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.
Earnings Call Analysis
Summary
Q1-2024
Scanfil reported a sales decline of 11.5% to EUR 199 million due to slower market demand. Despite this, the company achieved an operating profit margin of 6.8%, excluding one-time costs, and improved on-time delivery rates to over 98%. The Energy & Cleantech segment saw a dip of 3.3%, but neutralizing a subsegment showed an 11.3% growth. Inventory was reduced by EUR 10 million, and net debt decreased to EUR 47.2 million. Strong liquidity of EUR 110 million positions Scanfil well for future growth. The company remains optimistic about market recovery in the second half of 2024.
You don't have any saved screeners yet
Good morning. My name is Pasi here. I'm the Director of Investor Relations and Communications at Scanfil. Welcome to our Q1 2024 results webcast. Together with me here are our CFO, Kai Valo; and our CEO, Christophe Sut.
A couple of practicalities. First of all, you may ask actually questions via the chat window. And also, you can ask questions by raising your hand, and you will be given actually the microphone and a chance to talk. And all the questions will be addressed at the end of the presentation. So Christophe, please go ahead.
Thank you, Pasi, and welcome to all of you for this Q1 report for Scanfil. Looking forward to present it to you. So going immediately into the first summary of the quarter, as we had expected, I think we have been facing higher comparables during the first quarter of 2024. And many of our customers have been facing a slower market demand, which has been [ linked ] in the lower sales, negative 11.5%, around EUR 199 million for the quarter.
In that sense, it was a good time for us to focus on efficiency, where we have a lot of work done there, both in our performance to other customers. We reached in the quarter more than 98% of on-time delivery, which was a significant improvement against the same period last year. We also worked on efficiency, which allowed us to deliver our profit level of 6.8% when we neutralize onetime expenses for layoffs and currency impact. Operating profit reported was 6.4% in the quarter. So all in all, a lot of effort and focus on building efficacy.
In the same time, we continue to work on development. We saw that the Energy & Cleantech segment was slightly negative 3.3%, as you will see later. But when we neutralize one of the subsegment that is focused on energy savings, then the segment is still dynamic, growing 11.3%. So as I said, in opening, I mean, a quarter lower in sales versus last year, driven by distorting from some for our customers and them having a lower demand. But in a way, a good quarter for Scanfil, focusing on efficiency and focusing on making sure that we remain a healthy company and a fit company for the future.
Looking at some of the happenings in the quarter, we had our Capital Market Day, where we had the pleasure to introduce all of you to our updated strategy. And that was also driving a lot of activity within the company, starting the transformation. We continue to be active on the customer side. In the quarter, we were working on implementing new projects for some of our key customers, which will bring us additional revenue later in the year and obviously in the coming in the years to come. So that was positive.
We also closed a new contract with EV charger manufacturer that will also pay off at a later stage. So even if the customer demand was not at the level it has been in previous year, the market remains dynamic. And we remain dynamic in this market, gaining contracts and preparing for the future.
As I said, we have a strong focus on our efficiency and the on-time delivery rate climbing above 98% is one of the elements showing our improvement. It's not the only one. We also managed to reduce our inventory significantly, as Kai will explain a little bit later. And all those elements are showing the focus we have had on operation and being an efficient company. And reducing inventory in a significant way when demand was decreasing was also a sign of good performance from an operational perspective. So from that perspective, I think that's something we are pleased to have that effort on making the company competitive.
And then last but not least, we committed to net zero target to SBTi, which is a step that is very pleasing to see. I think we want to be a responsible company and a responsible actor in our industry. Our customers that are major multinational active in that sector are also wanting to see us the same way. So it's good to take a step and move forward. And also, we've got a lot of support with that move. So all in all, it was a positive element.
When we look at the revenue for the quarter, you can see that we're reaching close to EUR 200 million in the quarter. We sought to have sales that are more normalized. I mean the [ PCB ] that we have reported before is now fading away quarter-after-quarter and was, this quarter, just at a normal level. So sales where I mentioned before, negative 11%, when you neutralize from the [ PCB ] impact on previous year, it's slightly below 9%, the decline of sales.
And that was mainly driven by slower demand for some of our customers and also some destocking impact driven by the lower demand for the customers. In the same time, as I mentioned before, we continue to work on new project implementation, which will pay off at a later stage during the year and will contribute to the development of Scanfil.
On the operating profit side, we reported 6.4%. We had the impact in the quarter from both currency and layoff as we continue to adjust the size of the company to make it more competitive long term. And therefore, if you neutralize those costs, we were at 6.8%, which I will consider is a good performance in a market that has been a little bit more challenging. And I think that from that perspective, it's also something that is important because it builds Scanfil's position in the market and competitiveness. So I will say solid performance when it comes to execution facing a market that was more challenged.
When we look at our segments, you get a different view depending on the segment you look at. I mean Industrial, which is for us really a mix of quite many different type of company, is now weighting almost 50% of our total revenue and was declining 15.3%. In that segment, it's a mixed bag of industrial players. And there, some are growing, some are declining. It really depends on the market situation they are facing. And that then vary quite significantly.
On the Medtech & Life Science segment that achieved very high numbers Q1 last year, it was negative 15%, driven by, I would say, the top 2 customers in that segment that were having a decline in their demand, and therefore, have been destocking during the quarter. We, however, continue to win market share with those customers, where we are actually working on implementing new projects in some of our factories. So even if the revenue was declining, the level of activity was very positive.
In the same time, we have started to implement our strategy having dedicated team for Energy and -- for Medtech & Life Science, and that has been implemented during the quarter. We are also getting certification for some of our factories, which also is driving the opportunities for us to capture new business opportunity on Medtech & Life Science. So a negative sales development, but positive development in terms of activities and collaboration with our customers and future customers in that segment.
Then Energy & Cleantech, as I mentioned before, was overall was negative 3.3%. But as you remember, during Q3 last year, I presented you a little bit how the portfolio of Scanfil was built around Energy & Cleantech with different subsegments. And when we look at it a bit more in detail, we realize that we have one of the subsegments that we call Energy Savings, and that is mainly products that contribute to save energy. And that segment was significantly down in the quarter. If you take away that part, you realize that the overall segment was growing at 11%.
Which tells us 2 things, it tells us that our view, that long term is positive for Energy & Cleantech is something that we can really stand for, because the overall development of the world economy shows the development of that industry. And we can see that the infrastructure keep being built, and that will drive the whole segment. So even if it was slightly negative in the quarter and also facing quite strong comparables, we still believe in the bright future in that segment looking at the overall portfolio. We also developed -- we also now have a dedicated team focusing on Energy & Cleantech, which is also very positive, because it allows us to talk to our customers with more proximity. And that's something that we presented in our Capital Market Day and implemented during the quarter.
Then looking at our customer portfolio. Our top 10 clients are weighting 55% of our revenue. Our biggest customer is 11% of our revenue. You can see that now the portfolio has been balancing a lot and things are evening out. I mean we have quite a few customers that are in the same range of revenue, which is good for Scanfil because it allow us when one goes down to have support from the others.
What I have said also many times that I should reiterate, you should also consider that in those 55% top 10 customers, in reality, it is very often subsidiaries of very big industrials. So what we presently are as 1 customer might be 5 -- 2 or 3 divisions in 1 big group. And in a way, you could also count as maybe more than one. But that's something that is good for you to know and to understand.
But I think that from that perspective, our balanced portfolio is, in a way, healthy and allow us to not be too dependent to the valuation of one business or deal. And then that you know, but just to reiterate, I mean, we are planning to pay a dividend of EUR 0.23 based on 2023 performance. and that we will have AGM to vote.
So that was my first word for the quarter. And with that, I will hand over to Kai for the financial presentation.
Good morning also from my side and perhaps a little bit repeating what Christophe already told, but going still to the turnover. Like I said, that we ended up nearly EUR 200 million, a little bit less. And the decrease in the turnover was like 11.5%. And like Christophe mentioned, last year was still quite significant. Spot buy sales almost EUR 8 million. And this year, was pretty much normalized. So when excluding the effect of that, then we are 8.6% decline in the revenue in Q1.
Operating profit then dropped from last year, 15.1% to 12.7%. But then like I mentioned that we had some negative impact in the quarter regarding layoff and also FX, related to accounts receivables and payables. Those are not any extraordinary costs as such, but to make the quarter year before and now make them comparable, then deducting the cost, and then after doing so, we would end up to 6.8% of operating margin. It is then, like mentioned, it's I think very good result in comparison to 6.7% last year.
When it comes to the net profit, the gap is a bit lower than in the operating profit and explained by positive financial income expenses. We have a positive effect from the hedges and from the FX side. And also, of course, when our debt is getting less and less than also the interest cost is lowering. On the other hand, then the tax we have paid a bit more, and I think it's like normal. We don't have any like tax benefits at the moment and the average tax ratio is a bit increasing. So it's a bit over 20% the normal ratio.
Still here, highlighting the operational performance and operating profit. So comparing here this adjusted correctly, 6.8% to 6.7% last year. And you can see here that when the revenue dropped like EUR 25.7 million, actually, we have been able to cut the cost even more and pretty much been able to neutralize operating margin-wise the impact.
In the balance sheet, 2 highlights. Inventories in Q1, the comparison here is to the end of the year. So we have been able to reduce the inventories by EUR 10 million in -- during the quarter, which is very good. And then furthermore, also paying off the loans based on the normal pace, so to say, EUR 3 million in the quarter.
And looking at the net cash from the operating activity, it's EUR 10 million positive. And last year, at the same time, it was negative figures. So year-on-year good improvement. Not at the same level as Q4, but that was a bit like a very high comparison. And basically, this cash flow -- positive cash flow was supported by this inventory reduction of EUR 10 million. In total, we have like EUR 80 million rolling 12 months positive cash flow, which is very good.
And the net debt going down at the level of EUR 47.2 million at the end of this Q1 and cash and equivalents growing. And also the interest-bearing liabilities, in comparison to last year, significantly lower. And we have very strong liquidity at quarter end in total, about EUR 110 million of liquidity available, including the cash and credit lines.
I'm still looking at the key figures. Then equity ratio 10%, almost up from the last year. And equity increased EUR 40 million, and then actually the total balance sheet being a bit lower when we have been able to consume the inventory. So coming from this side, the improvement. Net gearing starts a bit very low, 17.1%, and it was almost for the year ago. And again lowering the interest-bearing liabilities and then equity being increased significantly.
Return on equity, quite naturally a bit lower because of the lower net profit year-on-year, also due to the higher equity which -- from which we will pay the dividends, EUR 15 million, in the second quarter. And then earnings per share on the level of EUR 0.15.
I think that was all from my side. And I give back to Christophe.
Thank you, Kai. So if we summarize the quarter, the key takeaways is we had a solid operational performance in the quarter. Making sure that in lower demand from our customers, we deliver good efficiencies. Making sure that we deliver good efficiency with, as Kai explained, a profit level operationally at 6.8% if we neutralize some onetime costs. We also made sure that we had a good on-time delivery to our customers and reduce the inventory. So all in all, it was a solid performance from the team across Scanfil.
I mean, in the same times, we managed to not slow down our investment towards the future, meaning that we work on the updated strategy and have started to implement that strategy, both committed to a Science-Based Target as a first step, and are working full speed on that to create a differentiator for our company and for our customers. We also implemented the new segmentation and adjusted our sales organization in this new reality, which we believe is something that will create value for the future.
And then we continue to onboard new project. It was at least 3 major projects that we've started to work on during the quarter that are going to pay off in the future. And that was good because, obviously, it is cost you take during the quarter that will generate revenue and profit within the future.
So based on that, I mean investing into the future, we still delivered a good performance. We are in a strong financial position that will allow us to finance our future growth, both organically and nonorganically, and that's positive. We believe that for our customer market is -- and you can hear that from -- as we are going to report that, that market might remain a little bit slow until the end of the first half of the year. And then from there will recover, which for us would mean that it will allow us to gradually increase performance as we go towards the end of the year. But still being able, in the meantime, to defend the profit and to defend the situation of the company investing for the future.
So those were my key takeaways. Then reiterating a little bit of our outlook for '24. I mean we have no change there, remain in the same range both in terms of revenue and operating profit. We remain positive on the Energy & Cleantech segment. We actually should say that the quarter was very strong for many other players, which was very good.
Medtech & Life Science, we are also positive. I mean here, there is quite a few new projects that are being implemented, that are going to pay off in the future. And we also think that the increase of resource and capabilities we are right now building will allow us to be even more efficient to that segment, where there is a long-term opportunity.
We will continue to focus on efficiency and make sure that we make our company an efficient company and has a cost base that is as adjusted that it can be, and that's what makes our future competitiveness. And we will continue to do that through automation, digitalization as we have done previously. And then we are gearing for future growth, and we believe that we will start to grow again, but the second part of the year against 2023 based on the project we are working on now, but also based on what we can hear from our customers.
So that was the main conclusion and the outlook for '24. With that, I hand it over to you, Pasi, for the Q&A.
Okay. Thanks a lot, Christophe and Kai. We have actually quite many questions already. First question. Considering the large impact segment sales grow, is it correct to guess that the energy savings solutions comprise a quite significant share of the Energy & Cleantech segment? That's the first part. There will be a second part of the question as well.
Yes, I will say that energy savings -- I mean, when we look at the Energy & Cleantech, it's actually quite a balanced portfolio. So I will say that energy saving solution has been very low in the quarter, because the portfolio is pretty balanced between the 4 subsegments we have seen. So I will be a little bit more balanced there. I mean it is not a one-sided segment. It has really many sides, and the energy savings segment is maybe 20%, 25%, no more than that.
Okay. More on details regarding this Energy & Cleantech. Can you mention any specific subsegment in this market niche? So in overall, in Energy & Cleantech. I think that we had the slide distributed to 5 of those segments. And what are you hearing from your customers here regarding the expectations of the development for the years?
Yes, I think there is 2 things here. When you look at Energy & Cleantech, as I mentioned before, we have different subsegments. One is related to energy savings. If you go back to the presentation we made last year in Q3, you will find that slide. And what we see is, except this energy savings subsegment, all the other ones grew during the quarter. And you can see that if you sum up the other one, it grew 11%, which means that there is an energy transition happening.
I mean there is more [indiscernible] electrical vehicle. There is transition to clean energy for heating that is still happening, and the countries are building for that. So it impacts the grid that's getting built. It impacts storage of energy that is getting provided. So there is many subsegments, and all of them are growing. Which let us think that, okay, there is this transformation happening and it will be a long-term trend.
Then, as I mentioned before, the subsegment about energy savings was negative in the quarter, mainly driven by probably too much optimism last year that resulted in building stock, and now demand slowed down a little bit. and which has an impact on destocking. And probably a bigger impact on us, that it has on our clients, because our customers, they reduce their stock, then it impacts us. But that will come back. And what our customers tell us there is that from the second half of the year, the demand will build up again, and we have already forecast that, how much more positive for the second half of the year from those customers that we are weak during the first quarter.
And then for the others, they are keeping a situation that is in line with their expectations. So that's why, all in all, we believe that there is a long-term positive trend. Then we are facing comparables where there were many peaks that were maybe not reflecting the long-term dynamic of the market, it may be a bit higher than expected. But that will [ go away ]. And I think that the fact that we managed to deliver good profitability during that period that is a bit more effective, I think it's good. And we keep implementing new projects for those customers. So I am positive on the long term for that segment.
Okay. Thank you. Thank you, Christophe. Regarding the demand, there's a question regarding the demand for the second half of the year. Do you see any -- do you expect to see an improvement in H2 2024? Is this improvement relative or related to lower comparison point or an improvement in underlying end demand?
It's many things actually. You're right, it's related to -- the comparison point will be lower. So obviously, it will be easier to beat. In the same time, as I mentioned before, some of the subsegments that have been quite poor in Q1 are expected to recover. That's the second element. And then the third element that I mentioned in my presentation, we are also winning market share. So our factories are right now working on implementing new projects that will start to deliver as the year moves forward. So it is actually those 3 components that leads us to that conclusion.
Okay. Thank you. It seems that there are a lot of questions regarding the Energy & Cleantech. Do you expect Energy & Cleantech revenue growth to outperform the other 2 segments also during the rest of the year?
I think that, on that, it's still a little bit early to say. There is also, I would say, a good outlook for other segments to come forward. But we believe long term, I think we should focus on the long term, we believe long-term in Energy & Cleantech, as well as MedTech, we believe will outperform the market. Then for the rest of the year, I would say, probably Energy & Cleantech is and will remain a good driver of the role.
Thank you, Christophe. Then an additional question regarding the growth. And are there differences in growth outlook across geographies, so geographical growth prospects?
I think that we -- it's a good question. It's however, a difficult question because it's probably a [ much easier ] answer that is a mix of geography and segment. What we are seeing is we have seen a bit more dynamic Asia during the quarter. Where step-by-step, things have been recovering for us in Asia. Then one you could probably also think, it's also because we have very good operation there and we are winning projects. So it not doesn't necessarily mean that, that market is going up again. And we have a specific effort on the Medtech in Asia, where we are actually getting good traction with our customers there and our factory is performing. So we got a bit more dynamic in Asia.
Then Americas, in terms of geography for us, it's quite a lot of opportunities. But again, you should also take into consideration that we have done a major investment. We now start to onboard electronic manufacturing in the U.S., which obviously gives us an opportunity to be a very different company than we were before. So I should be probably very careful to say, yes, it seems Asia is landing and rebuilding up slowly. Americas is more dynamic. But again, it might also be because of the part of our company from that perspective, so we should be a bit careful there.
Yes. Thank you, Christophe. Then a question regarding pricing and value chain. What can you tell about ongoing price discussions with customers, but also suppliers in your value chain?
I mean I will say on that, we do our job every day no matter what happens. So we keep working on negotiating prices with our suppliers. Obviously, this is something that is part of the job we have to do. The market situation has eased a little bit, but we should probably be a bit careful because we know that components are cyclical, but now we have a better market situation.
And then I would say, with our suppliers, I think we have come to a situation where we have a very close collaboration. And we work with our customers on how we can make them efficiency gain, still remaining a healthy company. So we said the discussion when we discuss price with our customers is more on how they can improve their product and their solution that both the benefit from savings than just a push to ask us to reduce price. So I think the pricing discussions are quite healthy and the margin development is healthy as well.
Okay. Thank you. A follow-up question regarding the market growth for segments. Do we expect improvement in operating environment in all customer segments in the second half of the year?
Yes. I think that in the second half of the year, we expect obviously improvement in Energy & Cleantech, but also in the Medtech part. Then in Industrial, there is improvement. But there, it's a bit more tricky to answer, because in that one we have many different type of industry and company. So some have to improve and do better. I mean you know some of our customers and you will [indiscernible] before and some are seeing improvement. Some might lag a little bit behind. So I will say, Industry will be more mixed bag, and Energy & Cleantech and Medtech should recover as the year moves forward.
Then a question regarding mergers and acquisitions. How does the M&A market look like from a supply/demand perspective as we speak?
I think that as we speak, there is quite a lot of activities and things going on in terms of people willing to eventually sell companies. Then what remains to be proven, and we will see how the year develops is this offer and demand can meet at a reasonable price level. So that's something that we need to see. But there is an active market in terms of opportunities to be looked at. Then a bit early to say can -- will it be done at a reasonable level, still to be seen.
Okay. Thank you. Question regarding gross investments. Can you tell us Scanfil's estimate of organic gross investments in -- for the full year 2024. Maybe in details is also asked. But let's see what kind of level. Would that go to Kai?
Yes, since I don't know how much we want to go to the detail, but of course, we have published some of the investments that we have. It's well known that we are investing to the factory in Sieradz. And that, of course, is a major investment. All of course, not -- and maybe big part is not yet happening in -- realizing in this year, but still that is ongoing. But then what comes to the -- like detailed investment plan, we have not just been disclosed that. How do you -- if Christophe, you want to say something more, feel free to show.
But I think that we have disclosed the key investment and those we are working on right now. Then the rest is just continuous part of business that we -- as we mentioned in Capital Market Day, we allocate part of our revenue to investment. And that remains stable and then it's quite across our different countries and different companies.
Question regarding the market share and winning market share. Who are the parties that you take market share from, larger listed competitors or smaller independent businesses?
I think there is 2 trends here. I mean we -- obviously, we have customers, we have built relationship with that appreciate our service and that keeps expanding. I mean when you look at our portfolio, you see there is in our top 10, it's the major stock-listed companies, if I could call it that way. Those companies, they do acquisition and they go. When they do acquisition and do, what happened is that they and that building up the tail of suppliers. And since with those players, we are preferred suppliers. In a way, we win from that because they come back to us and they ask us to implement projects with their new lead company. So that's one way that allow us to win market share. They won't reduce the number of suppliers, the complexity go with their own growth and we benefit from that.
Then the second thing is we have also been winning market share, again, more sizable players, because people wants to have a player that is more adequate with their need. And that we have been benefiting from. And it can be global listed company. In that case, we don't fight against the necessarily Nordic-based company, we fight against a player that can be anywhere in the world.
Okay. Thank you. [Operator Instructions] Let's wait a couple of seconds. If there are no further questions, so handing back to you, Christophe. So it seems that we don't have any further questions. So...
Okay. But thank you. I would like to thank you all for listening to us and spending time with us, and we look forward to update you during the next quarter. Thank you very much for today, and we wish you a good day. Thank you. Goodbye.
Thank you.