Hello, Antti here. Viewers and listeners. This time we are in Germany, at Incap's production unit in Karlsfeld. Incap acquired this unit in the Lacon acquisition that was completed in February. I have the company CEO Otto Pukk here with me in interview.

Hello, Antti. How are you?

I'm fine, happy to be here and see the action in the factory. That's all. Thank you for inviting me as well. To create context for our viewers, could you please one more time go through quickly the rationale of the Lacon acquisition?

As I mentioned. Last time we spoke, we had been looking at Lacon for a long time. I think first contacts were over four years prior to the acquisition, and Lacon is a well-run company. It is well balanced when it comes to the customer portfolio and is also in very interesting sectors in power electronics and railway, but also in the growing defence sector, where they have a lot of experience. So for us it was a good fit. Germany is also the biggest EMS market in Europe, and having a local presence here, not only in the south here in Karlsfeld, but we also have the site in Kleinheubach and also a smaller operation in Boxberg, makes us very well represented in the German market. That is a key move for us to be successful in Germany.

You completed the acquisition in February and have been integrating Lacon to Incap since then. How has this work gone so far?

I'd say it has gone very well, and we are not doing very heavy integration plans. We are a decentralized organization, but we have got Lacon's people very well into our cooperation streams, and it has gone well. Very good currently, and we are happy with the result. Of course there is always more work to do, but it feels very good.

This site in. Karlsfeld, and Lacon in general, has also service and distribution business that you don't have that much in your other factories. Could you please go through what kind of plans you have for this kind of business streams when it comes to the group during the next five years' service business?

We have it in other sites as well, so we are already doing that in many of our factories. I think that is something that is a good value proposition to our customers as well, that we can take care of aftermarket activities and service as well. Yes, sir, this distribution business is new for us, and that is something that historically was the start of Lacon in that sense, and that we have now inherited. We are looking into how we can utilize that and how we can develop that as well, but of course it is not in our key focus. We're still an EMS company, and that will remain the main focus.

Meaning that this distribution business can open up opportunities also on the production side.

You know, we know that for today as well, that of course if you use different kinds of connectors that we are talking about, then there is electronics that those go into, and all that today. It's a good place for us to get good leads on that to some extent, but I think that we shouldn't focus too much on a small part of the business. Of course this site and the others here in Germany, and also in Romania, have much more to offer than that.

That drew my attention, because I didn't know that you had this sort of business here before today.

Yeah, and I think it is one of the few things that you actually can buy and take home from here, because the rest of what we do here is other people's electronics. But some connectors we can give you a good price on. Also, if.

Like you mentioned, Germany is the biggest EMS market in Europe. The economy in Germany has been struggling in recent years and the automotive industry has its own problems, but how does the operating environment in Germany look from your perspective compared to other countries?

I think for most, when thinking about Germany in general, there is a very strong industrial heritage and industrial culture there. There are some of the best engineering schools in the world here on the market, and engineering and production and manufacturing are absolutely not a problem for us. The automotive industry, which had been a big part of the industrial base in Germany, is declining. I think it will not bounce back, the automotive part. I think that race probably is lost to the Asian players, and from an Incap perspective we're not in the automotive vertical in the fields that we are operating. There are still a lot of opportunities and also growth opportunities. There has been a lot of talk that due to the decline in automotive there would be available capacity and available competence, and to some extent perhaps that is true. But normally in EMS companies either you focus on automotive or you focus on other industry segments. It is a little bit the same as if you go into consumer, for example: you focus on that. It is a different kind of business, very low-margin and mass production driven, and this is not what we are into. We are in much more, you could say, diverse and complex electronics. And with much smaller volumes and a different business. Let's say it like that.

That's very, very true. Then of course you are aiming to grow Lacon. Lacon as a part of Incap to make this deal value creating and maximize value creation as well. So what are the main tasks and targets you have given to local teams here in Germany?

Now, of course, targets. We have very clear. We have an earn-out with the former owner, Basarim, and we really hope that they will achieve it in that sense. So it looks. Good today as well. So now it's continuing to develop the company and grow the company, both organically, but also we are looking at what is happening on the market and considering different opportunities. So we haven't any very special orders for them, and the same orders apply as for the rest of the group. We have our targets that we want to reach, and we have the local excellent team that is out there hunting them.

But still continuing the same topic, if you would have to select, what is more important, growth or profitability in these units that you acquired, or should we expect that growth brings profitability?

No, I think in some extent growth brings profitability, as long as you focus on profitable growth. In the past many EMS companies have tried to do different things and grab opportunities on the market and hope that they can make profit of that later. And if you want to get profitability, you need to focus on that also when you grow. I think that in the big picture profitability is always in focus in that sense. I would always rather improve profitability a little bit than. Just grow a little bit unprofitably in that sense. Of course, I think the combination in the end of the day is that one gives to the other.

At the beginning Lacon's EBITA margin was somewhat lower compared to Incap's double-digit level. What would it take to reach double-digit? EBITA. Margin also in these units that you acquired here in Germany and Romania.

We don't comment on margins on the units, even if you do have the default numbers in that sense, but I think that if we look at the big picture. I think that our operational model is in that sense the one giving the profitability, and I would expect us to be back in double-digit EBITA in that sense. I don't see a long-term problem there. Short term, of course. We have some integration costs, we have some streams that we're doing, so that makes our Lacon profitability in that sense higher in other examples. So in the big picture, where we are heading and where we aim to get, we will get back to more normal levels. We have seen as well with other acquisitions that we are doing that there also should have the levers much more, but it took us a little bit of time to bounce back.

Looking forward to seeing the results. Finally, what are the main risks that could prevent Incap from reaching its targets you have set for this acquisition?

No, I think it's like always, that of course to be able to reach the targets, the materials need to be available, resources on the market need to be available, and that is something we are following very much. Many of our peers have been talking about material availability. We had some disturbances there in Q1, but having said that, we don't see any systematic problems. This is something we now keep an eye on, as there are no other indications that there might be some challenges on the market. So these kinds of outer factors are normally the ones that might hinder us to reach our targets. Internally we are well prepared, we are ready and we have excellent people, and I am quite sure that given that we can operate freely and as we want to there. We will reach good results as well.

Thank you very much for the interview, Otto Pukk.