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

How are you?

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

No, it is just starting now. We have had the webinar, and 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 was good to see people having interest in Incap and talking about what we are doing.

Really happy to make this interview once. Once again, so let's start with the Q3 figures you reported. Ten percent organic. Growth and return back to double-digit EBITDA. Margin. If you should summarize, what were the highlights of the quarter and were there any lowlights?

I think, as I mentioned in the webinar as well, the drivers on this of course are the defense industry and also AI-related applications in data centers. So there we see the growth foremost, and of course in our numbers. We had ten percent 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 growth that we see in this quarter is something we have done a year or even longer ago, started to do then. So it is nice to see that what we are doing is working.

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

I would say that there have not been any drastic changes. We see some small fluctuations in demand there as well, and of course. I would always like to read out the positive of everything, but defense and AI stick out so clearly that these 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 on, that goes for all the industries, so that is not limited to specific sectors. And I think that is because the overall demand in the world market is high on some of the different components.

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

Now, if it's the same, how to say, the same. Presence that was in the COVID time. I have a feeling, talking to our clients, and so on, that we have been now through COVID. We had the component crisis after that, and we had different challenges these 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 I think it's different from during COVID time. It was not so that I expected 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 to secure availability, they need to take that as well. That is giving us greater visibility, and I think that that is rather here to stay than that it will be reversed again. Like I talked about during the quarter.

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 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 too. In a risk mitigation perspective. And I think that is what we see currently there, that they are taking in certainly more suppliers to balance out the risks that they have. And so we have continued a good cooperation with them, and as I mentioned in the report as well, we have been driving now other accounts as well and expect to balance whatever possible decrease in volumes there is with new accounts. So overall, I think it's a natural development for them. In that sense, we are very much supportive and try to help them with that as well as that suits us.

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

I think it is too early to say. We can only see that there is an effort to diversify the supply chains. We are expecting that some volumes will go down. Exactly what and so on, that would be speculation from my side. I guess that some product lines may leave and some not, in that sense. So it is more a question that we see that they are all working with diversifying, and that will lead logically to some kind of pressure on our volumes there. I'm not too worried about this. We are ramping up several other good multinational companies in India currently, and I am quite sure. We will manage to balance that out, but exactly the details. I don't know. It's just a conclusion from seeing that they are working with 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 change down, or is this biggest client going to tender you and others on prices 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 is not so that. I am particularly worried. 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 am still expecting us to continue. How to say, performing well.

Let's go now to these new key accounts. We talked about them around a year ago in the India factory in Bangalore or 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 state is the ramp-up currently?

We are already delivering, and we expect to have the real ramp-up to mass production occur next year. So we are delivering, how to say, our products, and we are qualified. So it looks very promising. The projects are on time currently, and we expect this to. 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?

We are always looking for growth, but I can't comment in detail on next year. 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 green technologies and also in defense. Still there also moving into next year.

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 EMS markets, and I think. There is always very strong competition in these markets, and I don't see that now. Anything has changed in that sense. It has always been a very competitive market in Europe, and we are talking about thousands of EMS companies being there.

All right, let's continue from Europe and the Lacon acquisition. You lowered expectations when it comes to Lacon's earn-out payment in your Q3 report to somewhere around 1.2 million, if I remember. Correctly. How good visibility do you have to this earn-out payout as we speak now in October, and how well have your original expectations for the acquisition realized so far?

How we see it now is that the earn-out will be lower because perhaps our expectations and the seller side's expectations might not have matched totally. So I think that shows that we have made a good decision in that sense. We still believe in the business case that they have. We have had some delays when it comes to defense projects that we had already expected in the beginning of this year, but it was postponed and we are starting to see good traction on those now. So from a business point of view, it has just shifted, and we will probably see them more during next year and moving forward. The earn-out, of course, was in a fixed period, and we don't need to pay out now as the numbers are not fully there that the seller side was expecting at that time. But from Incap's perspective, we have ended up paying less for the asset, and we don't see. How to say, I didn't see in the first half of this year bigger defense projects starting, but now we have started that, so overall we're not losing anything.

All right, so you can confirm that this is a delay, not cancellation, when it comes to.

This is a delay, and this is the same reason. We had a slower release on this year, and as you see from the last quarter result, I think it speaks for itself.

That is 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 it was 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 try to create shareholder value. And if we 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 with 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 use their shares and do owner moves, it is hard to make M&A value-creative. In a situation like that, we decided that while we are working on optimizing what we do and focusing on organic growth and keeping performance, at the same time then giving some of that back to shareholders through a share buyback program, as our own share traded down at an attractive price in that sense. And I think it's good value creation for the shareholder to do it that way. And let's see if our share price continues to develop positively. I'm quite sure we are back in some kind of M&A track sooner or later. Now we are looking to support organic growth also on smaller bolt-on acquisitions, but it is 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. So I think it's part of being a responsible company in that sense in running a company like Incap.

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

Good.

On figures, we speak.

So figures speak, so bolt-on. That doesn't need to be even a full company. We could acquire perhaps a part of a business or something to support, so to say, something. And now up to five million or even five or something like that, five to ten million perhaps. Maximum, but smaller million deals and these kinds of things, perhaps buying a customer or whatnot from a company. When we talk about larger-scale acquisitions. We have said that on one side it should be somewhere, you know. Twenty, twenty-five, thirty million euro, and I think that Incap, the size of Incap, financially would have the firepower to look at perhaps even hundred-plus million companies in that sense when it comes to multiple sites or so. It's different scales if we are looking at larger acquisitions. But now we are looking more at businesses of five 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 ten percent, and I think that if we can continue to develop and grow organically, then that is also of course most value-creative for the shareholders.

Exactly. Organic growth can be capital-light, but M&A-driven growth is basically never capital-light. All right, and finally Incap will have a capital markets day coming in November. Could you give us a short teaser of what to expect?

Of course, there is a good opportunity to meet me and Incap management, and of course 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 midterm. 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 also have some. Both people there from the industry-wise side, so we have a few artillery when it comes to analysts and journalists covering the EMS industry, and I think that will be, alongside our own management. Very interesting for the listeners to come and meet us on site. Seventeenth of November, and we will also have it live-streamed, so whatever is more convenient. But live is of course the nicest, as there is networking and some drinks opportunity with this later, so utilize that.

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

Thank you very much.