Incap published its Q3 report this morning, and I will discuss the release with the company CEO, Otto Pukk. Hello.

Hello. How are you?

I'm fine. I'm fine. It's a busy day for us. I think that you are in a much better position because your job is more or less done.

No, I see you're starting now. Now, we have had the webinar, and then I have interviews with you guys and other analysts and investor calls. And it's just starting in that sense, but I'm looking forward to it. It's always good to see people having an interest in Incap and talking about what we are doing.

Yeah. Really happy to make this interview once again. So let's start with the Q3 figures. You reported 18% organic growth and returned back to a double-digit EBITDA margin. If you could summarize, what were the highlights of the quarter? And were there any lowlights?

No, I think, as I mentioned during the webinar as well, the drivers of course are the defence industry and also AI, or I would say applications around the AI data center. So there we see the growth foremost. And of course, in the numbers, we had 18% organic growth, but also the numbers in the big picture are helped by the Lacon acquisition. So I would say that, to summarize, it's solid work. And of course, this work that we see the fruit of in this quarter, that is something we have done a year or even longer ago. We're starting to do that. And so it's nice to see that what we're doing is working.

If we continue from the demand environment, as you said, the defence segment was very strong and the main driver of the growth. But how about demand in other industries, like in the more traditional customer base that you have? Have you seen any changes recently in the demand picture?

I wouldn't say that there have been any drastic changes. We see somewhat smaller fluctuations in the demand there as well. And of course, I'm always a positive guy. I try to read out the positive in everything. But defence and AI stick out. So clearly those are the main drivers, even if we see some movement in other industries as well. Overall, you can say that when we talk about component availability. And so that goes for all the industries. So that is not limited to specific sectors. And I think that is because the overall demand on the world market is high for some of the different components.

Some of your peers have even claimed that, due to this component availability case, visibility to orders is once again increasing. This is a similar kind of behavior that we saw during Covid time. Do you think that this is really the case?

I don't know if it's the same, how to say, the same. Reasons as there were in Covid time. I have a feeling, talking to our clients. And so that we have been now, you know, through Covid, we had the component crisis after that. And we have had different challenges the past years. And my feeling is that, in general, customers are willing to give longer forecasts. They understand that to secure their deliveries, they need to commit more long term and give more visibility to us. So. So I think during Covid time, it was a must. And then I always said that I expect it to go back again once the components are available, that we will go back.

Now, I would say that I think that customers are more mature in that sense and are willing to give somewhat longer forecasts and understand that there is some kind of liability that they need to take as well. And that is giving us greater visibility. And I think that that is here to stay, rather than that it will be reversed. Again, like I talked about during Covid.

All right. Let's go then to India. You said in the report that your biggest customer is going to allocate some of the production that you have done to other suppliers. So have they made, like, a strategic decision to widen their supplier portfolio? Or were you just not competitive enough to keep these volumes in Incap?

No, I think they have also grown and developed together with us. And I think they are now running their supply chain, how to say, more professionally. And that means also that they need to diversify from a risk mitigation perspective and so on. That, I think, is what we see currently there, that they are strategically taking in more suppliers to balance out the risks that they have. And so we have continued very good cooperation with them. And as I mentioned in the report as well, we have been driving other accounts as well. And I expect to balance whatever possible decrease in volumes there is with new accounts. So overall, I think it's a natural development for them. And in that sense, we are very much important and try to help them with that as well.

Yeah. Let's go to new accounts a bit later, but I still want to continue from this theme. Can you anyhow quantify what kind of business you are losing out on and how much you are losing in India? And how about timing? When will this rundown of this production that goes away from Incap happen?

No, I think totally we see that there is an effort to diversify the supply chains. We are expecting that some volumes will go down. Exactly what. That would be speculation from my side. I would guess that some product lines. They would then lift, and some not, in that sense. So it's more a question of that we see that they are all working with diversifying, and that will logically lead to some kind of pressure on our volumes. That said, I'm not too worried about this. We see that we are ramping up several other good multinational companies in India currently. And I'm quite sure we will manage to balance that out. But yeah, exactly. The details, I don't know. It's just a conclusion from seeing that they are working with it, that of course this will lead to some kind of pressure on our volumes as well.

Do you think that this will be like a one-time step down, or is this biggest customer going to tender you and other suppliers constantly in future when it comes to these volumes?

I think we are always competing in that sense. And I think it's a natural part of the business that we are competing. But I would say that it's not so that I'm particularly worried about this. As I said, I think it's a normal part of the business. And we have good traction currently in India with several good accounts. We are ramping up now. So I'm still expecting us to continue, I would say, performing very well.

Yeah, let's go now to this news, new key accounts. We talked about them around a year ago in the India factory in Bangalore. So what is the status of these new data center-driven key accounts as we speak? Are you already delivering? And if you are, in which stage is the ramp-up currently? Currently?

Yeah, we are already delivering, and we expect to have the ramp-up to mass production occur next year. And so, but we are delivering our products, and we're qualified, and so it looks very promising. The projects are on time currently. And we expect this next year, in that sense, to see the real result of this.

So do I understand correctly that you are looking for growth next year in India?

And we're always looking for growth. But I can't comment in detail on next year yet. As I said in the report, we see the fourth quarter to be very strong and moving forward as well. I think the underlying demand that we see in both AI-driven technologies and also in defence is still there also moving into next year. Okay.

Then continuing a bit from the competitive situation. How is competition? Right now in Europe and in North America. Have you seen any changes in the competitive environment recently?

Europe and North America are of course also big. Markets. And I think there's always very strong competition in these markets. And I haven't seen that. Now, anything has changed in that sense. It has always been a very competitive market. Europe alone. And so we are talking about thousands of companies, big and small, in that sense.

All right. Let's continue from Europe and the acquisition. You lowered expectations when it comes to Lacon earn-out payment in your Q3 report to some EUR 1.2 million, if I remember correctly. How much visibility. Do you have to the earn-out payout? As we speak now in October? And how well have your original expectations for the acquisition realized so far?

Yeah, it depends on how you see it now, that the earn-out we put there because perhaps our expectation and the seller side expectation might not have matched totally. Totally. So I think that shows that we have done a good decision. That said, we still believe in the business case that they have had. We have had some delays when it comes to defence projects that we had already expected in the beginning of this year, but then were postponed. And we're starting to see good traction on them now. So from a business point of view, it has shifted, and we will probably see them more and more during next year and moving forward. The earn-out, of course, was in a fixed period, and that we don't need to pay out.

Now, as the numbers are not fully there, that the sell side was projecting at that time, but from Incap's perspective, we will end up paying less for the asset. And okay, we didn't see in the first half of this year the bigger defence projects starting, but now they have started. So overall, we are not losing anything.

All right. So you can confirm that this is a delay, not a cancellation, when it comes to. Yes, yes. This.

Delay, and this is the same reason we had the slower Q1 or H1 this year. And as you see from the last quarter result, I think it speaks for itself.

Yeah, that's very, very clear. So let's move to share buybacks. Incap started, I think, the first share buyback program that you have had during Q4. Could you open up a bit? Why? Why was it a good time right now to start a share buyback program for us?

I would say responsible capital allocation is always key. And we always strive to create shareholder value. And if you look at the M&A market, we had a good cash position and a good financial position. And the M&A market was very hot. We saw companies moving with very high multiples. At the same time, we felt that our share price was clearly traded at a discount compared to many of the market peers. Comparing our performance to other companies. And of course, in that situation where multiples are as high or even higher than our own. And our competitors have much higher multiples where they can issue shares and do other moves. It's hard to make large-scale M&A value-creative.

And in a situation like that, then we decided that, and always are working on optimizing what we do. And we are focusing, or decided to focus, on organic growth and on keeping performance, and at the same time then giving back to shareholders through a share buyback program, as our share was traded at a very attractive price in that sense. And I think it's good value creation for the shareholders to do it in that way. And let's see if our share price continues to develop positively. I'm quite sure we are back on some kind of M&A track sooner or later. Now we are looking to support organic growth also with smaller bolt-on acquisitions. But it's always a picture that you need to look at where you are doing your investments, and if it doesn't make sense to buy large-scale companies, then you keep on investing in your operations and in organic growth. And so it's, I think, a part of being responsible behind the wheel in that sense in running a company like Incap.

Yeah. That was pretty much an answer that I wanted to hear from you, but one follow-up. In your thinking, what is large-scale M&A, and what is just a bolt-on supporting organic growth?

Yeah.

Because we speak.

Yeah. So, so, so to speak. So bolt-on doesn't need to be even a full company. We could acquire perhaps a part of a business or something to support. So say something, I know, up to 5 million or, yeah, five or something like that. Or five to 10 million, perhaps at the maximum, could. But smaller million deals and these kinds of things, perhaps buying a customer or whatnot from a company. When we talk about larger-scale acquisition, we have said that one site should be somewhere, you know, EUR 20 million, 25 million, EUR 30 million. And I think that Incap, the size of Incap, we financially would have the firepower to look at perhaps even 100-plus companies in that sense when it comes with multiple sites or so, so it's different scales if we are looking at larger acquisitions.

But yeah, now we are looking more at businesses, a few million here and there, to support organic growth. And the main focus, of course, is to continue to grow organically. And we had this quarter excellent organic growth, with some 18%. And I think that if we can continue to develop and grow organically, then that is also, of course, the most value-creating for the shareholders.

Yeah, exactly. Organic growth can be capitalized, but M&A-driven growth is basically never capitalized. All right. And finally, Incap will have a Capital Markets Day coming in November. Could you give us a short teaser? What to expect?

No, of course, there is a good opportunity to meet me and Incap management and discuss. We will talk about our strategy update that we have been working on and how we see the future when it comes to where we want to take the company here in the mid-term. And I think it will be an interesting Capital Markets Day, with a lot of news in that sense from our side and good discussions. And we have also some of both Phillips and Rice there. So two of the heavy artillery when it comes to analysts and journalists covering the industry, and I think that will be, alongside our own management. Very interesting for the listeners to tune into. So come and meet us on site on the 17th of November, or we will also have it live-streamed. So whatever is more convenient, but it is also, of course, the nicest way. There is networking and some drink opportunity with us later. So utilize that.

I will definitely be on place. See you there, and thank you for the interview.

Thank you very much.