Incap Oyj (ICP1V) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this webcast covering Incap's Second Quarter and Half Year 2026 Results. My name is Paula Tennilä, and I will be hosting this webcast today. The speakers are Incap's President and CEO, Otto Pukk; and CFO, Antti Pynnonen. Otto and Antti will walk you through the results, after which we will go through your questions. You can post your questions at any time using the Q&A function. A recording of this webcast will be available on Incap's website later today. With that, I'll hand it over now to Otto Pukk.

Thank you very much, Pauliina, and hello, and thank you for all who are tuned in and listening to this webcast and have interest in Incap. We might have a little bit technical difficulties today. I am in India and hopefully, all the presentations and so will work. But otherwise, we will share the presentation and as Pauliina said, also the webcast in a whole, so you can go back and have a look at it. So the first half of the year is over. And we did a smaller adjustment in that sense in here just a few days ago when it comes to the steering. But with that taken into account, the year have gone as we have expected. We ended up the first half on EUR 130.2 million, which, of course, is a big increase compared to previous year. Of course, here, a large contribution of this is as well the Locon acquisition that now is in more fully than perhaps in Q1 and so on. But nevertheless, it's an increase from year-on-year. EBITA ended up 11.7%. The profitability was a little bit impacted by, of course, the change in business mix that we have had with the acquisition. But also we had some postponements in deliveries also in the second quarter, some were postponed, as you remember, in the first quarter to the second, but these challenges has impacted. And if you look at the full year, then, of course, the foreign exchange impact that was in the first quarter also impacted the first half in that sense. Business-wise, we have concentrated a lot on the integration, of course, getting our new team members in and working to increase the collaboration that we have between the units. And all of this, of course, is a drive to drive organic growth. which is currently our main target. And I'm happy to say that in quarter 2, then we have got back into organic growth. We had 4.1% organic growth, but quarter-to-quarter, it's a 20% increase, and we are moving in the right direction with the organic growth. We can take the next slide. As you saw in one of our releases, we have changed a little bit the management structure that we work on. And this is also to support our organic growth issues. We are now a larger company, and we are a little bit more organized regionally. And this is to support the collaboration and also the way we work towards organic growth in the different units that we are in. And I'm very happy with that development. And I think that, that will help us to support the organic growth moving forward. Yes, next slide. We have also with our new acquisitions, so strengthen our position segment-wise. And here in picture is an example of our defense team coming together here in Helsinki earlier this year. But we see that also across other segments. And I think this is also the knowledge, I would say, that we have accumulated and as a whole will help us moving forward with driving growth and finding synergy and cross-selling opportunities in the company. That, of course, with the added capabilities that we now have in engineering and with a general broader service offering in the group, I think, will provide good value for our customer and help us to grow our business. Yes, we can continue. As always, we continue to invest in our operations during this first half. And so we have invested now in clean room facilities in Slovakia. We have strengthened our SMT and testing here in India, where I'm at currently. And also in Estonia, we have invested in conformal coating and other smaller investments across the group. For us, it's always important to keep on developing and keep on investing in our operations so we can provide world-class services to our customers. Also when it comes to how we work, we have, for example, in Germany during this and Romania during this quarter got certified on ISO 27001, the IT standard, which is, of course, very important for our customers that are in different more regulated markets. And this initiative, we are continuing with in the group, and we have a plan now going site by site and continuing to get certified on this very IT security and management system. Yes. And basically, over to you, Antti.

Thank you Otto. Then we start looking through the second quarter results. Here are the main figures that we recorded. So revenue grew 34%, totaling EUR 74.2 million. And then like Otto mentioned, of course, this is the first full quarter we had our quite large acquisition, Lacon company in consolidated into income figures. So that drove the number up as we wrote in the report, so the pure organic growth was 4.1% in the second quarter. Comparable EBITDA was EUR 6.5 million, which means 8.8% from the revenue. And that number was impacted by EUR 850,000 salary-related, personnel expense related, I would say, more like a one-off type of costs in quarter 2 2025, there was an accrual release, which gave some upside in the comparison year. But this year, same topic was actually cost. So the delta was this EUR 850,000. I think that is good to understand. Then operating profit was mentioned there as well, but I'll come back to that one on the graph on this one here. So there was also impact on the currency exchange rates, but it wasn't that much actually in the second quarter. That's why we didn't highlight that much on the Q2 report, but instead of first half, January, June period, this still played a role, mainly driven by the U.S. dollar compared to the 2025 figures. So that played a role. But yes, if we look into this graph here, this is what we have listed here. The jump in the revenue, big jump here is explained by the acquisition. And then we can see the operating profit here in the right-hand side on a monthly basis, quarterly basis. And then we have, of course, the percentage here. So a little bit down there, but then we will discuss, I think, later on also about the margins. Then if we look into the next slide, this is just a summary of the slides. I wanted to highlight again the inventory levels. There has been some delays in projects already we mentioned that in the first quarter, we saw some material availability challenges and then that continued to be similar way in the second quarter. So then that is something that is also increasing our inventory levels now totaling almost EUR 84 million. And there is a quite big increase from the year-end closing, which was EUR 52 million. But again, Lacon acquisition explains majority of this delta. So interest-bearing net debt, we have listed also here as one KPI we are following continuously, so EUR 9.1 million and then the personnel exceeded slightly over EUR 3,000. And then if we look into the next slide.

Yes, then it's me again, isn't it? So we changed the outlook here on the 24th, as I mentioned before. We estimate now that the year will end somewhere between EUR 270 million and EUR 290 million in revenue, and the EBITDA will be somewhere from EUR 26 million to EUR 29 million in the year. So that's the estimate, and we haven't changed it since we gave it just a few days ago. But I think we are ready for questions and take it away, Pauliina, and I hope we get interesting questions to answer.

Thank you, Otto and Antti. Let's indeed begin with the Q&A. So maybe as a first question, in addition to the Lacon's impact on your revenue, your organic growth picked up in Q2. What is driving that? And how do you see that moving ahead?

Yes. Of course, our main focus now is driving organic growth. And this, of course, is to create as much value for our customers and for our owners as well is key. Before we have looked also on inorganic growth, and I think, of course, that is somewhere there. But it's -- we're tough market currently with very high valuations in -- when we look at different kind of M&A targets and so on. And for us, responsible capital allocation is always key. And with our multiples being at the level that we are currently, then, of course, organic growth is what we are focusing on. And I think we have a very strong basis for driving organic growth. We have a good now positioning with the new service offering and a strong team with the new Incap now, the larger Incap. And I'm quite sure that our efforts in this will continue to yield result and to move forward. And already, as I said, we have -- we see it now compared to last quarter, it's already 20% up organic growth. And I think that from quarter-to-quarter is already a good indication where we are going.

May I add a few things. So then traditional Incap business is where we have been very strong like power electronics and this has been quite stable. But then if you look into new sectors that have been picking up like defense sector, so that already played a big role in second quarter versus year-on-year on this 4% growth. So defense has -- we have had good success stories in defense sector recently. Yes.

There's a question about India. And could you please elaborate on the situation there and the increased competition that you mentioned? And is this the certain market segments that you also mentioned in the profit warning?

Yes, India in India now, of course, India is a very important part of our company, and we have a great team here in India. EMS market here is very hot. There's a lot of competition coming up. And then those that follow, for example, EMS companies on the Mumbai Stock Exchange see that a very high valuation are there are, a lot of investments into the market. And this, of course, have an effect also of new players coming in and increased competition compared to what was perhaps a few years ago or even going back further when perhaps we were one of the first EMS companies in our international companies here in India. So we see a bigger competition and more players on the market in general. I wouldn't say that it's in any particular segment. It's more geographical or I would say, thing that the companies are coming up. We have a lot of OEMs as well moving their manufacturing and their R&D facilities here to India. So it's a hot place to be and especially here in Bangalore or near Bangalore, we are in Tumkur, yes, outside Bangalore and this area, what's called the Silicon Valley of India. So hot market. And of course, it also gives opportunities, but with more competition than it used to be.

And how about the competition and your headcount? So have you lost some business in India? And what is the status of production in India currently? So the headcount has decreased actually in India. That's the question about I think the production status.

The headcount, of course, always fluctuate with depending on what product mix we have and what kind of business we're driving. Look, volume-wise, I think we have increased the business in India, but it all depends, of course, on the product mix on how it turns out in the revenue numbers. And so in general, we are attracting new accounts here. We are ramping up new larger customers as not -- here in -- some interview here during the quarter also mentioned when we were talking about India. So there is a lot of positive development in India, and then I wouldn't say that we have lost any customer accounts. But of course, it's pressure on -- with the increased competition and this is something we need to maneuver with. At the same time, India is as a market growing and there's a lot of opportunities, and we see that we are working together with many multinational companies now here in India, and I'm still very positive on being here and the potentials that we are pursuing.

There is maybe another question still about the competition, and I would maybe turn this into why is India so hot? What is sort of the root cause? Why do you think the EMS market is doing so well there?

Let's begin with that every year in India, 1.5 million engineers graduate, 1.5 million engineers. Put that into perspective on many European countries, just to share a number. They are all English speaking. They have great engineering schools here in India. And this is, I think, the key driver, the availability of engineers in Europe, in U.S., in many places in the world, there's a lack of engineers. Here in India, there is engineers available. And that is driving, of course, many companies to invest into India into R&D and utilizing this engineering power that is in India. So I think that is the main driver, the engineers in India. Then add that to also that India is a democracy, one of the few democracies in Asia that you can drive and run manufacturing in. And that is, of course, a huge difference between doing business here compared to perhaps some of the more totalitarian states where we're in the region. So there's a lot of things talking on like for India. And I think the engineers are the main factor. And of course, there's a growing market as well in India itself, which is very attractive for many companies, also for Incap.