage, what is the variable part of it is actually very important and then to remember that we come back to this topic a little bit later. Second thing is that what most probably we don't realize on everyday basis is that it is very highly concentrated market. Even if we feel there is a lot of choices around us. And when it comes to the semiconductor market, then the top 10 manufacturers of electronic components actually give already 55% of the market volume, the sales volume, the component volume, which means that there is 10 biggest players who are more than half of the market impact. When you jump to the customer side, it's the same thing. When you talk about like the top 10 customers, they're 42%, but we can also maybe a little bit to exaggerate and say that half of the market is only top 10 customers. And of course, we all know Apple and Samsung, [indiscernible] and then BBK's the Chinese group of electronics production. These are well-known names and but their size and their impact and where market is very important when it comes to the market development and also component availability. And of course, you can see also pointed out that how the growth numbers have been remarkable. Huawei is, of course, due to the unfortunate situation with U.S. has been a little bit impacted, but nevertheless, you see that how the market has been developing. One more thing about this consolidated market is that manufacturers are constantly buying the smaller competitors, and it's from 2 aspects: getting the new technology, but also buying the competitors. And then as you can see, who is a little bit like maybe more has experienced with electronics, most probably you may know AMD and Intel obviously if you have a PC at home. But there are other manufacturers as well. And you can see that over the years, there is a clear tendency of buying smaller companies and integrated them into them. And of course, this is having impact to the same consolidation and the bigger manufacturers getting bigger. The same with customer space as well. Also, one important aspect here is to understand that there is more than 60% of the electronic component piling is in the Asia area or APAC, how to say. And out of this Asia, the yellow line is the Chinese market. So out of Asian sales, China has 50% of the full Asian sales. America has been now struggling but still being above 20%. And Europe and Japan part of the impact to our share of the global billing is now slightly but steadily going down and then now being below the 10%. So now where the most of the components are -- and then all the volumes are turning East Asia and specifically also, of course, Chinese impact. One more important point is to understand is that why then the crisis can happen and what can be the impact or here. Maybe a little bit busy slide, but let's try to then figure it out together. As you know, everything when you do something, it starts from the design. You have the like or the creation, you create the product, you design the product, and then you have to manufacture it. When it comes to the electronic components, spend the manufacturing is then in 2 parts. It's called front-end [ wafer ] application. The [ wafer ] is now this -- maybe you have seen in newspapers this big disk maybe usually very nice and shiny disk that were then the industry then, so to say, using the literate technologies, putting chips or turning the chips on, then the chips are then broken and then we put into the packages test and then will be shipped to the customers all over the world. And the important here is to see that when you talk about design, then it's usually the Western world. When you talk about the base application, we instantly talk about China, Taiwan, South Korea, also a little with Japan. When you talk about the tested assembly, it's again the same Asian countries. And when you talk about the tools, what is all the equipment, what is required for this process, then again, you see the American flag, Japanese, European Union. It's important also maybe interesting fact that one key element for the lithography technology is produced in Holland, company ASML, which is basically the only company in the world who is able to produce the data equipment, how you can do the top-notch semiconductors today. And that again, one company and impacting basically the whole $600 billion industry. And of course, from this aspect also, I think it's interesting to see that when you next time you see that there is some earthquake in Taiwan or there has been tsunami or there is something else like this or that is rolled in [ Grand Daman ], it can impact the industry instantly, at some point of time, the market does feel the impact of that. So also [ forgot to ] mention the 3Cs. The 3Cs are then the market segments where -- who are the component users, computer, communication, consumer. And you can see that actually, there hasn't been quite already since '98, there has been some weight changes, but still the main drivers are the same. We talk about the 87% of the 3Cs and automotive 4.7% by 2020 was 85%, 7.5%. I think by today, maybe the automotive is already 9%, maybe 10-ish percent, but still in the peak picture, when you read the headlines that automotive is doing big losses are not gaining the profits, what they would expect due to the lack of components than from the peak picture, this is only actually a small part of the market, much bigger part are your mobile phones, your laptops, everything that you are using on a daily basis. So in that respect, it's interesting, not balanced way that the PR companies are doing exceptionally good work for the automotive company, but the impact is maybe not so wide. After saying that probably if we tell the Chairman or the French governments who have to face the impact of the hundreds of thousands, if not million people working without the industry, and it's going down. Of course, we have a totally different social impact. And this is already a topic for another presentation. So to start recapping it, one more important thing, what is the -- maybe let but not understood. When we talk about -- first, you have to design the components, which is an R&D and then you have to build buildings, the production lines, how you get -- where you can do this. And if you start thinking -- maybe you think that pharma, of course, last 2 years, the pharma has been a hot topic, the pharma is then the biggest industry. Actually, this is not semiconductor industry is the biggest whether you need to have the capital put to have the semiconductor production. And when you want to fill the factories, again, utilities. We all know that if you want to build the city, you want to put the pipes into the electricity everything, it must be expensive. It's even more in semiconductor industry. So it's both sides. It's capital expensive thing. As a reference, that one typical semiconductor industry fab can be a couple of billion, $3 billion, $4 billion. While I think one of the [ Python ] semi-factories was about $9 billion. It's a huge amount of money. And when you start building it, it only will be operable after 2 to 3 years, which means that if we start the day, there is no way we can produce it before 3 years, anything, just the nature of the business and it requires money. And now when we get into this, why we have this crisis today, this is now some historical numbers, how much has been -- have been the investments into the semiconductor industry. And the issue has been, which '17, '18, '19 where it should have been more money invested into the semiconductor industry into the fabs which are then able to produce more volumes. But it's very hard then to predict what this actually market is requiring. And then 2020, Q1, when we hold the breath, what will happen to the global economy? Yes, there was some small hiccup, but from Q3, electronics went crazy. We were at home, we wanted new PCs, our children wanted to have laptops to have the Zooms at school, we needed to monitors. We need to IoT devices because people travel the measure of something. It all was driving component market up crazily. And now what has happened since? You can see this is only a small fraction. This is part of the -- the new 300-millimeter wafer semiconductor fabs, which is -- if you're interested, what exactly is, I'm here later, please. It takes a little too much time to discuss it here, but you can see how the fab number has been starting growing now. And this estimation [ now to 6 ], there has been no investments ongoing. So people are investing now into the technology and into the facilities so to meet the demand, the global demand. And last thing is really also what you cannot actually estimate by nature. So it's very strange way how than today, the products are built. At first, you take the silicon, which is you can say sand. You take it from U.S., you take it to the Japan to make it their wafers, then you take it to the Taiwan when you have the wafer production with chip production, then you take it in mail Malaysia, just to test it. And you then you take it to China or today, more people are coming back from Chinese factories produced to produce production here to other places of the world, and then you ship it somewhere in the world where the end customer, for example, back to the U.S., we talk about tens of thousand kilometers. And it takes time. Again, you cannot change it right away. So now market outlook. Of course, is always a good question when it will end. And very simplistic slide, but I wanted to put it here because it's obvious that we are now in the new fabs built and overcapacity happens situation. So what will happen now? So at the moment, we have been total cap capacity, lack of capacity, prices have been crazy up, new fabs are bid as we saw. And then will it over capacity happen. It's always how the trend is going. We are building the factories. But in the same time, global demand for the components has been the last 2, 3 years, crazy. All the semi-manufacturers have said, we are investing, we are doing, but you want more. We cannot keep up. And as you saw, it takes years and a lot of money then to build the new factories. You cannot do it exactly we agree something. And next Friday, we can ship it. No, it takes years. Where we are today? First time in a long time, now we have seen that it's the August numbers world semiconductor consolidated sales has been now starting to go down. We have now seen the drop of the already concrete percentages. And now it's important also to see that the drop is coming from the Chinese and Asian market because the consumers are not spending – not so much in mobile phones, laptops and it's based -- component demand has been going down in Asia. Europe and Americas are still growing, but also there is the production more industrial, automotive, medical, all these kind of things. So we talk about that some market segments go down, some market segments actually are still growing. Now the market going down what you can read in the newspaper is impacted certain market segments. Now the next logical question is how we will end this year and what we're facing next year. And of course, this is [ market ] in that sense that all these analyst companies are honorable companies. They do their work, but we see very much how much the picture can differ. And I think this is now the case that it's very, very now difficult and complicated to estimate really where it will go. There is so many aspects. We talk about wars, geopolitical climate issues, all the kinds of things. And then we have the GDPs going down, inflation going up, maybe customer confidence going to all these things are then impacting this. This is the picture. I would actually like to choose them that we are on the green side. And to have the final words about what will happen to the components. So if we say that all the component production technologies, which has been invented and implemented to the last 5 years, let's call them below 16-nanometer technologies. For the electronics actually, it means very concrete things. Then there is an estimation that already by the end of the 2022, we are already able to get much more research situation. And basically, this is mobile phones, laptops because the demand in Asia has been going down. There is a resource already. Mainstream, which is then the technology may be 5 to 10, maybe 12 hours behind historically. These components are expected to be more or less in the normal market situation early mid-2023. So we talk about the next year, middle, mature technologies, which are then the 15 or maybe 20 years back then these components are then possibly second half of the 2023. And there are certain components, which are extremely high demand, which can be like, for example, some automotive components. Now electric vehicles, I think when you hear the technology, silicon carbide, these silicon carbide technology has been sold out already for the ST or the bull speed, for full 2023. So you cannot get the component. So it's not exactly the clear picture. There are certain things that we can get, certain things what we cannot get. And basically, what it means is that on one side, we talk about the situation where supply, the manufacturers want to produce newer technologies, switch every 5 years to the new technology because they're able to do it. Everything will be more smaller, every will work faster. And also the smaller means that manufacturers can produce more with one production batch. It's more effective to them. They can earn more, just pouring more margin out of that. On the other side, it's demand, but only part of the market wants to have a demand of this rapid change. This is exactly now Apple use Intel, then Apple doing [ M1 ], the Apple doing again [ 2 ]. This is a classical sample. And now you will have next year the new Apple version. And again, you have M3 and M4. And we are happy because these phones are brighter, everything's on longer time on the battery, everything makes us happy, but only smart part of the market. Second part is something what we see in the automotive, medical, industrial. These guys actually want to have more stable. I don't want to redesign my design. They'll do ABB that they need to do their full energy network fully new, 5 years. They will pull out with this discussion. They want 25, 30 years, same components running. This is the key of their business. And now we have exactly the question, investing, where to invest new technologies, older technologies. And of course, then we can see that it's not -- let's say, that there is a new world. It's not equilibrium, a chip equilibrium. How we can balance the motivation of the suppliers and then that market who wants to buy certain products? And the final words. We expect the component situation be more easier by the first half -- during the first half of next year. And there are some early signs we see already, and then there can be several reasons. Let's discuss it later. But it's so important to understand that fully the component delivery issues are not fully behind the set. There are some components and functionalities of technologies, which will be challenged throughout 2024. And what Incap is doing in the situation is still we continue the same tactics what we have. We provide to our supply chain to long-term full visibility of the -- our demand, and we are working very closely than with our customers because you need to do some maybe some special arrangements to keep the product but upon running. And of course, then also with the suppliers to be more prioritized and get the part sooner. And this us in a nutshell. Thank you.

Thank you, Hanno. Then we will meet the management team. So now we really have a good chance to get to know Incap's production facilities a little bit better. I will soon introduce with me to the stage Jamie Maughan, Director of Incap operations, Miroslav Michalik, the Head of Operations in Slovakia; Murthy Munipalli, who is responsible for Incap's operations in India and sales in APAC and last but not least, Margus Jakobson Interim Director of the company's Estonian operations, so guys follow me to the stage and let's give them warm applauds. Perfect. Let's start with the overview of the operations. Could each of you please give a brief introduction of the operations in your country, which products and services you offer? And what specialty sectors you have and we'll start with Jamie. There you go.

Thank you, Rose. To give you an introduction into the U.K. business, we're located in Newcastle-under-Lyme, which is quite central in the U.K. between Manchester and Birmingham. The site has been there since 1974. So it's been there a long time. We have a manufacturing facility of 4,400 meters squared and just under 180 employees. We're quite diverse. I think Dieter showed on his slides, there's almost 190 EMSs in the U.K. So there are a lot of competition. We are now in the top handful of those companies in the U.K. in turnover and size and scale. We're seeing products coming back. We're involved in lots of different industries from medical, military, avionics, aerospace as well as electric vehicles, we are very diverse. I think we talked about lots of electronic equipment and products that are out there, and we're involved in lots of different areas. But we see the U.K. market as very mature. We see small quantities, high mix and very complex equipment. And that's really what's left in the U.K. There's no high volume that goes to some of our other factories, but also to Asia. But as a whole, we see a very mature market with a very entrepreneurial businesses and lots of start-ups as well as new designs for electric vehicles, things like that. So we're very heavily involved in that as part of our business.

Thank you, Jamie. Then let's next hear about Slovakia. So Miroslav, please?

Good evening. So greetings from Slovakia. From the north of the Slovakia, we are, I will say, located close to the Polish border, just 15 kilometers, 1.5 hour to Kraków airport. And our side was, I will say, started in 2008 and from 2020, we are part of the Incap. And production, I will say, we are focused let's say, mix of low volume, high mix, but also high volume, lower mix. And the product which we are producing there are, I will say, mostly in the area of, for example, very precise laboratory equipment. The result of use instrumentation or I would say, the application for the industrial controls. We have also specific the automotive sector. So we are producing the PCBs for the cars. And there is also the cars, which are, I would say, very famous now. So for example, Mercedes or Toyota. So this is the portfolio. And our site, it's in terms of the size of 5,200 square meters. And employees, its 240. And that's, I will say, the Slovakia side, and we have plan to develop and grow for the future.

Thank you. Then let's hear from Indian factories. Murthy, the floor is yours.

Thank you, Rose. Good evening, greetings from India. We have actually 2 manufacturing facilities in India already, and we are constructing the third one now should be ready for production. We will be ramping up as soon as Q1 of 2023. So the building is expected to be completed by end of this year, and we'll be then setting up the machinery and taking it from there. We have 16,000 square meters of area and the 2 facilities that we are operating in. And we are adding another 8,500 to that. So it's roughly 26,500 square meters of manufacturing facility in 3 facilities – in 3 factories with roughly 2,000 people working currently. We are situated in a place called Tumkur, which is 65 kilometers west of Bangalore. And the advantage of this particular town, if I may say so, but it's a small city with about, I would say, 800,000 populations. So that is an education of a hub. So getting people -- skilled labor is quite easy for us because it's known as an educational hub. And more importantly, it's one of the 100 smart cities, which the Prime Minister announced a few years ago, one of the 100 smart cities in India. So we see a lot of development in Tumkur. And the other advantage is that if someone is visiting our facility from somewhere, they don't need to come through the Bangalore traffic. There is a bypass. You can directly take the bypass and get into the Tumkur facility in less than 1.5 hours from the International Airport. So this is about -- our facility is the biggest in Incap amongst the 4 facilities that we have in manufacturing facilities. And we cater mostly to the industrial segment, working with some of the well-known names in the industry. And we also do a little bit of medical, and we do from PCBA to complete box build, almost hundreds of products that we deliver every month. We took over from an industrial conglomerate in India called [ TVS ] Electronics. It's a huge conglomerate in India. We took over from them in 2007 June, and that is how Incap started from 1st of June 2007. It's been a long journey, but the growth has been really phenomenal. And we see a lot more coming in because, as Otto said in his opening remarks, we are looking at the growth, otherwise, we wouldn't have really gone for this major expansion investing so much of money. So we're going to fill up the third factory and he's already teasing me now when are you constructing the fourth one. So hopefully, very soon, we should be looking at that as well. So this is briefly about the Indian facility, and I have been associated for the last 14 years. I joined in 2008 from a very big salt to software conglomerate. The Tata group. I used to work. I was heading the Semicon Group in the Tata Group. I quit that and joined this Incap – though reluctantly at that time, I should admit, but no regrets. I'm more than happy because I've seen the ups and downs and we have grown, and it gives such a good satisfaction because we -- all of us have entrepreneurial the thinking, and we are a totally decentralized unit. Of course, later, if you have any questions in the Q&A, I'll be more than happy to answer your questions.

Thank you, Murthy. Then let's give it to Margus. Margus can tell a little bit about Estonia.

Thank you. Thank you, Rose. It's good to be here. Estonian facility is located in Kuressaare, which is located in Saaremaa, which is a nice, nice beautiful island in Estonia. So you are all welcome not far from here. The company was founded here 22 years ago in the year 2000. We have around 100 employees, great team, fantastic team. Also, the floor space we have, it's 7,300 square meters. The product range is quite big. We have very many interesting products, nice customers. And if I just mentioned a few of those, you can find the products that we do in Kuressaare for example, in light electric vehicles and streets. And also, yes, monitoring, measuring devices and our products also to energy storage systems, which then are located worldwide, yes, in the seas and the [ arts ]. And we have more that we do. We also have medical certificates. So we do some medical products and all kinds of stuff. Thank you.

Thank you, Margus. Then now we know a little bit more what the factories do. Let's next talk about investments. What kind of investments you have done lately in your country? And what kind of corporate responsibility initiatives are you involved with? And we could go with Jamie first.

Thanks, Rose. Yes, we've -- this year, we've spent a lot of time investing in the facility. I mentioned we've been in there a long time. So for the main production hall, we've installed air conditioning throughout. So it makes the process better, but also better for the employees. It's more efficient than the older system we have in place. You may have seen a press release this week that we've just invested in a new inspection machine for optical inspection of PCBAs. That should be delivered just before Christmas and be up and running in the first couple of weeks of January. From a corporate responsibility point of view, we're involved a lot in the local community and local charities. We work with schools, colleges, and universities close to the factory. And we also develop an apprenticeship scheme on site and work with the youth and the people around us to hopefully grow the factory and bring the talent into electronics and promote manufacturing to the U.K.

Thank you, Jamie. Then Miroslav.

Yes. Thank you. I will say recently in Slovakia, we invested EUR 1.4 million, which was mostly for the upgrade of our technology. So that was one new SMT line plus also we invest to the selective [ solder rink ], which are, I would say, core competencies and core processes in our production. And we are using also the renting model, which is giving us the scalability, giving us the flexibility, which our customers are expecting to address. And as we already mentioned, there is also expectation to be, I would say, quickly with the product putting on the market. So that is moving us also to the new standard. And also this investment are giving us and driving us for the upgrade in industry for. So this is driven the efficiencies. This has driven the quality improvements. And of course, on top of that, it's the customer satisfaction. And of course, that is necessary to have the good team, which we have and we follow up, but these investments are really supporting it. Also, I'm proud that also in this corporate initiative or responsibility initiative, we are covered by 100% of all electricity from the green sources. So it's the water power station or I will say, the solar power stations. And we are also contributing as Jamie mentioned, we have also hold of work and cooperation with the technical schools, universities and developing and investing also time to the young people, to our future plus supporting the local activities even from the sport or even helping with our [ security ] project to the people which maybe are not so lucky as maybe more of us. So that's from Slovakia.

Thank you, Miroslav. Then Murthy, how about India?

Yes. The third facility that I spoke about is completely a different -- keeping in mind the latest technology and the sustainability, this is a pre-engineered board that we are using. It's not like the conventional constructions, which are usually constructed in India. This is done with a PEB, which is a pre-engineered Board. And we are doing this with PEB for 2 reasons. One is this is extremely scalable, and the second one is keeping in mind the sustainability. We are actually, by doing this, we are also saving a lot of very valuable resources like energy and water. The second thing with this is that the speed with which we can bring this up also gives us a lot more flexibility in terms of installation of, say, for example, the solar equipment on top of the roof, which we can produce our own electricity and this is, again, extremely sustainable for us. The second thing about this is we have an 8-acre plot, which is quite big. And the plan and the outlook that we have for these facilities are going to be totally world-class, and it is just opposite to the existing 2 factories. It's less than, I would say, 100 meters. You just -- you can actually see it from the -- across the street. So a huge amount of investment is made on this. And of course, we are also getting some new SMT lines, new wave soldering machines, new X-ray and a whole lot of other new equipment for this new third facility.

Thank you, Murthy. Then Margus.

Investments in Kuressaare lately, and the biggest investment have been to our SMT lines to increase the capacity. And so far, we have had 2 SMT lines. So we have increased their capacity. And also what we have done, we have added the third SMT line. And that will -- all of these investments increase our capacity around 50%, we expect. And what is also good about this investment is that the third line will be dedicated for Protos and Fast Track, so that will give more flexibility, more productivity. So the existing 2 lines will concentrate on mass and several production and they don't disturb each other so much if we can say it like this. So it's -- we will have more better opportunities, more efficiency, more productivity and so. Corporate responsibility, we are -- we took care, I could say that. And we are working with local community, a lot supporting it. We are a family-friendly company and also have awarded a [ cold ] label for that. And we do a lot of work with HSE, which stands for health, safety and environment. And this work is done elsewhere in the group also, as I know, and it is important and our employees are very important to us. Thank you.

Thank you, Margus. Then we have time for one question still more with quite rapid answer. So then we have time for the Q&A as well. So it's a competition for you guys. Let's start with Jamie and the question is, now how does the component situation impact your production unit?

Yes. I think it's been -- as Dieter and Hanno have already said, it's been a difficult 18 months. I think we started very early communicating with our customers that their issues and got them to place more order coverage. So we have materials on order and ready to come in. But ultimately, it's come down to the team in the department of all of the businesses working hard with the suppliers. Our customer account managers working close with the customers, making sure that we're communicating and giving options to the customers with alternatives, maybe design changes, things like that, where we're trying to expedite material and work to get that material in and keep the production go in and get customers their product as soon as possible, maybe not to lead times they would have historically had, but worked with them on. And I don't think I was gray for the 18 months. So I think it's made me grayer as the time has gone on.

Thank you, Jamie. How about Miroslav?

Yes. Very, very similar. We see also even now maybe the tendencies, the situation is more stabilizing. We are getting but still, as Dieter mentioned, 800 components and one is missing, you have a problem. You cannot finish. You cannot build it. So that's -- we also -- a lot of workload, a lot of effort, a lot of focus, I would say, to work with customers, to find an alternative on the supply, alternative on the parts. So that was really tough and challenging time. But despite that, I will say the team get also good experiences they have been also working hard and built also, I would say, relationship with the customer. So I see it also as a positive way how we can also go forward. And I believe that, okay, with this strong team, we will just continue and satisfy the customer for the future.

Thank you, Miroslav. Then how about Murthy?

Like my other colleagues said the situation was extremely challenging. It was very difficult to get the components because one of the main key performance indicators for us as an EMS company is on-time delivery. OTD is the most important thing, of course, quality you can't even – there is absolutely no compromise on that. But OTDs because time to market is extremely critical for all these OEMs and ODMs. So they come to us because we are the manufacturing partner. We have an extended arm of this particular ODM and OEM. Having said that, like any other OEM companies are electronic manufacturing companies, we also faced a lot of challenges. The component prices -- first of all, the components were not available. The component prices work skyrocketing. So the traders were in between stocking all this material and selling at 20x even going up to 200x at times because we had to get these components. But thanks to my team, I would like to compliment the team back home. The team has been absolutely fantastic. They are so proactive. So with our proactive nature, we have gone back to the customer. We have told them, we have suggested alternates -- and because of this -- in discussion with the customer, we have bought these components, we don't actually see any drop in our profitability because we were able to recover all these fast track costs, number one. Number two, we were able to satisfy the customer because on-time deliveries were made. Number three, of course, they are seen in the numbers here because in spite of these challenges, we were still able to show a phenomenal growth. This is all because of the team effort. It's all because of being absolutely straight and proactive with the customers. So the situation is now improving. We are actually seeing some light at the end of the tunnel now, but it's a very major topic. So like any other EMS, we are also wearing and watching. But the good thing about this is the customers have also understood and now we have gone back and asked all the customers for forecast. So at least we have a very good visibility into the next year, 1.5 years, so we know what exactly is coming. So in a way, it was a good lesson that we learned.

Okay. Thank you, Murthy. Then Margus, how do you answer component availability in Estonia?

Yes. When I hear my good colleagues experienced colleagues around the world here, then I think it's similar. It's very similar to the situation, similar issues are similar, and I think the solutions are also quite similar. So the team, [ multidose ] team, I will -- I need to also say once more of the team is fantastic. The work that has been done, it has been tremendous hard work. And I think the key is to work together, yes, within the team with our good colleagues here. and also with our customers and suppliers. So that's one of the key issues. And I also think that process improvements and organizational improvements is something we can continually keep on improving and digitalization is also one of the keys, which could then ease and already has been showing results, and we will continue that to digitalize, automize the processes that is also important when it comes to supply chain, purchasing, and sourcing. Thank you.

Thank you. Thank you for your answers. Stay put. Now we will continue to the Q&A, and I would like to introduce back to the stage to Otto, Antti, Dieter and Hanno, please come here. So maybe just there a seat for everyone.

Now, everybody is moving.

[Operator Instructions] But let's take the first question online. So this one is to Otto. Dieter Weiss talked about production transfer from East to West. Have Incap benefited from it? And how do you see it affecting impact in Incap's future growth?

No. I think for sure that from east-west out from China, we have seen a lot of production move to our Indian facility, and also to our European facilities, [ see a ] trend. And this has started some time ago, we already had during the Trump administration, the trade war with U.S. and China, then we started to see some customers moving now doing COVID, then also China is still closed was that IPC event here. Here I met all the CEOs of our peers in Europe here some months ago. And there is some of the companies they haven't been able to visit their own manufacturing facility for 3 years now. And of course, customers want to control them. So that's very much so for Incap as well. And I think to all of our units, we see back sourcing in that sense.

Do we have any questions from the live audience? Yes. Wait for the microphone.

Thank you. I'm [indiscernible] from SCB. I have a couple of questions. And the first one is related to your M&A pipeline. So what size of transactions you're looking for, if you could give any hint here?

I am a strong believer of this American concept bang for the back end that. So we are a very lean team in Incap and of course, making a transaction for a company with EUR 10 million in revenue or EUR 100 million in revenue, that would mean more or less the same work for us. So we are looking at bigger. What we have said is that one site of a company should be minimum somewhere between EUR 20 million and EUR 25 million in revenue and or upwards, that then they can contain the different support functions themselves and can operate in our decentralized model. That said, of course, the bigger transactions would be nicer. But yes, Dieter knows the figures better, but there are not too many out there in that range, EUR 100 – to around EUR 100 million range. There's a lot of small companies, EMS companies, EUR 5 million, EUR 10 million in revenue that are either bought up or closing down currently in the market. And then this bigger range is -- there are fewer around. But we keep on looking and we have been evaluating several cases, and I'm quite confident that eventually we will get something on the hook. But it's like Antti said, and I also mentioned in my presentation that we don't want a turnaround cases. We want to buy a profitable business that matches [ calcury ] that gives us an additional geographic reach. And we are prepared to wait. There's no disaster growing like we have done organically. You all see the numbers in that sense. So we don't want to spoil that. But let's see.

And the second one is about your growth. Of course, we all know that your organic growth has been really impressive during the recent years and the quarters. But how much of that organic growth is related to your biggest customers expanding the usage of your products and services? Of course, I guess your growth is mainly coming from your customers growing as well, but like have they expanded the usage of your products?

They have expanded. And we see a trend in outsourcing more and more of different services around production. But I think if you look at the numbers, I think minority comes from our customers growing as well. So the total demand of our scope of services have gone up. So I think that is -- the weight is on their growth.

Then we could take one question from -- here from the chat. So this is from Nick Bianco. Can you please help me understand a couple of things? First, what is the footprint utilization rate currently? And how do you see if in 2023, once new plants or expansions are complete? Do you have the possibility to keep expanding currently facilities? Or do you need to build new facilities going forward to drive the sales growth? And then third, can you please provide me some color on the order book and its sizing?

Many questions. And only to me as well, these guys are rock stars, they should also. But yes, I can answer. We always work with these guys. They always work to keep some overcapacity in their production facilities. So when we plan, for example, new investments like the Indian factory so we always think about that we should have a little bit extra because if we are full, then we can't sell. So that is one part of the answer. The other thing is that if you look at the EMS industry today, and I think Miroslav and Margus mentioned it that, for example, they are using rental solutions when it comes to production infrastructure investments. Then it's much more flexible than it was when I started in the industry. Then you did a big CapEx investment, you have own equipment, you own the line. It was big money to go in and start-up. Nowadays, you can rent facilities, you can rent people, you can rent equipment. And it's much less of a hassle to extend your capacity or change your capability. And so there is a change in the industry where you before sold like [ classic ], you could sell your own capability and your own capacity. Nowadays, a little bit as to customer what capability capacity you want. Within 3 months, we can change it in custom-made for the customer. So this is a big change. Third question, I don't remember anymore.

Can you please provide some color on the order book and its sizing?

No. sizing, we haven't have -- we are normally not publishing in that sense. But we have an all-time high order book currently. And as many of my colleagues here mentioned that the visibility is much greater than it used to be. Classically, I think in the EMS business, you could be happy if you had 3 months visibility, and then it got very blurry and then you have had the Board and other, but asking that what about the forecast for the year. Now we have visibility 12 months, even 24 months with some customers, and it's a total game changer for us in the industry. If that will continue now when components get more available or not, hopefully, but perhaps the visibility will go down again and customers will adapt. But currently, we have great visibility. That's why also we are doing the investments.

Yes. Then the next question is to Antti. Miroslav, can you please give the microphone to Antti? Could you talk about the margin fluctuations. What is driving the swing from quarter-to-quarter? Are you at full margin? Or do you think that it is possible to achieve further scale effects going forward?

Yes. Very good question. And then there is indeed ups and downs. I have looked many, many years back, made a trend myself and I looked at sales margin and the material margin. There is some fluctuation. And then the biggest element impact in the quarterly profitability and margin levels is obviously the product mix that we are manufacturing. Different products are in different phases, new introduced products usually have a bit lower product profitability compared to the ones that we have manufactured years due to the learning curve synergies and so forth. So the product mix is driving that one. I think we discussed a lot about this topic also when we started the year and reported the first quarter results. And yes, of course, we are always working with improving our factory efficiencies. That's also what we have heard today from this gentleman. They are increasing the investment levels that obviously will help us to be competitive in the future and defend our margins. So that's probably my answer to this question.

Okay. Any questions from the audience? Yes, then Antti has a question.

Thank you for very good presentations. Antti-Pekka from Inderes. My question is actually to board and it's about financial targets. Most of listed companies have financial targets, but Incap doesn't have. Why this is the case?

You can come, Ville, here and answer.

Financial targets. And I think that this would be a good to Incap also indicate your long-term ambitions in terms of growth and profitability.

Right. Yes. This is partly, I guess, about our tradition. We have been rather happy how we do it so far. But you are right that we have an increasing amount of inquiries for this direction. And of course, this is something that we are continuously talking within the board, that how could we increase the service level to our investors and owners. So far, it has been a bit tricky given the nature of the business and particularly during the past years, the conditions have been so extraordinary that basically estimating or forecasting anything has been, if not impossible, very difficult. Well, should I say that? Maybe -- I don't want to make any promises here, but let's take this as one of the topics that we should be considering more seriously. It will happen.

It has gone quite well so far.

Yes. Then we take a question again from the chat . Do you see any risk of overcapacity in the industry if we face an economic downturn? In that case, how does it affect Incap? Who would like to answer?

Well, number one, yes, we see a downturn in the industry, but you cannot say that this is a general thing. First of all, we talk often about the 3C, which is consumer, computer and communication industries. Those are products which in the majority are manufactured in Asia. And you remember all 2020, when we had the pandemic, everybody was buying laptops, communication equipment because we were working from home, having our home office. And as well, you remember that people when they had not the possibility to go out, they were buying computer games and special computer games were totally sold out. There was a high demand in the industry. Now in 2021 already when the pandemic situation improved tremendously, the market was saturated. And the 3C industries are now seeing a tremendous downturn. This as well has an impact on the semiconductor industry because those 3 products use a lot of memory chips and these memory chips are now available as usual to say so, whereas we only have a small part and that is in the majority of automotive industry, where we are using either microcontrollers and a lot of microcontrollers are used in the automotive industry, especially with the electrification, but as well analog chips. And those 2 sets are still short. But now you ask yourself, how is a company, for example, and it's not just Incap. We see a general revenue growth is here of 2 digits and Incap's revenue growth is tremendously. How are they able to get to this revenue growth if on the other hand, semiconductors are short? The answer is very simple. We heard as well, it is not all semiconductors in regards to their complexity, which are short. It's in the majority, mature and [ latter ] products, which are short. Those are to say, so old technologies, more than 40 nanometers and not sizes. Those are short. And the industry, the semiconductor industry does not invest in that industry anymore. They are investing in lower than 40 nanometers technologies. And that's why those technologies are more readily available. And there is a very smart move in this industry to just redesign together with the customers, the Board, and convince them to change their mature semiconductors to advance semiconductors. And doing so, if you have the right [ customers, that is the secret ] of it all. If you have the right customers, then you can overcome this idle capacity, what some people think. And the idle capacity at the moment is in the Far East, in China and definitely not over here in Europe. And if I look at India, there is a huge market out there. We are not just talking about India as a so-called cheap labor country. We are talking about India as a huge market which needs to be served. And the higher standards of living gets a more electronic devices will be needed in that industry. So I see a bright future for India and electronics productions in India. Sorry for the long answer.

Yes. Hanno, give the…

Yes. So actually, I put it like on different angle here. So we discussed today about the consumer, industrial, medical, automotive. And I think the differentiation today is that all the markets are different. And I think what has been historically, that's been more mainstream. And if it's really a downturn, the economy goes down, then it really goes down. Today, we have so many parallel economies, so to say, running technology-wise. If something is going down, not necessarily something else is going down. And this, I think, is the key takeaway here. But my question actually here is that the biggest change, I think, during the last 10 years is that take a moment and look into – take the moment and think when was the last thing what you did by yourself, which didn't contain electronics? Was it the [ 20 years the same they have not ]? So this is the biggest change. I think what happened in the world that electronics is really part of our lives and then this is the change. We may have some emerging cases of technologies, which are then compensating partly like the economies which are the functionalities or applications, which are in recession. And I think this is the biggest change at the moment.

Then you mentioned that you could double your revenue with the same central costs. How would you -- how would that change your financial profile?

I said that I think that we can double the size of the company without building any significant layers in between. And so I think what we are doing is scalable. I think we can still be a double-digit earning – EBITDA digit earning EMS, but have an even further global reach and to put it simple. So we have seen it and it's a very effective model. These guys and their teams, they are rock stars. That's why we have this Incap Rock theme as well. And it's a pleasure working with these guys and enthusiasm and the ideas that were generated in Incap's, say, grassroot level is fantastic. And I strongly believe that empowering people will give you success, and we see that in our numbers. It's simple. And why not then scale it. Why not scale it even more.

Yes. Then a couple of more questions. This one is from Daniel and this question goes to Murthy. So how fast can you fill up the third factory and how much of what you produce is export versus domestic use? Also, what segments, energy, medtech, et cetera, are you most enthusiastic about going forward?

The first one is we will be completely ramping up from the Unit 3 by quarter 1 of 2023 because the building is to be completed by end of this year. And then we will be putting up the machinery and then making arrangements to the mass production to start somewhere in Q1. We will be able to ramp it up from there. The second -- and we have also decided what kind of product lines that are going to be shifted from the existing facility and how many people, it will provide a working area for about 1,000 employees. So we will be reshuffling some of the employees from the existing facility and what are the new product lines, which we have already discussed with our major customers. And so the plan is in place for that. So by somewhere in Q1, we will be able to ramp up from that facility. That's number one. Number two is that the major industrial segments that we are currently addressing is industrial and to some extent, medical. When I say industrial, it's not just confined to 1 or 2 industries. It's a vast industrial application. For example, we make a rescue devices for some of the elevator companies. we make low voltage and medium voltage LV and MV drives for a lot of companies. We also make inverters and UPS is for industrial application. I'm not exaggerating hundreds of different varieties of these. And then the battery chargers for various applications, for solar applications we make inverters, which can actually have an MPPT which can easily be plugged in. And then we also make electronics for fuel dispensing systems, which are actually exported to many parts of the world. So these are the main segments that we are addressing. I hope I've answered the question, if I understood it correctly.

Yes. Well, thank you, Murthy, for your answer. We have only time for one more question. So I can promise on behalf of the company that all the questions will be answered. But for now, we don't have any more time. So I will just ask the last question. So if closing an acquisition, how do you plan to fund it? What leverage would it be acceptable post-transaction?

Yes, it depends, of course, very much on the target in that sense. So I think we have a lot of different opportunities here. We have a strong books in that sense. So we can consider debt financing. We can consider raising equity. We can consider using Incap shares in the deal. And so it all depends on the target. And let's -- once we come there, let's figure it out then what is best on that case in that sense.

Thank you. Then I will give the floor to you, Otto, to say the last word from our Capital Markets Day.

Yes. I want to thank everybody that came here today and everybody that's watching home. And as I always do when I talk to investors and analysts and people come and visit us in Incap. If you're close to one of the factories, give us a call and because seeing, I think, is believing. Listening to us here on stage, we are the tip of the iceberg in that sense. The real action is down in the units. We're fantastic people. teams all over the world and is working and enthusiastic to produce the best electronics and offer the best services to our customers. So come and see us. And once more, thank you for the interest of Incap, and let's continue rocking.