Incap Oyj (ICP1V) Earnings Call Transcript & Summary

Incap's First Quarter Results Webcast. My name is Pauliina Tennila, and I will be hosting this event today. The speakers today are Incap's President and CEO, Otto Pukk; and CFO, Antti Pynnonen. Otto and Antti will present Incap's first quarter results. And after that, there will be time for questions and answers. You can post your questions with the Q&A function already during the presentation. And the recording of this webcast will be available on Incap's website later today. So I hand it over now to Otto Pukk.

Thank you very much, Pauliina, and thank all the people who are here today and are -- yes, having interest in Incap as always. So I will start with, as usual, with Antti to go over quickly our quarterly results. And then we will have some time for Q&A as always. And hopefully, we can answer all your questions. So let's start with the quarter. As we anticipated, we started a little bit slower in the beginning of the year. We ended up with EUR 52.2 million in revenue and an EBIT percent of 11%. So overall, being an EMS company, I think it's a good result, especially taking into account that the market is slow and very hesitant currently due to the different kind of tariffs and trade war prospects that are on the world market currently. We still believe that these things will settle and then we will see a stronger second half of the year and believe in the development in that sense. So overall, we are happy with the result in the current conditions and look forward here to the coming quarters of the year. We kept on investing in our facilities and we have done several investments during the quarter, both in U.S. and India, we invested in SMT technology. Our U.K. team also installed a new second line, SMT line that now is fully operating and implemented also vertical storage in their facilities to store PCBA assembly materials. In Slovakia, we also upgraded our PCBA washing technology and enhanced some contamination removal, these capabilities and worked with process automation and sustainability in general. And also in Estonia, we did investments and have now a brand-new X-ray system to enhance our testing and control capabilities in Estonia. So overall, we keep on investing. We believe in having the latest technology and good technology level in the factories are important for us. If we're going to produce the latest and best electronics, then we should also have a good equipment to do so. So that is our philosophy. Sustainability, of course, is as always a big topic for us. And we now published our first CSRD compliant report here in April. And I think we are very proud of the work and the work that the team has done with that reporting. We have 50 people in Incap involved in our sustainability work, and we don't have anybody, of course, full-time employed only dealing with the reporting. But alongside the other work. And I think we are -- have a good and interesting report, and I encourage people, all of you to read it. So it's not just something that we produce that nobody have an interest for. I think it's good reading and it's a core of very much of our values and how we work. So take the opportunity to read the report. Of course, we need to emphasize, as always, our fantastic people in Incap. Without them, anything that we do wouldn't be possible. And I think, as I said, we are happy with the result even if it's slow, little bit slower one as anticipated. It's due in this market condition, I think still it's a solid result doing well in double-digit EBIT and keeping developing the business. And we couldn't do that without our great people that we have in the different units. So always hat off to our guys and girls in the different units. They are the one that's doing the magic and in the end, bringing home the bacon to all of Incap's shareholders. Antti, do you want to take it away and do a little bit numbers tracking for us?

Absolutely. Yes. If you move on to the next one, please. So here, basically Otto already summarized. So I'm not going to repeat the same KPIs, but EBIT in millions of euros was EUR 5.7 million. And then on the top line, I just want to highlight that there was still a growth, 1.6% growth versus Q1 2024. Of course, it's not like crazy much, but we take that one. It could have been worse, even lower than year before as we have seen some other EMSs revealing their Q1 report. So we take that one still. On this one, obviously, we summarize and put together these revenue figures and also the profitability. So solid 11%, double digit still, of course, when the revenues are a little bit down, so it's always put some pressure on maintaining profitability. But I think we were also able to scale down some of the variable expenses nicely. We were focusing on that part, of course, when the volumes are a little bit down. And then yes, still a good performance from there. I would say, in Q1. We also invested in some of the units for increasing material levels. So we have some companies and some customers with a good prospect still for the rest of the year. So we went back for investing indeed in material levels that also showed actually in our operational cash flow in Q1. And then end of March Q1, we had almost EUR 65 million of inventory levels. Of course, if we look compared to the Q1 and 2024, so it went down this number, but the previous measurement point was end of '24 and there was indeed slight increase. I would say other items here, interest-bearing net debt, very solid, very strong, minus EUR 31 million. So keep in mind that our cash levels are far higher than what we have in interest-bearing debt elements such as the loans and things like that. So yes, we are financially in a very good position there. And then on the personnel side, 2,554 is described here in the pie chart as well. So overall, I would say it was, yes, as anticipated by Otto and our team that the year will start a bit slower, but then picking up gradually towards the end of the year.

So if you look at the outlook, we have -- it remains unchanged. So we still believe that we are going to be larger than or higher than in 2024. And as we said, a little bit cautious in the beginning of the year, but we anticipate once these tariffs and different other geopolitical like tariffs and taxes and trade wars and so will settle, then when the market knows what are the rules of the game, then we believe that we will see growth in the second half of the year. So that remains. So we all have the steering unchanged. Perhaps a little side note for you guys as well. Incap, as you know, are engaged in different social activities. And we are proud that we are now launching our first esport event together with some of our partners, and partner colleges in both here in Estonia, but also in U.K. And we will have an esport event on the 10th of May. There is still a chance for you guys to register. I will be registering with one team, so you have a chance to shoot the CEO of Incap if you can find me and/or fast enough, of course. So take the opportunity, there is good prices and tell your kids, 16-plus and onwards are welcome to join, and we are looking forward to see all of you guys on the battlefield with us on the 10th. So I must say good luck from my side, and let's shoot over to the Q&A session. Thank you.

Thank you, Otto and Antti. And I don't think Otto, anybody wants to shoot you. So maybe I think the tariffs are one of the most important questions at the moment in general and for Incap also. So what was the main reason for the slow start of the year? You mentioned the tariffs was that the only one? And then you also mentioned that they impacted especially the European units. Are they impacting also the other units? How do you see the overall situation now with the tariffs from Incap's perspective?

Yes, the European Unions were a little bit slower. And so -- but I would say that the impact is global. Everybody is waiting for the tariffs and also what will be the game rules currently. There's a lot of talks, and it looks like the Trump administration throws up a lot of dust in there and let's see where it settles. Now negotiations are ongoing. And there is tariffs and so in place now as well. So I think that the market is hesitant because they don't know exactly what the rules are of the market. Once the rules are settled, there will be always a way for business and a way to move forward. So I don't think it's specific on the European units. We export to U.S. We have U.S. factories and -- but also our customers export to U.S. So there is of course, an impact indirectly and directly, but it's not unique for Incap. It's I think something for that is similar to everybody on the market. And as I said, let the dust settle, then we know. One thing is the rhetorics and the other thing is what eventually comes into law. And now we have a few months or yes, break in that sense that we got this negotiation time. So let's see what our politicians and so do in EU and in other markets, and I'm quite sure it will settle.

Yes. And in general, of course, if I a little bit reflect on this topic is so that -- during COVID times and the material availability times when China was locked down. So there was a lot of companies who had used Chinese EMSs. And for example, it was common for U.S. corporations to buy those services from China. And then they obviously started to consider other options as well and moving production out from China and some went back to U.S. and most went near-shoring countries like Mexico and things like that. And again, I think now they are like getting hit by these tariffs in, for example, in Mexico or things like that. So there are a lot of some customers that we hear asking offers from our Pittsburgh site that Incap has a unit in Pennsylvania. And then yes, I think there's just a lot of hesitation. And then as Otto mentioned, there is no clear rules on the market at the moment and then prices tend to change and some of these tariffs are put on hold and then again, they are increased, and this is just making very difficult. Like Otto also mentioned, end of the day, customers -- end customers are paying the bill on these increases. And then again, that is a negative cycle. So the prices tend to increase, inflation goes up. We have seen interest rates coming down. And yes, it's just a hesitation overall, which is also impacting our businesses here in Incap as well that companies are a little bit waiting that what's really the geographical fit for our customers, where they should manufacture as they are also optimizing. And Also, let's keep in mind that many of the components still come from China. So no matter where you manufacture, you are still buying those from China. And then if you want to get your products to U.S., you still end up, of course, be paying those tariffs. So yes, hopefully, we see a little bit more clarity on this topic, and we believe that this will not take forever, of course. And then that's why also we believe in a gradual clarity on the market towards the second half and towards year-end latest.

Thank you. There's a question about the share of your largest customer and the growth excluding the share of the largest customer, and that wasn't provided in the Q1 report. So is it possible to give that number?

Sorry, which number was exactly?

The share of the largest customer.

Yes. Well, that's the thing. We don't disclose that. So it would be unfair to reveal it just on this forum as well because it's not publicly disclosed. But overall, not too big difference what it was in the annual level '24, just to give some kind of idea.

So looking at the year-end, what are your assumptions for the situation improving in the second half of the year? Is that regardless of the tariff situation or assuming cancellations of existing tariffs?

No. As I said, I think the assumption, of course, is based on our forecast and the input we have from our customers. But also, I think that, as I said, there is some hesitation in the market. And I think once that settles, then we will see a more normal development in that sense. And so there is a demand, but people are a little bit waiting what kind of supply chain, I would say, they're going to use into, for example, the U.S. market and so when it comes to bigger orders. And so let's see. once things settle, then we see a possible increase in the market and that we have said already with our last release, and there is -- we have the same message here. We believe in a stronger second half of the year.