Scanfil Oyj
OMXH:SCANFL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.98
8.55
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning. It's 10 a.m. already. So let's kick off then Scanfil's first quarter results call. Good morning. My name is Pasi Hiedanpää. I'm the Director of the Investor Relations and Communications at Scanfil. You are warmly welcome to Scanfil's first quarter results call.
It has been arranged as a Teams meeting for the first time. A couple of practicalities before our CEO, Petteri Jokitalo, presents our results. [Operator Instructions] Recording of this meeting will be available later today at www.scanfil.com. Thank you. Petteri?
Thank you, Pasi. Good morning, everybody, also from my side. Welcome to Scanfil Q1 results call. Pasi may I ask you if our presentation is visible?
It's visible, yes, thank you.
So let's go. We got a good start for the year. Record sales, record OP, record net profit. Sales, EUR 224.6 million was strongly driven by good customer demand, growing volumes, but also is in component situation, improving components availability. And also, we have increased our capacity quite strongly since last year and it's also allowing higher volumes right now.
Easing components availability, of course, is impacting positively in very many ways. It's -- the decreasing area is the spot market purchases, we have been forced to do during the past almost 2 years. And also, impacting positively, our operating profit margins. Operating profit, EUR 15.1 million, grow 46% year-on-year. And the drivers behind, of course, increased sales volumes, but also good capacity utilization, improved productivity also coming from -- is in component situation. And also, we have been quite successful when managing the cost inflation.
I'm especially satisfied with operating margin, 6.7%, should I say, finally approaching our 7% target level. And after -- is the best operating margin in 2 years, but we can be satisfied with that, definitely going to right direction. And last, but not least, EUR 0.18 EPS level.
About the customer demand segment sales numbers you see here, including spot purchases. By the way, the spot purchase in the quarter reached like EUR 7.9 million. Just to understand the reduction that last year, Q1, we had EUR 17 million spot purchase. That's a reduction of EUR 9 million. And the segment numbers here are now including our spot purchases, but you can see that reorganized growth numbers in 4 of our 5 customer segments, growth of about 20% year-on-year.
And pretty much the growth is driven by Energy & Cleantech, where we see really great demand, especially in Europe, Automation & Safety. Also, Medtech & Life Science and Connectivity, which is then bit smaller, sales-wise.
Advanced Consumer Applications, we see some negative growth, but if we clean spot purchases out, we also saw some slightly positive growth in Advanced Consumer Applications. So we had a lot of spot purchases in that segment 1 year ago.
Major products and investments, what we have done this year, we are investing continuously to all our factories. But especially, we are now investing in Atlanta, United States and Sieradz, Poland. We are adding electronics manufacturing line, completed line, starting from inventory to end into the testing phase in Atlanta. Their -- and their aim is to serve mainly our global customers to take -- support the operations in the United States. That factory is pretty much to United States. And the electronics manufacturing line is available and a ramp-up phase during Q3 this year.
Sieradz, Poland, we have already invested a lot and more will come. Next new electronics manufacturing line will be installed in coming months and also available and in production in Q3 this year. And we are also preplanning a new building, like 8,000 square meter new building, a decision is to be done later this year and if decision is to grow, then a building is available early 2025.
And Sieradz, Poland again, is a factory we are mainly serving our global customers in Europe and to help our customers in their efforts in Europe.
So our key numbers are mainly positive or most of them, we already went through. The sales, 14.2% growth. Operating profit, even 46%. Net profit, close to 47%. Return on equity was improved from 15% last year to above 20% this year, good level. Equity ratio, slightly improved to 46.5%. And net gearing, net cash flow is something I'm not fully satisfied, net gearing even slightly weakening. And net cash flow, slightly negative. Of course, driven by net working capital development.
And our inventory rotation was quite stable but inventories were growing with growing sales in absolute terms as well as our customer receivables. With receivables, there nothing up normal. Our receivables were growing in line with our growth -- our sales growth. Inventories, I wouldn't say that...
Petteri, just a second. I see actually your screen in a different way now. I cannot see the presentation.
Was it okay so far?
Yes, until now.
But now, you cannot see?
No. Can you reshare it?
Okay.
Yes. Now, it's -- thank you. Yes, it is.
Okay. Very good. Yes, net working capital, what was driven by increased customer receivables as well as stable inventory rotation and absolute terms, slightly improved. As said, I'm not fully satisfied, especially with inventory. We have potential to reduce our inventory and increase our inventory rotation that work need to be continued there.
So if taking a look for our quarter sales past 2 years, we see steady growth since Q3 '21, maybe more interesting thing is to see the sales grow without spot purchases. And here, we can really -- we can illustrated that amount of spot purchase is reducing quite quickly. And actually, our growth, if we are cleaning the spot purchase away from Q1, this year, was a bit above 20%. A very positive trend. And same matter with operating profit. We have finally seen somewhere here, I say that this is quite frustrating to see that we really believe that our EBIT -- we have a lot of potential to improve our EBIT. And so, during 2 years, quite stable EBIT. And now, finally, we were able to realize the potential. And nice to see also that operating margin is now improving and approaching our 7% level, finally, what we believe that is fully realistic.
And maybe another point here is that if you are taking the year 2021, what was like more normal year, not so much spot purchases either. You can see kind of cycles where we are leaving in a year that normally, first quarter is bit lower, impacted by Chinese New Year and that kind of drivers. Q2, normally very good. Same manner with sales, of course. Then Q3, again, a bit lower, mainly driven by summer holidays and holiday periods. And then normally, Q4 is strong as Q2. That normally Q2, Q4 are the strongest quarter per year and Q1 and Q3, a bit lower. And even that point of view, it's very good to see. And we can clearly see that we got very strong start for the year '23.
And if moving forward, then our revised outlook -- a couple of weeks ago, we revised our outlook upwards. Now our guidance is that we believe that this year, our sales will be somewhere between EUR 880 million, EUR 940 million. And our operating profit between EUR 56 million and EUR 64 million. And that change, of course, was driven by the drivers as we went through, positively developed and strong customer demand and also easing material -- quickly easing material situation is helping us to meet and make -- and meet the customer demand.
We also got a good, like upward trend in Q1. February already strong. March, specially strong month and also customer forecasts were updated upwards, that time. And the -- so it was relevant to update our guidance, even we are still quite early stage of the year.
Still the focus areas this year, securing and driving organic growth. There are a lot of potential for that. Even component situation has improved. We still have some issues here and there. Even we could say that the bottleneck we had in material availability is a bit now moving to capacity and really motivating us to speed up our investments to increase our capacity and especially in factories where we see so.
Profitability improvement still -- stay focused. We still have a potential to improve that. And then as said, net working capital and inventory is something we are not fully satisfied with the situation. We have potential to improve, especially our inventory and release some money out of that.
And what is, of course, behind our short and also longer term success, of course, is our customer base [indiscernible] customer base is very strong, very proud about our customers and the segments -- customer segments. We are able to serve Energy & Cleantech, Automation & Safety, Medtech & Life Science is getting very strong tailwinds right now.
Our largest customer during Q1 was making like 13% of our total sales, 1-3, 13%, of total sales. Top 10, 55%. Also, calculated top 30, about 80%. It's quite diversified customer distribution and not high risk. Also, there are quite limited amount of competition between our key customers. They are in different segments and not directly competing normally.
Time for your questions. Pasi, have we received questions from audience?
Not yet. [Operator Instructions] Pasi Väisänen, please go ahead.
This is Pasi from Nordea. Just to look at your figures, which were extremely strong. So could you please elaborate or give us a couple of examples, what are the concrete products and practical segments you are now kind of been very strong, especially in Europe, just to understand what's driving your performance currently?
Yes. Yes. Of course, it's good to see you. You remember, more than 20% growth in all these segments, Automation & Safety, Connectivity, Energy & Cleantech and Medtech & Life Science, very close to 20%. And you can see -- let's starting with Energy & Cleantech, very strong momentum, especially in Europe, driven by the green energy transformation, what's ongoing here. And we believe that, that will continue. It's not over in 1 or 2 years but continue much longer. And here, you again recognize quite many brands, for sure, Danfoss, Nibe, ABB, all somehow very deeply involved and even big supplier of heat pumps. Danfoss, very much energy sector as well, drives frequency converters, increasing energy efficiency as well as ABB.
We have customers who are dealing with electricity networks and so that is easy to understand the drivers. And what we are doing for this company is that we are manufacturing different kind of electronics normally that -- starting from PCBA and enter into models' box build kind of products.
Tomra, a recycling business, collecting bottles. And we see first that legislation is driving Tomra business in Europe that more and more countries are implementing legislation, what is good, then supporting and even forcing actors to start to use that kind of collecting technology, key driver, just to mention a few things.
Yes. Can I actually continue with your kind of solution areas and customers? So I guess if I read right, Tomra had some problems in Ireland. So have you actually seen any kind of effects coming from that? And I guess Danfoss or Wacom also makes drives for con- Elevator. So are you now kind of having a -- a customer in several segments? And is this 13% including Danfoss drives also for the KONE?
No. Actually, we are not commenting some people in individual customers, what we are providing them. But generally, we could say that not only commenting KONE or specifically KONE, but one customer is not like typically and normally part of different segments. But one customer is -- could say always counted in one segment.
And -- but they could -- there may be that kind of, of course, situation that one of our end customer is selling their products to other, our end customers. Yes, that kind of things can happen. But of course, we don't know exactly what is the volume and how our customers are, and to who our customers are selling their end products.
Yes. I hear you. And with -- have you heard anything regarding the Tomra as you kind of -- would...
No, nothing specific and to speak -- even -- nothing specific and nothing -- we didn't hear anything specific related to that.
Yes. We understood that was at least all for now from my side.
We have a question regarding M&A activities. What kind of an outlook for merchants and acquisition for Scanfil within the EMS space in 2023 and going forward to 2024? How do you see that?
Yes. I repeat my message, what has been, that now we have been eyeing that, we made the right decision to focus on organic growth. So some extraordinary good situation to grow organically and have been focusing on that during past years. And -- but definitely, as a next step, as I said earlier, our factory network is mainly in Europe. 7 out of 9 factories located in Europe.
And we are -- as you see there, we are serving global customers who are selling and operating globally. So we want to be excellent supplier for these customers. Also, in the food science, it's quite clear that we need wider factory network also out of Europe. And that means then that likely and very sure, we need to consider having more factories in Asia, out of China as well and then thinking countries and markets like India, Vietnam, Malaysia could be -- like examples about possible factory locations.
And also North America. Yes. Only even we are investing in Atlanta believing in the future about this big continent and also Mexico is one area to be considered to be strong enough in North America and strong enough partner for our customers there. And in order to -- what's in our factory network in these regions, I think that acquisitions is very relevant alternative.
On top of that, of course, mid- and long-term, we could consider having acquisitions in Europe -- in Central Europe, to widen our customer bases and so mainly. And why not in mid- or long-term also considering East Europe to widen our positions there. But I think that the priority is definitely, we have a good factory network in Europe, we have create additional capacity investments ongoing to East Europe, that we are quite confident that we have capacity enough in Europe to serve our customers and support the growth here. But we need to strengthen our factory network outside of Europe.
Okay. Thank you, Petteri. Additional questions from Antti Viljakainen from Inderes. How would you describe your product mix in Q1?
Again, we see here that segments, we see where the growth was And more specific, taking Energy & Cleantech. I say that we are providing electronics basically, everybody, but not necessarily completed products to everybody, that we have customers like Tomra, where are providing fully integrated, fully tested products, fully completed. And then I said, customers, it's more like electronic basis, PCBAs and box-builds.
And we have not made officially that kind of like a split that how much we are selling electronics and how to make that division between electronics and box-build and integrated products. I would say that product portfolio, that point of view, that how much we supplied electronics only and how much we supplied integrated products didn't change much during Q1 to last year. But here, you see the segment changes that we could say that Advanced Consumer Applications, even we are producing and supplying our customers as well completed products as well as electronics in some cases.
We're not -- even if you are taking spot purchases away, was not growing or growing very slightly, and then we saw a very strong growth with all other customer segments. Was that Antti , somehow answering your questions?
I hope so. There is an additional question from Antti, actually regarding gross margins of different segments. Are Energy & Cleantech related customers carrying structurally higher gross margin than Scanfil's average costumers?
Of course, the gross margins are not the same between customers. And now what may impact the gross margin mainly, it's maybe not so much customer specific, but this may be more related to what is our scope -- service scope, what we are providing. That, if we are supplying our customers fully integrated completed products, including also sometimes expensive biomaterials then the gross margins tend to be a bit lower than supplying on the electronics.
But it's not so straightforward that we could say immediately that, hey, that also, the EBIT or OP is then lower for those integrated products. It's not necessarily so. But gross margins can be a bit lower because material content is high, and there may be some expensive components, what we are buying from market.
Okay. Joonas from Evli. So I gather you would love to do M&A more in order to offer additional capacity for existing customers instead of further diversifying the customer base.
No. Of course, we have new customers in the pipeline as well. And now, would like to go back to our strategy and factory strategy that we have factories mainly serving our global customers. And these factories, as we are calling these located both customer markets. In our terms, these factories allocated in East Europe, Asia, or China and United States. And there, we are mainly serving existing customers and helping them to grow existing global customers.
Then we have factories located close to customer R&D. These factories will get in Finland, Sweden and Germany. And their one centric task is to have new customers and get new customers on board then help these customers to grow. And when these customers are global and large enough, then transfer the products and then help customers to further grow by serving these customers and moving production to factories located close to customer markets, East Europe, Asia, United States, and support customers to grow further.
So we have new customer hunting down, especially in Finland, Sweden and Germany. And -- but it takes time, of course. And not all are like so successful cases that we are able to see these customers to be served one day by our East European, Chinese or Atlanta factories. But yes, engine is there also for -- to help organic growth by acquisitions.
Thank you, Petteri.
Any other? If not, then maybe it's good to end the session to somehow summarize some key takeaways -- go through key takeaways. Good start, strong start for the year. Especially satisfied to see finally operational margin to upper our 7% target level, which we believe that is really a reasonable next step and target. Spot market purchase is declined quickly, helping us in very many ways, including inventory management. Inventory management still remains as a centric focus area. Continued strong investments to increase our capacity and support, and realize the sales potential, what we see organically right now. Strong customer outlook for '23. Feeling very confident with the year. Thank you very much.
Thank you. And just as a reminder, there will be a recording of this meeting on our website in a couple of hours.
Okay. Thank you very much, and have a good day.
Thank you. Goodbye.