Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 2.1% year-on-year to EUR 57.6 million.
- Operating profit (EBIT) rose by 12.9% compared to the first quarter of 2024.
- Successful integration of the US acquisition, contributing EUR 9 million to Q2 revenue.
- Strong cash position with interest-bearing net debt on the negative side.
- Continued investment in facilities and technology, including new machinery in Slovakia and upgrades in the UK.
Negative Points
- Operating profit margin decreased from 13.3% to 11.77% year-on-year.
- Inventory levels remain high at EUR 69.2 million, despite a reduction from the previous year.
- Dependence on the largest customer, with destocking exercises impacting revenue.
- Organic growth excluding the largest customer and acquisition impact is relatively flat.
- Challenges in the renewable industry affecting the end market revenue of the largest customer.
Q & A Highlights
Q: How big an impact did the destocking exercise have on Q2 revenue, and what will be the impact in Q3?
A: The volumes are starting to slowly pick up. Compared to Q4 and Q1 this year, the volumes with the biggest customer have turned to a growth track. We expect the growth to continue in the second half, exceeding the first half.
Q: What was the organic growth in Q2? Can you elaborate more on your organic growth?
A: Excluding the EUR9 million impact from the acquisition, the organic growth would be close to stable. If we exclude the biggest customer and inorganic growth, there would be a slight growth.
Q: What is the current utilization rate in India, and do you have capacity for other customers?
A: We still have capacity in our European factories and the new factory in India. We always maintain some excess capacity to offer to existing and new customers.
Q: What is the M&A firepower you can use for a possible acquisition, and do you have an ROI target for acquisitions?
A: We look at various factors, focusing on acquiring well-performing businesses with a strong cultural fit. The key is to find businesses with qualified people and a culture that aligns with Incap's values.
Q: Are there any plans to expand into the Middle East, especially Saudi Arabia or the Emirates?
A: While our main focus is currently on Europe, the U.S., and Asia Pacific, we are not ruling out opportunities in the Middle East or North Africa if a good case arises.
Q: What explains your relative strength versus other EMS companies, as your organic growth excluding the largest customer is much better?
A: Our decentralized organization allows dedicated teams to take ownership of customers, leading to high service levels and motivated employees. We also operate efficiently with minimal overhead, contributing to better profitability.
Q: Can you quantify the revenue growth range for the higher guidance?
A: Higher means around 20%.
Q: Should we interpret the higher volumes in the second half as an improving EBIT margin?
A: Higher volumes generally mean better allocation of fixed costs, leading to improved EBIT numbers. However, it also depends on the product mix.
Q: Can you elaborate on new customer acquisition, increasing sales to existing ones, and cross-selling opportunities?
A: We focus on developing existing accounts and acquiring new customers. The US acquisition has contributed to good opportunities for cross-selling and new business with existing customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
