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

Hello, Antti. How are you?

I'm. I'm fine. Happy to be here and see the action. In the factory. That's always a pleasure. Thank you for inviting, well, to create the context for our viewers. Could you please, one more time, quickly go through the rationale of the Lacon acquisition?

As I mentioned last time we spoke, we have been looking at Lacon for a long time. I think first contacts were over four years prior to the acquisition. And Lacon is a very well-run company. It's well balanced when it comes to the customer portfolio, and it's also in very interesting sectors, in power electronics and railway, but also in the growing defense sector, with a lot of experience. And so for us, it was a good fit.

Germany is also the biggest market in Europe, and having local presence here, not only in the south here in Karlsfeld, but we also have the site in Glendale and also a smaller operation in Boxberry. Makes us very well represented on the German market. And I think that is key to move forward, 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 must say it has gone very well. And we are not doing very heavy integration there, as we are a decentralized organization. But we have got the local people very well into our cooperation streams, and it has gone very well currently. So I'm very happy with the result. And, of course, there's always more work to do. But it feels very good.

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

Service business we have in other sites as well. So we are actively doing that from many of our factories. And I think that is something that is a good value proposition to our customers as well, that we can take care of, I would say, aftermarket activities and service and so on as well.

Yes, the distribution business is new for us. And that is something that historically is the start of Lacon in that sense, and that we have now inherited. And, yeah, we're looking into how we can utilize that and how we can develop that as well. But of course, it's not in our key focus. We're still an EMS company. And that will remain the main focus.

Do you think that this distribution business can open up opportunities also on the production side?

Yeah, no, we know that for today as well. And of course, if you use different kinds of connectors that we are talking about, then there is electronics that those go into, and already today, it's a good place for us to get good leads. So to some extent it is. But yeah, I think that we shouldn't focus too much on it. It's a small part of the business as a whole. And of course, this site and the others here in Germany, and also in Romania, have much more to offer in that sense. Yeah.

Yeah, that's true. It just caught my attention because I didn't know that you have this kind of business here before today.

Yeah. And I think it's 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. Let's see.

Like you mentioned, Germany is the biggest EMS market in Europe, the economy in Germany. 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 when you compare it to other countries?

I think foremost, when thinking about Germany in general, there is a strong industrial heritage and an industrial culture. There are some of the best engineering schools in the world here on the market, and engineering and production and manufacturing is absolutely nothing new for them. For them.

That said, the automotive industry, which has 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 in, yeah. Yeah. Against other players and so on in the market.

That said, from the Incap perspective, we're not into automotive. We see that in the fields that we are operating in, there are still a lot of opportunities and also growth opportunities. Also, there has been a lot of talk that due to the declining automotive industry, 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's a little bit the same that if you go into consumer, for example, you focus on that. It's a different kind of business, driven by very low margins and mass production. And this is not what we are in. We are into much more, I would say, diverse and complex electronics, 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 as a part of Incap to make this deal value-creating and maximize the value creation as well. So what are the main tasks and targets you have given to the local team here in Germany?

And, you know, of course, the targets are very clear. We have an earn-out with the former owners, and that we really hope that they will achieve in that sense. So it looks good today as well. So.

So, no, it's continue to develop the company, and to develop and grow the company, both organically, but also look at what's happening on the market when it comes to different opportunities. So we haven't, I don't have any special orders for them. Same orders as for the rest of the group. We have our targets that we want to reach, and we have a local excellent team that is out there hunting them. Right, right. Fair enough.

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 to some extent, growth brings profitability as long as you focus on profitable growth. And I know in the past, many EMS companies have tried to differentiate and grab opportunities on the market and hope that they can make a profit of it. I don't believe in that.

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. So of course, but I think a combination at the end of the day is that one gives 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 EBITDA margin also in these units that you acquired here in Germany and Romania?

Yeah, no, we don't comment on margins on the units. Even if you have the default numbers in that sense. But I think that if you look at the big picture, our operational model is, in that sense, the one giving the profitability.

And I would expect us to be back in double-digit EBIT 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. And so that said, our low profitability in that sense is high in other examples. So in the big picture, I know where we are heading, and I'm quite sure we will get back into a more normal level. And we have seen as well with the other acquisitions that we are doing that in theory also should have diluted us much more. But, yeah, it took us a little bit of time and we bounced back. Yeah.

Looking forward to seeing results. Finally, what are the main risks that could prevent Incap from reaching its targets, 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 and resources on the market need to be available. And that is something we are following very much. I know many of our peers have been talking about material availability, but we had some disturbances in Q1, but then stated that we don't see any systematic problems.

This is something we now keep an eye on, as others are hinting that there might be some challenges on the market. So these kinds of outer factors are normally the ones that might hinder us from reaching our goals. Internally, we all were hyped. We are ready, and we have excellent people. And I'm quite sure that, given that we can operate freely and as we want to, we will reach our results as well. Good.

Thank you very much for the interview. Thank you.