to Incap's Q2 Result Webcast. My name is Pauliina Tennilä and I will be hosting this event today. Our speakers today are Incap's President and CEO, Otto Pukk, and CFO, Antti Pynnönen. Otto and Antti will present Incap's second quarter results, after which there is time for questions and answers. You can post your questions with the Q&A function already during the presentation. The recording of this webcast will be available on Incap's website later today. I hand it over to you now, Otto.
Thank you and welcome everybody from my side as well. It's always a pleasure, having so many people, having interest in Incap. I'll start sharing the presentation very slowly. Currently, me and Antti, we are in Kuressaare in Estonia, where Incap is supporting the Kuressaare Sarema Opera Days. I hope that we have also some of you guys, shareholders here in Kuressaare, enjoying the culture and the music. Let's talk a little bit about the quarter that has gone. As we had anticipated, the first half of the year started with a little bit of anticipation in the market. We had hoped that by now already these tariffs and trade deals that are foremost with the U.S. and Europe, but also the U.S. and India, had regained some kind of clarity. There's still uncertainties.
As you saw, we went in and we did a steering change here in the beginning of the week due to that. Otherwise, the revenue we had during the quarter was slightly higher than the previous quarter. The whole first half year figures in that sense is as here on the screen. Still in a double-digit debit and EUR 107.5 million in revenue. We give now an interval. The new outlook that we have is showing a number a little bit than flexibility. We choose to do that to get clarity. We continue to now monitor what is happening in the foremost with the U.S. administration and the trade deals. Let's see. In principle, when we changed the steering, the biggest issue for us was the dollar exchange rate. We had some projects that had been postponed, but as our steering was very close to the previous year.
When the dollar exchange rate changed, which is a big part of our business, is dealt in dollar. As we have the Indian unit very much dealing in dollar and, of course, the U.S. unit as well, this very weak exchange rate affects our result. A little bit to visualize this as well, there is an all-time low in that sense in both the dollar and the Indian rupee that follows the dollar. We feel the effect in both of those. Otherwise, we have continued, of course, to work and develop with Incap. We have installed our new SMT line and the upgrade of that in the U.K. We have also invested here during the first half in SMT production equipment in the U.S., in new X-ray in Estonia, and upgraded our PCB washing technology in Slovakia.
We keep on investing and seeing that our factories are top of the line and can handle our needs. Also in India, we have done SMT line investment, but also installed, as you saw perhaps in social media, quite a significant amount of solar power in the Indian facility. That, of course, is part of our sustainability program as well. Perhaps to mention during the quarter is that we have continued to develop our units and also regained some new accreditations in the defense industry, for example, in the U.K., where we have the JOSCAR Zero accreditation now in place. Business continues. We continue to develop the business all over the different factories. When it comes to sustainability work, it continues.
We just had the report out here in springtime, but we have already kicked off the reporting for this year and now have been heavily focusing on our climate transition plan and have been focusing and developing that. That is now with roadmaps and targets, and it's in place and we start developing and moving forward with that. We have a focus. We are looking at all opportunities we have to reduce our CO2 emission, and that's why solar panels and other things that I was mentioning before are, of course, very much in focus. It's always about our people. I think we wouldn't be here today without our excellent teams all around the world that continue to deliver and perform very highly and see to it that our customers get what they want and need in that sense.
It's always a team effort, and it's a pleasure working with all Incap people around the world. That said, Antti, you might want to dig in a little bit more into the details when it comes to the numbers. Go ahead, please.
Yes, please. If we take on the next first slide here, the result of the second quarter, EUR 55.3 million, slight increase from the first quarter, almost 6%. We recorded EBIT EUR 6 million, and that is in healthy double-digit figures, sniffing on 11%. Adjusted EBIT was EUR 11.5 million. Here we come again on this trend, since 2020, second quarter. Figures show now on the second quarter slight, slight increase from the beginning of the year. Towards the second half, we expect the similar level to continue. If we take the next one here, we also measure, of course, the development on the inventory values. As we commented earlier this week about the currency rate, obviously when Incap is so international business and most of our assets are in different currencies, mainly this U.S. dollar Euro rate has weakened. Of course we value all our assets as well.
Balance sheet is valued on the latest currency. Inventory also is partially impacted by weakened currency effects. If we would have used the similar rates as 2024, actually the inventory levels have slightly increased since December 2024. We still remain extremely healthy when it comes to our cash position. Our net interest-bearing net debt is -EUR 35 million. Below is the definition of where it comes from, EUR 64.4 million cash. Interest-bearing liabilities EUR 26 million on a non-current side and EUR 3.5 million short term. 2,600 approximately FTEs on the group level. There is an increase in the figures, and mainly contract worker number in India is picking up.
Yeah, so coming back to the outlook, our new outlook is that we will have a revenue between EUR 210 million- EUR 230 million and operating profit between EUR 23 million-EUR 26 million. Given that there is no change now in the inputs that we have regarding material availability or other things on the market. Our previous estimate was that we were going to be higher than this year, but this is now revised. I think that is it from us when it comes to the numbers. We are always happy to take questions. That's the main part of this webinar. So, guys, please go ahead and let's discuss what is in your mind.
All right. Yeah, a couple of questions here for you. Talking about the postponements done by the customers, do you see a lot of pent-up demand due to them?
I want to emphasize that the main reason for us changing the steering is still the exchange rates and not postponements or projects. Postponement of projects is more reflecting that we were expecting the Q2 growth at the end of Q2. Yes, we see it. There's still hesitation, especially in our customers that deliver into the U.S. or have end customers on their side that deliver into the U.S. We see that in many sectors, both industrial customers and defense customers, as there have been some question marks regarding some projects in the support of Ukraine from the U.S. that now is a little bit pushed into the future. Yes, that is, but I don't think it's a question of demand that is going to disappear. It's a question of timing.
Now we are already in the second half of the year and very close to the window where we already know how the year will play out. If the orders haven't been placed by now, then, of course, it won't be a big probability that it will already be fitted into this year and can be delivered in the year. Of course, the longer it takes and the longer people wait, the more likely is that it's orders that we are going to deliver next year rather than this.
What is your current utilization rate and what is your revenue run rate at full capacity?
Yeah, the full capacity is a relative term in that sense that we have talked about it in this webinar several times before, that we always plan with some kind of overcapacity. We have that today as well, that this is what we are selling in terms of our customers or for our potential growth. Capacity, it all depends on what kind of product mix there is. If you do, like we do for some customers, 10x 10, 10 ft by 10 ft big controller units, then you can fit fewer of those than if you make a small board that is perhaps 10 mm or 10 cm by 10 cm. It all depends on, so I wouldn't talk about capacity in that sense.
In general as well, I think it's an old way to look at manufacturing, talking about always, how to say, capacity utilization because it's a moving target. As an EMS company, we can always rent more facilities. We can rent equipment. We can rent people. It's more a question of what the customer needs and what is the current output need that we have, and then we will match it. It's the service of matching that need that is the core and the essence of all the EMS business nowadays.
Maybe from my side is one comment here on this one. That definitely we have capacity available, so it means that we don't need to invest necessarily on the floor space or the real estate itself. In theory, of course, we could add more, you know, from one kind of working in one phase, you can add in the two phase or even all around, three phase, phase, working around the clock basically. The message from my side is that we know we don't need to invest in real estate or floor space or not necessarily even that much on the machinery and equipment, on meeting the growing demands from our customers. That's one way to look at it as well.
Thank you. The next question is about your largest customer, and how have they been developing relative to the rest of your customers in H1?
I think we have been developing, good. We had to have a slightly increased volumes and, and so during the quarter. We are producing, producing, steadily for them, but they are also one of the customers where we deal in U.S. dollars. Even if we have increased slightly in the volumes, when we convert this now on paper into a euro, the value of that is slightly less than it was, say a quarter or two ago because of the dollar exchange rate. Antti, do you have an, want to double, double down on that one?
No, I think you actually have the point there. Of course, when we do the full year forecast internally, we do a lot of different scenarios with different exchange rates as well. The main driver obviously is always the customer demand and their outlook and their confirmed orders and agreed production plans. We put all these numbers together. We do it several times a month, this kind of scenario analysis with all MDs in the meetings and then go through the plans. With the exchange rates we have had so far on average, six months, January and June period time, we saw that it seems like this outlook that we gave out is, yeah, we stick on that one. That's based on the current best estimation on the business, and we believe on that one.
Of course, in Incap, we always aim for shooting a little bit, of course, on the top tier or the higher boundary of the range. That is our ambition level internally. Now we are in June, July, and obviously still a lot of work to do to meet those figures. We will keep you guys posted, of course, on the progress.
Thank you. There is a question about defense and aerospace. Is defense a big market for Incap or Incap's customers? Would you like it to be bigger considering how the defense market is developing currently?
Yeah, no, defense currently is not the biggest. I think it's slightly less than 5% of our total business is related to defense and aerospace in that sense. As we bundle those in one segment, we have been working on increasing it here over the past year, and we are looking to continue with that work. That said, it's also a volatile market. Now it's a good base for defense business, but there are also downsides when the turn goes on the downwards. I think that focusing only on defense business, we of course want to, it's a part of a balanced, how to say, customer portfolio for us is to be in many sectors. Of course it's currently attractive. There's a lot of money moving there, and we are also working very close with several customers and several projects on the defense side.
I have a, and we'll continue to do that.
Thank you, Otto. There is a question about financial expenses for the debt, and that's increasing. What is the trend going forward?
If we actually look at the interest that Incap is paying, that is actually going down, as we have seen interest rates, Euribor, and then Incap's own agreed percentage premium on top of that, interest premium with the local bank. A combination of those is going down. The real amount Incap is paying for the debt is actually EUR 150,000 less in the first six months this year than it was last year. The majority of the finance expenses is all related to translation differences. Like mentioned earlier, we are a very international business and we have a lot of dollar-based assets. There are dollar-based bank accounts in the parent company in the U.S., and there is an internal loan between Finland and the U.S., intergroup loan, EUR 20 million receivable. All of these are always valued at the end of the month with the latest currency rate.
That explains the growth on the finance expense side. Incap has also monitored this development of the currencies and what can be done there, and analyzed different ways to protect against this. We have already taken a step to hedge. For example, we hedged at the end of last year this intergroup receivable from the U.S., and that is on the other hand then showing some financial income on the P&L side. Hopefully this answered the question.
Thank you, Antti. Talking about the foreign exchange rates and also the gains, how about then on the purchases side? Do you have benefit at all on the U.S. dollar situation in your purchases?
In that sense, for example, in India, which is the biggest unit, or in the U.S. that also of course deals in U.S. dollar, we also purchase very much in U.S. dollar. I guess that a little bit offsets each other. We are in that sense. I think the big part of the business or even the majority of the business is U.S. dollars based as India is and U.S. now, dealing with them. Perhaps that's the way you should see it. I want to emphasize this is on paper, that we are not in reality converting the U.S. dollar to a euro. It's what we do in the reporting to show the figures to the market. In reality, we haven't got any hit by it. It's on paper where we see when we now evaluate it.
Of course, if we would pay dividends and then actually repatriate the cash and then sort of do exchanging it, then that would be, but here it's a loss. Some year ago we got the plus on the same way and then the minus. It's nothing now super dramatic into it because we will continue to trade in U.S. dollars also in the future as well.
Yeah, on this topic, if we a little bit continue further, there was a question on EPS, what impacted on Incap's quarter two EPS figure. One thing we haven't mentioned and discussed yet here, obviously it was in our report, but we collected from our Indian subsidiary quite substantial intergroup dividend. If I color the background, typically we repatriate funds through different transfer pricing mechanisms. That's the prioritized method, and that has its reasons why we do it that way. Especially now when the cash levels were growing pretty hugely in India, there was a decision to repatriate in the form of internal dividend to the parent company. There's a withholding tax related to these kinds of transactions in India. We ended up paying EUR 2.5 million on this kind of intergroup dividend withholding tax in India. That obviously impacted a lot on this second quarter.
I would consider that as a non-recurring item by nature. It's also good to understand that the parent company is responsible, for example, for all the major strategic initiatives. The cash needs to be in Finland if Incap is pursuing major acquisitions. It's handy that we obviously have the funds and cash in use for those kinds of moves. Just wanted to a little bit give a color on that topic as I have seen some questions here and there on this topic.
Thank you, Antti. How about the customers? There's a question about their end markets. Where is the majority of your customers' customers?
We of course have customers all over the world. If we look at the majority of our customers, they are European based, but then their end customers in turn can be all over the world. It's a little bit hard to say, but many of our own customers are European based or European companies. We can deal with their subsidiaries in different parts of the world. For example, now U.S. business, we are dealing with some customers that are U.S. based, but also have big business in that sense within the U.S., and same thing for the other units. We have customers all over the world and so have our end customers, or like our customers' customers.
Thank you, Otto. There is a question about the strategy to avoid commoditization in the EMS industry. Not sure what that means, but maybe you do.
Strategy to avoid?
Commoditization in the EMS industry.
Commoditization, and I don't know what can be thought about that in that sense. I can say like this, that everybody is very often talking about different segments when it comes to our business. I see many of our peers, they even classify, they have different divisions for different kinds of industrial segments. We have never looked at it in Incap in that way. We rather look at that we produce complex electronics and then these electronics can be used in medical or industrial or in defense or in whatnot. When you take a hammer to an electronic device, in principle it's the same. You will end up with a PCB. You will have some, perhaps buttons, displays, and some mechanical envelopes around it. It doesn't matter if it's a computer, some kind of tester, or a mobile phone, or whatever it is in that sense.
I don't believe that there is a very big difference in many of these segments that you normally see. If you then talk about different commodities, perhaps that goes for the same. In that sense, it's rather a point of view than actual, practical, how to say, differences in the business. In that sense you can avoid it by having a different point of view. I don't know. I was swinging on that one. Let's see if that satisfied the listener.
We can take follow-up questions if it was not. The next one is about your long-term financial targets. Is there anything you could share about them?
We have been talking about this before as well here. I still believe there is a sweet spot on the market. You know, when EMS companies become big, they become very rigid. I think that there is very big strength in our operational model. If we can continue to scale this up and be somewhere, you know, EUR 500 million- EUR 1 billion company instead and keep on the same way to work, then I think there is a sweet spot on the market for that because getting bigger, most companies get very rigid and start dictating to customers what they want. You will see that very often, customers come from these bigger companies seeking more of a service approach and more of a tailor-made approach. I think we can offer that by growing Incap as well.
That is what we continue to work with, continue to scale both organically and also through mergers and acquisitions. We continue to pursue those actively.
How do you evaluate internal reinvestment opportunities versus returning capital to shareholders? How do you prioritize between organic growth and further M&A opportunities?
I think you should look at it in a little bit different ways. First of all, internal investment. I remember I had a long time ago when I was studying in university, we had this old Swedish industrial guru as a teacher in Norrebro University, and he very clearly was always pushing for that if you don't have any depreciations on machines, you have invested too late in your production infrastructure. There is always a machine cost in the equation and so on. I'm a strong believer in that, that you need to keep on investing in equipment, having the latest technology on stage. There is no such freelancers that we depreciate our equipment and then we have zero depreciation. It will cost you more in the long run to do it. Investing into your own manufacturing, I think, is a hygiene thing.
Now you can always argue that if we now have a totally new business opportunity that we need to invest, say, in a new factory to set up compared to an acquisition, then those perhaps are a little bit more like comparable. That said, those opportunities very often come with existing customers and growing organically with existing customers, I would say, is always preferable towards growing through acquisitions. We are evaluating those, but you need to keep the apples apart in this and really think that are they comparable? Are they comparable, the acquisition, potential acquisition or the potential investment in relative? Or is it so it's more hygienic that you need to do the investment to keep up with the latest technology development and keeping up with having your production in par with your strategy needs.
Thank you. I think we could take one final question here, and it would be then that, do you expect to finish any M&A transactions this year?
I expect to finish a lot of transactions every year, but it takes two to tango. We have an excellent team when we are due to delivery and I look into different cases and so on. So far, you can argue that yes, perhaps we have done fewer acquisitions than some, but we haven't stepped on any mines either in that sense. I think things take time and I'm not stressing it. We are earning money. We are having a healthy Incap. It's a healthy business in that sense. I think it will naturally come at the right times for those acquisitions. That said, I can say as well also in some forums, some other questions, that I think that many of those acquisitions that some of our peers have communicated about here lately are very familiar cases for Incap as well.
If that answers some of the questions, let's see. I'm always hopeful, but if it will be this year or when, then that I can say here and now today.
Maybe for the viewers that are new with Incap. Incap is working very closely with the M&A team. We have established the organization to do acquisitions. We have, also, of course, external help on there if the case moves on to the due diligence phase so that we have all the resources needed. We have the firepower to do those. We are constantly looking at different markets. Interestingly, Incap is working typically several acquisition leads in parallel. Three to five leads are always moving, meeting the owners and negotiating with the owners and making the valuation, doing the non-binding deeds and so forth. We have a lot of activities ongoing all the time on the acquisitions and at the moment as well. We are active on this one and it is always very difficult, obviously, to say closing timing on those.
It depends on many factors and how the due diligence goes and if we find any red flags there that are showstoppers and so forth. The more you keep pushing and trying, eventually you will get those deals that are good for Incap and that are good for the shareholders of Incap. That's the most important.
Thank you, Antti. For my part and the IR team's part, I would like to remind here at the end of this webcast that you can subscribe to Incap's stock exchange releases and IR calendar on the web pages. Don't forget to do that. Now I hand it over back to Otto to finalize this webcast.
Yes, thank you, Pauliina and Antti as well. Thank you all of you guys who have been listening in and are taking interest in Incap. I have said it before, reach out to us, come and visit. Me and Antti, we're always happy to take questions when we can. If you have questions regarding what we're doing and things about Incap, yeah, otherwise I hope everybody takes some time and try to enjoy the summer as well. If they have the possibility, why not come here to Saaremaa and visit the opera here in the Kuressaare Castle that Incap also supports. We, this year as we have the jubilee year, we are supporting some cultural events as well. That said, I thank you once more for the interest and see you guys in a couple of months' time when it's time for the next one.
Thank you.