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Welcome to Incap Q1 interim report 2023. I have here today with me President and CEO, Otto Pukk; and the CFO, Antti Pynnonen. Without further ado, guys, the stage is yours.
Thank you very much, [ Rosa ], and thank you all for listening in and looking in on this webcast for the interest in Incap. So we will do the same as normally. We will go through the quarter briefly and then we'll try to keep as much possible of the time for Q&A as I know that that is appreciated.So first of all, perhaps looking back at the Q1 and some of the milestones during the quarter that just passed. We have as you saw in the numbers, still very strong growth in Q1 and this was driven by good demand for our services and of course supported by the investments were done earlier. Profitability also was on a good level. And this very much thanks to the current product mix of course, but also our operational model that very much remains very cost-effective.And yes, another milestone of course, is that we finalized our construction work in the -- in our new Indian factory and started slowly the ramp up over that. Of course, we have been investing as you saw in report as well in our other factories. And we continue that development over time.For us, of course, corporate responsibility has become more and more important and this is very much driven by our employees and their interest in this. So of course, we have from the investor side and from different stakeholders are also a driving factor in this, but we take very much pride of that initiative for most counts from within Incap. And we have continued to work with developing our reporting. And as you saw there also we released our new report here and I hope you see the result of that development.We still have a lot to do. I think in general in the industry, there is still lack of standardization when it comes to reporting and here we keep on working with IPC and other industry associations to come up with it. But we have done what we have -- could in this time and we're focusing very much on currently on CO2 calculations and are preparing for what we expect extraction-wise also will be a new needs for us moving forward in our reporting. But this is under development and it's very close to the core of Incap and all employees [indiscernible].Talking about employees, I don't think I can emphasize enough how exceptionally good our team is that we have been working very hard achieving those results that we have downloads now during Q1 and this is thanks to the commitment to our fantastic people that we have all over the world.So little bit perhaps on the current situation. And so in April, we informed the market we went out for the [indiscernible] as soon as we got the information that our biggest customers is reducing their inventory levels or have ways to reduce their inventory levels. As a EMS partner, of course, we are part of the flexibility for our customers. We work very closely with them and we help them achieve their targets. And now we are working with our customer to achieve the goals that they have when it comes to reducing their inventory.This work is starting of course now in Q1. This deal went through without it and we expect that now during the second quarter and the third and fourth, there will be more impact of that reduction. That said, this is from our perspective a temporary thing that -- and it's not so that we have lost any customer or lost any business, it's just a good question of if you look over a period of time that they have overstocked and we are foreseeing growth also for our biggest customer in the long run and I think that will level up and bounce back here sooner or later in that, so.Still, I think our strategy is valid and if we look at long term our activities we continue with it as planned when it comes to investing our business and developing our operations and also looking at different M&A activities. So Antti, you perhaps want to talk a little bit about the figures.
Yes, thank you very much Otto. Here is the key numbers from the first quarter starting from the revenue, year-on-year 36.2% up. Operating profit increased by 67.3%. And in relative to the revenue it was 15.5%, EUR 11.3 million. So very solid first quarter indeed and then we added on this slide we have gathered quarterly data from 2019 onwards. And we illustrate here the [indiscernible] gap is having here and then obviously you see here the solid growth past years and then also the first quarter here is showing a good development on the numbers, so.So looking from multiple angles, then very, very good performance overall from the -- not only from the biggest unit India being that one, but overall all the European units had also strong and important contribution for our Q1 performance. So very widely all cylinders were working and then this is the result, 15.5% in our industry can be considered very solid.Here we'd included some other key figures. Of course, then important level of inventory described here in the below of the page is so important for our business and cash flow perspective. And as we commented earlier last year, there has been a lot of challenges in the market, logistical supply chains, missing some components and things like that. Material prices have gone up so that impacted also the inventory levels.Now we have been working very tightly with all our units and there's some 10% deduction in inventory levels and obviously that will boost our cash flow this year and then hopefully the same trend in terms of material availability will continue and then we can improve our material and inventory turnover and strengthen our cash flow through that.Interest-bearing debt pie chart is described here in the middle. That is very strong at the moment from our perspective. We have EUR 5.2 million is the cash level and then the debt items are listed there. But this allows us to think about some actions in Incap, namely acquisitions for example. So our leverage is on a healthy level.And then number of employees we have included here the number from 2022, 2,817. And as everybody knows, then the Incap India is the foremost the biggest one when it's measured by the head count, 80.2%.
The outlook in the release remained the same as we did in our proved warning. Before that we expect the revenue and the EBIT to be lower than in 2022. With that said, we are quite confident in our decentralized model and our cost-effective model and we are expecting to keep the profitability at a good level. Also in the future here, going through this work that we have with our biggest customers with reducing the warehouse. As was seen also in our quarter 4 reporting where we opened up the employee statistics a little bit. We are working a lot with contract workers as well and are flexible when it comes to reducing and increasing the capacity need when it comes to manpower without growing on any significant costs for that.Also as I mentioned before, I think the outlook in the long run for EMS business is very positive, and we see that we have growth and good traction when it comes to our customers and see growth on many fronts, even if our biggest customer, of course, now temporarily will impact the figures when we are working closely with them and getting the warehouse levels down. And of course, we haven't changed anything, as I mentioned before. So our growth strategy will continue and we are still looking very much on -- into different interesting M&A cases.So I guess that is it for our short review over Q1 and we are happy to take questions from the audience.
Yes. And we have plenty of questions. From [ GECO Capital ], there is a question. Which is the current strategy of Incap to increase diversification of customers? The risk of customer concentration with 67% of revenues from first customer has come through.
Yes. No, that is correct that this risk has been there and has with this latest announcement, of course, realized to some extent. We are working very much with diversifying our customer portfolio when it comes to the overall pictures. But in percentage-wise, of course, with one customer so big. So that is perhaps not noted always. We have had very good growth as we open up also on the Capital Markets Day on other accounts and this continues. And I think to be able to do a major impact on this concentration, then I think an acquisition is required. And that would, I would say, dilute that dependency somewhat. And of course, depending on the size of the acquisition.But I think the thing that is what we are continuing to do. We are continuing to developing the other accounts, growing them and growing the business and we're continuing to looking at good M&A possibilities. And I think this is something we are very much aware of the customer risk and have been working on and continue to work on now as well.
Then GECO Capital continues. Is there any guidance of reduction of revenues in 2023? From when is it expected to occur, Q2 or Q3?
Yes. No, as I mentioned before that -- and then perhaps as noted as well from all of you guys listening in that the Q1 numbers were not impacted from the reduction. So the ramp down, we have started now during Q2. So we are in a phase of ramping down the operations around this customer to a level that will allow them -- us to continue to produce, but also them to be able to reduce their warehouse. And I think the full effect or I'd say, when we have come down, if we look at now the quarter 1 as a ramp down phase, then I think we will have reached some level where more stable level during Q3 and in Q4. So if that answers the question.
Okay. Then we continue. [ Ben Takara ] is asking in Q4 2022 presentation, you forecast higher revenue in 2023 than in '22. In euros, what is your forecast revenue for '23, given the postponements announced by your largest customer? If you don't have forecast what estimated revenue won't you receive from your largest customer in euros, please?
Yes. We haven't disclosed in euros any bracket for our growth or our steering. And so that we are not normally doing. And so the steering we have given here during Q4, where we still believe that we would have growth in that sense was that we will have -- be on a higher level than the year before, but now we revised that and said that we will be on a lower level. And that follows the same brackets that we have been reporting before. So we are reporting on this lower, clearly lower, significantly lower or vice versa on -- for the market.
Okay. How will the postponement of orders from your largest customer impact inventory levels? Can you provide an update regarding the inventory levels? Also what do you expect the impact to be on your debt covenants?
I think short term, of course, when we are now ramping down, we expect the inventory level to go up somewhat. But long term, of course, we -- as we stated also during the last Q4 release, we expect the inventory levels to go down because there are many trends in this. Now when material availability is going down, there is less need to have higher inventory levels. But short term, of course, if we have been driving materials to fulfill orders that we now have been negotiating with our customers to push out and then of course, some of that material will accumulate in our warehouse for a shorter time. But that we are working very closely with our customer on how to work that out. And so we don't end up with that.As you're also aware of, I have been mentioning before that all our material purchase is all over the base and our customers are liable for that material. So it's not so that we have a risk in this and this is very much something we are working very close with our customers to deal with so we don't end up with excess inventory.
Yes. And there was a question about the covenant impact. And then, of course, then if the profitability and mainly EBITDA, which is our key component when calculating IBD EBITDA covenant for the bank. So that will increase, but we have a huge amount of buffer to the upper limit, which is 3x EBITDA and that will be still very strongly stay under one multiple. So there is no whatsoever any problem in that sense.
Okay. Then we have a question from [ Sam Conan ]. Are you still expecting growth for your #1 customer for 2023? If so what would be the rough estimate for sales growth?
No, I think in general and my understanding is that our biggest customer is still growing. But of course, with them reducing -- having the need to reduce the warehouses, that means for us that we will not have growth over that short -- a shorter time period and that will have an impact on 2023 in that sense for us in Incap. But otherwise, our biggest customers will grow. We have good company. They have good outlook on their business. They are expecting growth and -- but not as much as they have break that when we're building up the inventories. And I think the outlook long run looks very good, and our cooperation as well with them.
Okay. How long do you estimate the stock balancing for your #1 customer will continue, 1 quarter or whole 2023 or more?
Yes, it's very hard to say. We have said that it would have a impact this year in -- for Incap. But of course, it's a little bit of a moving target. It all depends on what is the sales and so from our biggest customer side and how it develops. And so it's hard to predict in that sense. But I think you should look at it also a little bit over time that Incap had excellent Q3 and Q4s, but part of this was that we built up this warehouse for our customers.So that, of course, will take some time to get down because it's in our customers' interest and of course ours as well that we don't do this too quickly. We want to maintain production and we want to maintain capabilities in our factory and competence. And so this is a very close cooperation that we're having currently and doing this exercise with our customer.
Okay. Do you think your largest customer is using more dual outsourcing here in 2023 and going forward?
No, I don't think so. Our biggest customer have always worked with several EMS partners, us being the biggest, but they have also -- and I think that this affects many of the other partners as well. And so I don't see that there is any change in split or a change in that we have lost any business or so. It's simply so that they have overestimated their growth and are growing a bit slower and ended up with buffering up too much inventory to carry on.And now we are doing very much of the service that EMS companies always do. And this will also do with other customers. We help them to ramp up and ramp down and we -- this is one of the services that we provide. And then also one of the reasons that many of the OEM companies use EMS partners. So we have somebody who can offer the flexibility, and that is what we're doing. So this is a big part of our great service offering that we have towards our customers.
Okay. Then we have a question. Now that you have free capacity in your facilities, do you think that you can utilize that with new customers and orders?
Yes. Of course, the capacity is capacity. And over long run, we can utilize that for many different customers. So we don't have, I would say, earmarked or unique capacities that we only use for one customer. That said, of course, this is a big chunk of the business. And even if we see that our other businesses are growing and growing with very good pace then to replace that over a shorter time period, say, during this year. And so in full that we don't see as realistic. But for us, in the long run, this doesn't change our planning in that sense.We still think that we will utilize our Indian factory. Yes, perhaps not as quickly as we originally thought when we were planning this, but those kind of investments that we have made or take into consideration a longer time span than just some 6 to 12 months or in that kind of time frame we're talking to now -- about now.
Okay. How fast can you win new customers to fill up the third factory?
Yes. As I said, it takes time to -- if we talk about these kind of volumes, it takes time. Now we think that also our biggest customer for them that this is temporary, that we will work with them to reduce the warehouse levels and then get back to some kind of new normality when it comes to the orders when -- that matches their outlooks and so for their growth as well. And we continue to work with expanding and growing our other accounts. We also have very interesting new accounts that we have won here the past year and so that we are expanding and working on now. But yes, it's nothing that will replace immediately the business, but that will contribute to our growth in the future.
Okay. Can you give indication on the revenue growth numbers for your largest customer in '22 and '23-'24?
I don't think we have separately disclosed that in such details out there. We have some statistical challenge...
Well, everybody can check from the annual report, then the biggest customer share from the total Incap last year, 67% and then it was -- was it 61% a year before. So that shows the growth over the biggest customer and then '23-'24 is something we don't disclose at the moment.
Okay. How will the drop off in revenue for '23 affect the different factories? Will the factory in India still open and become operational? And will there be layoffs?
Yes, foremost with our biggest customer, we work in India. So there is where we have the impact. We have finalized construction and we have started with moving into the factory. This is something we will continue with. As I said before, that the factory expansion there is not only tied to one customer and at least a long-term investment for us. So we will continue, yes, the ramp up and perhaps the full utilization of the factory. That will take somewhat more time than we had expected before. We have been running the business in India with very tight resources when it comes to square meter and so these investments have been needed over time.In our other factories, we won't have any impact of this. We see growth in all of our European units currently. And we have continued also investments there with expanding some of the floor space in Slovakia and we have done investments in SMT capabilities in Estonia and this is something we will continue with.When it comes to layoffs, then as I described before, we work very much with contract workers in our Indian factory and we have a very flexible solution when it comes to the manpower. So we will just do some reduction and of course, with -- in the manpower to match the current demand, but we will be able to do this in a very flexible and cost-efficient way.
Okay. How well do you think that you can keep the current comparably high EBIT percent level in latter quarters of 2023 with the changed situation?
Yes, as I mentioned, we have a very flexible solution when it comes to the manpower and to match that after the demand. And also when it comes to other operational costs, we are running very lean. So I'm -- and yes, we all are very optimistic that we can maintain a good profitability in the business and we have been able to do, I would say, similar revenues with good profitability before. And so we expect us to be able to do that as well.And when I say that, then to have an understanding for perhaps that our profitability, of course, always varies a little bit about product mix and so that we currently have. And of course, that will be the case as well if the volumes are somewhat smaller, but we still expect us to be well within this same kind of range between 12% and 14% that we have been able to pull off before. Antti, do you have any comments on that?
No, it's exactly like you say. So there, we focus on, of course, the -- analyzing the impact and also there's a role to get with the biggest customer to discuss and negotiate about the possible cost-sharing if we are reducing the resources and so forth. But yes, we are looking optimistically on the margin of EBIT margin as well. So let's see.
What is your firepower for acquisition?
I think in that sense, our financials remain strong in that sense. Of course, now when we have somewhat -- or not growing in that sense, that means as well that our cash flow will improve and that should at least in theory give us better possibility to serve some loans and so as well if we choose to take on those to finance an acquisition. So I think we are well set off, of course, now with a drop in share price thing, which shares perhaps is not a good option currently. But overall, I think we are still in a very good position to do acquisitions.
Then a question regarding acquisition again. Why do you consider acquisition when your share price is at EUR 10? Why don't you focus fully on acquiring yourself, for example, buying back shares?
No, I think that we were still committed to our long-term growth strategy and believe in that. And I think that is the key thing. And I think an acquisition -- a well-placed acquisition is -- would bring a lot of value and that for the shareholders as well. And that's the key, one of the key criteria. Of course, we are not doing acquisitions just for the sake of doing acquisitions. This should bring value for our shareholders and that also with a low share price. So that is key for us that it's a healthy deals that we are looking into.
Okay. Do you have any specific projections how much your revenue will drop in '23 compared to '22? Will it be more or less than 10%?
We have given the guidance that it will be lower. And for those that have been following that -- this guidance that we have been doing before is that lower means 0% to 20%, clearly lower 20% to 40% and significantly would be more than 40% and we have given the guidance that we are in this first bracket that from between 0% and 20% lower in revenue and the EBIT.
Okay. In the loss of investor confidence warranted as the stock price dropped nearly 50% in a couple of days is the loss, is there confidence warranted?
Sorry, I didn't catch your question.
Is the loss in investor confidence warranted as the stock price dropped nearly 50% in a couple of days?
I have very hard to comment on what individual investors or so things and of course. And then also I'm hard to comment the stock price. I guess the market has its view and yes, that is something that, of course, we can't focus too much on. We are focusing in Incap to continue to develop the company and develop our strategy and sworn to bring the company forward. And I think that is the key.And as I said, in the big picture, we see this as something temporary and there is always some volatility in the EMS business. I don't think that this is unique for Incap that we have had a customer having a need to decrease its warehouses for some period of time. This happens all the time. We're working very closely with our customers and so on always with ramping up and ramping down.Of course, it's unfortunate we have had this one customer dependency risk and that is our biggest customer that we are going through this journey with currently, of course, have an impact in our figures. But we see this temporary and I'm quite sure that we will be able to bounce back from this as well.
Okay. What are the prospects for the new Indian factory? With the slowdown, is there a possibility that you will have overcapacity for a while?
Yes. For a while, I think for sure, we are always planning with some kind of overcapacity, so we have something to sell. But as we see it, yes, we will -- utilization of the India new factory will take a little more time than we initially projected. But it's a long-term investment and we are still working on filling it up with our biggest customer as well as with new accounts that we have. So it has perhaps slowed down the progress a little bit in filling the factory up, but we have taken -- starting to take it in to use and we'll continue to do so.
Okay. Could you please specify the range that is implied by your guidance of lower sales and EBIT, both 0% to minus 20%?
Yes, specified. We have these brackets that we have -- yes, go both ways, it's higher or lower that we have lower mid 0% to 20%. If it would be clearly lower, that's the next bracket it's 20% to 40% and significantly, it's about 40% or below business.
Yes, and Otto meant that when the numbers are going upwards, then higher is the same 0% to 20%, clearly high 20%-40% and 40%-plus is significantly higher. So same mechanism and logic.
Which factory or unit is responsible in fulfilling large customer orders? Is it Indian unit? Which unit do you see going into possible reorganization?
No, as I mentioned before, that it's foremost our Indian unit that we're working with our biggest customer. And as I said, we are -- they're working with the customer, and we have made a plan that which secures us that we can continue the operations and keep capabilities and capacities. And so we're not talking about an in-out bigger restructuring. And so we are, of course, taking down the manpower with the flexible solutions. We have contract workers. And so -- and we're matching that to the current demand. And so that is the work that is going on currently.
Okay. Were you surprised by the big reaction in stock market and the impact magnitude on the share price from your recent press release?
As I said, I don't comment on the share price in that sense that -- and don't give any value if that is correct or not and so hard to comment on that.
Okay. How do you see the current M&A market? Have the valuations come down lately and do you see the M&A market attractively priced?
I think the, I would say, multiples have come down on the M&A market compared to what we have seen here in the past 2 years. And in that sense, I think it's perhaps a better climate to make deals currently than it was some year back. But of course, it's still challenging to find good targets that fit all the different criteria that we are balancing in and so on. But we are quite sure that we will find something eventually interesting that we can present to you guys as well.
Okay. Then I have a quite long question here regarding your biggest customer. Please provide more color on what do you mean by stating larger customer -- largest customer who has decided to reduce inventory levels and is therefore, postponing some orders from '23 to '24. In your previous news release, especially what means postponement? Does that mean the large customer halts any ordering completely or only ceases to make new purchases with new orders, but in meantime, production with older contracts go on?
Let me then put it in a very simple term. So we have close relations with our customers. And in here during -- just before the release, we have had a meeting with them where they said basically that they have overstocked their prognosis or their forecast for their growth is smaller or larger than the actual growth currently. And they have a need to push out orders. We have the orders in that sense. So it's a negotiation on how we're going to do this.But of course, as a good lawyer partner to our customer, we're trying to find a solution where we can help them to reduce their inventory and then come up with a plan together with them on what orders to push out and how to re-plan the production so that we still keep on manufacturing and keeping the competence so that is needed for their business in long term as well as they -- giving them possibility to reduce the capacity.And of course, this cooperation is continuous and we are reviewing this as we speak and continuously because it's a moving target, exactly what level is needed. It's not that simple that they have overstocked on everything, but on some product groups more and some less and some not at all. And so it's a cooperation. I have told before, we are very closely integrated and cooperating with our customers. And you can almost see us as part of the same kind of organization or to how say.So we share the problems and we share also the ups and we also share the downs with our customers. So very simply, we are trying to make this possible for them by helping them to push out some of the orders into 2024 that they have in the original plan for 2023.
Okay. Still the interest for you, the largest customer is rising. So I will still continue asking these questions. Is there any risk of technological routing of the supplies due to the fact that you might have stuck too much raw materials for the largest customer, but the large customer is holding back purchases. But in the meantime, technology cycles move forward and therefore, stock materials might not be up to date in the future. Is there any risk of outdating on inventory? And how do you plan to do destock? What will you do with unnecessary stocks?
Yes. No, we don't see any risk in this time frame that there would be any risk that this inventory goes bad in that sense, technology-wise or otherwise in that sense. And I don't think that goes ever for our customers. I would say finished goods inventory. I think that is very much usable as well. So it's a question of freeing capital in the warehouses, helping them to reduce the stock levels and then moving forward on the growth that we see from the customer.
I would like to add here that like we said in Capital Markets Day, so all the components and materials we buy based on the customers' firm POs or delivery plus basically customer owns the material. So in this kind of worst case scenarios and then our customers are responsible for buying back all the materials. So that eliminates quite big on the risk for Incap as an EMS supplier.
Yes. So even if theoretically, would be some risk, then that is also balanced out that we don't carry liability.
Does the business from your biggest customer have better margins?
I wouldn't say that our biggest customer business have now some kind of better margins than other business. I think our margins, we have explained many times for you investors as well and then for other stakeholders, it's very much due to our organization on mobile and our lean structure. And it's not that we have better margins than other EMS companies. It's that we have lower costs. That is a simple analysis.
Are the growth of your other customers in line with the expectations from the annual report? If not, have you revised the expectations up or down?
So if we talk about the other customers, we see very good development currently on the other customers of Incap and we see growth in most cases around our other customers. So we're a positive development.
Okay. Do you see that negotiation situation of EMS partners has worsened as the supply chain tightness has eased? Have you seen this yet in your business? And do you think that it will have effects on -- to the business?
I don't think it has worsened that what I mentioned before also is that visibility is coming down a little bit that we have had now extraordinary times where customers have needed to place orders 1 or even 2 years in advance. That is not norm in our industry and I have said it many times when I started in the industry, I think visibility was 6 months as at best. But now during the problems with first COVID and then also the component availability, then we saw that the industry changed and the customers were forced to give longer forecast and also to purchase much longer in advance.But now when component availability comes down, then of course, there's no need because it's also a risk if you purchase a lot in advance. And we expect that the visibility to come down to a more normal level, hopefully not back to the 6 months where it was once upon a time, but to more normal forecast windows. And I wouldn't say that negotiations have gone -- been harder or got more difficult now during the past time.In the contrary, there's a lot of negotiations and a lot of interactions have gone around materials and material availability and that we are seeing now is not going to way fully because there are still problems in some -- with some components, but it's going down significantly. And then that helps us and our customers to focus on more productive things.
So how is the pipeline for new customers looking for you?
I think we have a good pipeline and I think we have had a very good development and as we opened up on the Capital Markets Day and now also in some of our reporting that shows that we are growing the other accounts very nicely. But of course, we have one big customer and to balance that out with organically growing other accounts will take a lot of time. So I think that for that sake an acquisition might be a better means for that balancing.That said, yes, now this customer dependency is, in some extent, have realized. We still believe we're much in our cooperation and in the business of our best customer and see this as temporarily. And our biggest customer are growing this year, but not as quickly as they expected or -- and we see the effect of that with this reduction that is needed to be done. But this is still a short-term thing that we need to take care of. It's part of our service offering towards our customer to be a flexible partner and help them in these kind of situations and that we intend to do and then we intend to continue and develop the business together.
Okay. Do you think it is possible that the revenue and profit outcome can be much better or worse than current estimate? For example, if things go well, could you even grow profit this year or worse case, you will be unprofitable?
I don't think with the knowledge we have today, then we have given our steering in that. And of course, things can happen in the world, both good and bad and so. But given the knowledge that we have today, then we will remain in the bracket that we gave and be in this 0% to 20% or in this lower bracket. But of course, it's a moving target, as I said before, and the business can pick up and then they can happen a lot of unforeseeable things like we have seen in the past years with pandemics and other things. So it's hard to speculate. We give a knowledge then I think our steering is correct.
And with this moving target, so it's good to understand that -- so the biggest customer has now like very high stock levels and they are forced to internally from their side to reduce the stock levels and then, of course, the only way is not to order from their EMS suppliers. So their sales has to exceed the supply. So that mechanism has to be there. By moving trend that means that if our customer is able to grow faster, have bigger sales, then, of course, then from our side, we can still keep like a decent level of output and production towards the customer.So the point is that Incap as a supplier output has to be lower than what is our customers' sales. And our customer sales is -- they don't have like huge visibility on their business going forward. So -- but they -- overall, they expect also a good year for them, '23 and the years to come, but we don't have exact like data to show how much it will take. It really depends on the sales development of our customer side.
As you consider the decrease in revenues to be a temporary situation in 2023, would it be reasonable to assume that the growth will return to the same levels as the previous 5 years and the coming years after '23?
Of course, we have been growing. If you look at the previous 5 years, we have been growing a lot. So within that span then we would very surely be able to answer that, yes. But if you look at I think Q3 and Q4 last year were exceptionally well, but that also contributed to that we built up this inventory. So we are talking about something perhaps in line with once it bounces back, so to say, in line with the previous year or so.As I said, it's very hard to predict. It's a moving target. It can change very quickly and it all depends on, of course, the sales of our biggest customer. But for sure, we are not expecting this drop to remain for a longer or future in that sense. We see this still temporary and we are taking a hit this year and working together with our customers.
Okay. Which key markets the largest customer company see -- or you see being in recession? And how long do you see the recession last? Which markets or segments of the businesses you still see going strong? Do you see the recession in some key markets being just a normal and natural cyclical readjustment and transitory in nature or something structural in global economy? What is your opinion how interest rates of key central banks have affected your business now and going forward? Do you see any major slowdown yet in global economy due to interest rate rises?
Yes. I think, of course, it's very complex the question with many questions in it. But I think we shouldn't overanalyze this too much. We are talking about how our biggest customer is still projecting growth. And even in some markets that are in recession now, the growth is slower than they projected. Then overall, they are still projecting growth, but they have overstocked. So they have bought too much inventory here during Q3, Q4 last year and ended up with too much inventory. So it's temporary.If you look at our biggest customer, of course, it's hard for me to give proper analysis on their business, not my job that sense completely to understand all the new answers there, but they have a very diverse customer portfolio. They are in many different kind of segments when it comes to their products.And many different -- there's many different utilization of their technology. And so overall, I think it looks very promising. And you see growth and even if the growth hasn't been as quick as they projected, they still are looking at growth in most of the segments that they are within. So I think we shouldn't overanalyze this too much.When you have a business where you sell from the warehouse, you need to do some kind of projections to fill the warehouse to be able to match your sales. And then if you have done this projection a little bit too optimistic, then you need to reduce the warehouse. And I think we should look at it much more simpler than to try to overanalyze this.
Okay. Is Germany and the U.S. still the focusing geographies for M&A targets?
I think we are, of course, looking at other markets as well. But I think Germany is the biggest EMS market in Europe. And of course, there's a lot of interesting industry and potential customers in Germany that we already are working with some of them through -- foremost through our Estonian and Slovakian units, but the German market I think is a key market as it's the biggest one in Europe when it comes to EMS business. U.S. is the biggest economy in the world. And I think in essence, there is a lot of potential on the U.S. market as well. And being in North America would give a global reach that has extended global reach for Incap.And already now we have a good part of our business going or our products that we're producing to U.S., and it would give our customers and some of our customers will benefit if we would have something established there. So yes, we are continuing to looking at those key markets, but of course, we're not ruling out at good opportunities either.
Okay. A couple of more questions. Can you provide some color around the guidance? You talked about high uncertainty after having downgraded the guidance now twice, can one assume that the latest guidance downgrade is a worst case?
Yes. I think we downgraded it once in that sense from -- yes, from -- compared to our Q4 and we downgraded it now once. And we are always giving guidance on the best knowledge that we have at hand as soon as we got aware of this situation, we shot out a profit warning. We try to play with open cards and taking as it goes in that sense. And so it is our best knowledge is that it will remain in this guidance that we have given now. And hopefully, we won't need to adjust it in any direction in that sense, but if then rather upwards than downwards.
Okay. Then the last question. Can you explain how the expected '23 operating profit decline will be in the same 0% to 20% bracket as the sales chance given that you have substantial fixed costs?
I think, as I said before that our cost structure is quite flexible, especially when it comes to manpower and we're talking about foremost our Indian operation where we work very much with contract-based labor and always work with flexibility when it comes to ramping up and ramping down our resources to the demand them. So that's the key thing here to see that we have strength in our setup and our flexibility. And this is very much our role as an EMS company to be able to take this kind of volatility from our customers so they don't have to take it then. So we are geared up to do that.
Okay. Thank you. From my side, no more questions. Back to you guys.
Yes. Thank you, and thank you, everybody, for listening in. And we will also -- if there was any questions left, and so we will answer those on the interest forum as we normally do. Antti, do you want to add something before we wrap this up?
No. Let's see those shareholders that are participating tomorrow to Incap's Annual General Meeting, so then see there face-to-face after a long break with the call with having only these teams AGMs. So those shareholders that are participating tomorrow, see you there. And thanks for everyone else who was on the line here. Good questions.
Yes. Thank you very much guys.