Scanfil Oyj
OMXH:SCANFL
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Good morning, and welcome to Scanfil's Third Quarter Results Webcast. My name is Pasi Hiedanpaa, I'm the Director of Investor Relations and External Communications at Scanfil. Together with me online, we have our CEO, Petteri Jokitalo, who will be presenting our results in the webcast.
A couple of things about practicalities. Questions can be sent via chat window, and we will be answering those at the end of this session.
Now to the presentation. Please, Petteri, go ahead.
Thank you Pasi, and welcome to Scanfil's Q3 Results Call, also from my side. We got a positive quarter in many ways. First of all, our sales was strong. We got also a strong customer demand, of course, was behind our good sales. Quarter sales EUR 212 million was growing like 26% year-on-year. Basically, all our customer segments were growing strongly, especially Energy & Cleantech, Automation, Medtech, there we saw especially strong customer demand to continue and even further speed up.
Operating profit was EUR 11.5 million, almost 22% growth year-on-year, also clearly higher level than what we had Q1 and Q2 this year. Basically, strong or stronger operating profit was driven by increasing sales volumes. And also we were more successful in our hedging and mitigating the risks coming from our exchange rate changes, USD continued to appreciate, but we were in better position and able to hedge that risk more successful now.
Net profit EUR 9.4 million, a 84% growth from last year and earnings per share, EUR 0.15. Other positive things in our Q3 performance was that we were able to further improve our net cash flow from operations, we turned our net cash flow positive over Q2 where we had like EUR 2 million positive cash flow, and now we improved that to EUR 8 million. And of course, the key drivers behind that positive development was improved profitability and also the fact that now we were able to stop finally our inventory growth.
So materials availability, components availability situation was improved a bit, and that was immediately reducing our need to use spot market purchases. We still had quite a remarkable amount of spot market purchases in our sales like EUR 20 million, but comparison to Q2 where we had EUR 30 million, like a reduction of 1/3.
And as said, customer segments, basically all customer segments were growing and especially all excluding Connectivity were growing, if we are like cleaning the sales numbers from spot purchases more than 20% except Connectivity. And energy saving, energy efficiency, equipment recycling solution products have a real momentum right now. Customers have a great outlook, basically the limiting thing has been components availability. And the same matters also with our Automation customers and also quite many of our Medtech, Life Science customers. 23% growth year-on-year without spot purchases. And if you think about what could -- what is the impact of cost inflation, we could say that about 5% of that could be explained and rest is like increasing customer demand.
Some key KPIs for Q3, we just went through the sales and profit numbers. Return on equity, 15.4%, a slight improvement from last year. Equity raise, net gearing, some negative development to last year, but situation stabilizing now. Net cash flow from operations there -- I apologize, we have missed it, it's plus EUR 8 million Q3 '22. And last year, this minus EUR 19.2 million is correct number that you can see a clear improvement what we have made, that last year minus EUR 19.2 million, now plus EUR 8 million, situation has clearly changed and started to improve. Employees average 3,374. It's good to understand on top of that we have third-party operators as well that the total amount of people what we have including third parties a bit above 4,000.
And if taking a bit closer look to balance sheet, the total value of EUR 541 million, inventories EUR 229 million level, of course a big growth from last year, but this EUR 229 million level is actually exactly the same value than what we had at the end of Q2. So now the next step, of course, is to start to reduce the inventories, and now the growth has been stopped. And same matters with our interest-bearing bank loans, EUR 90.2 million is quite exactly the same amount of interest-bearing bank loans we had by the end of Q2.
Cash situation, almost EUR 20 million. Here, on top of that, we have unused credit limit above EUR 50 million, so liquidity situation is quite healthy. I could say that our financial position continue to be stable and definitely ensures that all needed investments can be done. About the sales development, Q3, EUR 212 million, quite the same level than Q2, but other hand, if you are looking at the history, Q3 used to be a bit lower level than Q2 always, and one reason is the summer holidays in July, we also had summer holidays this year, but Q3 sales has been extraordinarily high, same level than we had Q2 sales and that's indicating very strong customer demand.
And especially if you are looking at situation without non-margin spot purchases, we were in level, EUR 192 million, which is actually all-time high. All-time high sales, with cost then leading to improved operating profit, EUR 11.5 million after Q2, we discussed and I was talking about that about EUR 10 million level where we have been quite a long time, and we've not been satisfied with that level and clearly indicated that we are looking forward to see stronger H2 this year and a stronger profit development during second half and starting to realize as we expected, now Q3 and looking forward to further strengthening OP during the last quarter of the year.
Major production investment decisions or investments, which are even implemented in '22 or decided in 2022. Those investments, what are listed here, all have quite also strategic angle, starting with Atlanta, where we rented 6,000 square meter more early this year new Space. You can see the picture there as well of our new premises in Atlanta. There we also now have made a decision to invest in 4 SMT line, including automated inventories and [ THD ].
Other technologies needed to manufacture electronics starting from the PCPA and making PCPA kind of manufacturing, possible at a investment total value in Atlanta is about EUR 4 million, and these lines are available somewhere Q3 next year, that the investment is clearly widening our service offering in the United States so that we are vertically integrating our existing assembly, integration, testing capability to printed circuit board manufacturing.
Opening week market in United States, our global customers, most of them, they are really seeing that North America is one of the key markets, and that's been a disadvantage that we were not able to offer them a full-scale electronics manufacturing in Atlanta so far, but that will be changed next year. After that investment, we are able to serve better our existing customers and also widening our new customer potential in that market.
In Wutha, Germany, we have introduced new space, mainly to our existing medical customers, where we see great sales development possibilities. And Malmo, Sweden, we also have introduced new space for existing and new customers. Suzhou, China, we finally implemented already during the first half of the year, a bit smaller than we talked 1 year ago, expansion. We finally ended up to like 1,400 square meter investment or new floor space investment. And we were pretty much using our existing premises that we used to have a big office building in Suzhou as part of our production campus.
And we didn't need that production space during the years, as were renting it out to third parties and now somehow moved our existing offices to that building and then changed our existing office space and into production space. And we were able to able to increase our production floor pipe that are without building new buildings or walls. And even in China, that 1,400 square meter expansion is enough to ensure our same business growth potential in China, at least during next 1, 2 years. On top of that, we have invested in Suzhou SMT capacity and warehouse automation.
Outlook and focus in this year. Guidance remains the same, not changed, still seeing that our sales will land somewhere between EUR 800 million, EUR 880 million and operating profit between EUR 43 million, EUR 48 million. Of course, there are still risks, component situation, semiconductor availability, even it's slowly improving, we still have challenges there and most likely will have some level of challenges during the whole next year. In addition, of course, we still have war in Ukraine and even COVID-19 is still with us and may cause some unexpected issues.
Focus areas, clearly driving organic growth. We have customer outlook very strong still, and that's like our first focus to make sure that we are able to realize the sales potential, what we see securing materials is the key. Even our profitability is improving, we still see a potential to improve that further. If you are taking consideration EUR 20 million spot market purchases during Q3, our OP was like a 6% level and target, of course, is still 7%, and we believe that this is realistic over some time and definitely, we are looking forward to go closer to that.
Net working capital and inventory, positive development. What we have seen, we need to continue, we need to maintain our cash flow positive, cash flow from operations and stop inventory growth, what we have seen we need to change that to a situation where we see our inventories to reduce, we see potential to reduce our inventories even sales as we believe continue to grow. And longer-term targets, no change. Annual organic growth, 5% to 7%. I think that in our existing inventory situation, we need to add there to the extent inflation corrected annual organic growth target 5% to 7%, and operating profit level at 7%, dividend approximately 1/3 of the annual earnings per share.
And as I already said, we see really great growth potential with many of our customers and especially our customers under Energy & Cleantech segments and Medtech & Life Science. Central Europe still great potential for us for longer term, and in long run, believe that we need wider factory network and especially we have mentioned that the wider factory network is needed in South of China and North America.
So, thank you so far, and then Pasi, will we have questions?
Yes, we do. Pasi approached us actually with the question regarding already the year 2023. But of course, well, we cannot really comment on that, but I will read it through anyways. How do you see Scanfil's organic volume growth to develop in H1 2023. In the case, we are going to the economic downturn. Is it possible to witness some 5% decline in sales volumes in first half of 2023? Kind of a trigger question because we cannot probably answer it.
Yes. Of course, that's clear that we are normally coming out with guidance for the year somewhere in February time. So most likely next year, February, we will come out with a more detailed outlook for 2023 and then also likely giving guidance for that. But what I can say, I can -- as I said earlier, that our customers are providing monthly basis, like rolling 12 months forecasts for us.
And as I already said, we said that Q4 will be strong. This year, and also we do not see any -- especially any weakening in customer forecast, so far forecasting. And of course, this -- and another topic is, our customers are industrial customers. So the order stocks are really strong. [Audio Gap] order stocks are [Audio Gap] really our customer base is very versatile and most likely that will happen in different time points for each of them. But we do not see that kind of weakening yet.
Okay. Thank you, Petteri. Also regarding the weakening, Pasi, has continued regarding the China. Could you please comment China in more detail? Have you seen weakening demand in China in October?
No, I can comment on China in general level that we have never discussed or gave any detailed information about [Audio Gap] October.
8th October, yes, exactly.
That with -- as generally speaking, thinking our own customer bases, what we have in Suzhou, we have not seen any general change in our customer forecasts in October.
Okay. And Viljakainen from Inderes. What were reasons that factories in Poland performed very well in the third quarter?
The factories in Poland...
Yes, performed well, yes.
I think that our almost all factories were performing well in Q3 and [Audio Gap] and also the improved material situation, even slightly improved material availabilities, improving our possibilities to run our factories efficiently and improving productivity, because there are less unexpected issues with components availability or last-minute changes or last minute information from component suppliers that they are not able to deliver.
Petteri, also, actually on the continuous -- this is kind of a -- actually, you almost already answered these questions. Are there particular reasons what are dragging other factors to reach the same level?
[Audio Gap] any -- like a fundamental issues that basically all our factories, what we have in our portfolio right now, they have a healthy customer bases, and they have a good strategy. And they have -- all of them, they have basically the same possibilities to make a healthy profit, main intent that even aiming that 7% OP level.
Okay. Continuing actually, the geographics continues, do you see any differences in customer demand, estimates or [Audio Gap]
[Audio Gap] in Scandinavia, still the situation is like that. We have a few major customers who has headquarters somewhere else like United States. But most of our key customers' headquarters are in Europe or even Scandinavia. And basically, they have very healthy demand now, all of the key markets, where they are focusing.
Okay. We are getting actually an information from our supplier regarding [Audio Gap]
[Foreign Language]
Yes, we should -- How much of Atlanta's new capacity is supposed to be allocated for Scanfil's current customers?
We start with, of course, current customers and offered that current customers. It's of course the easiest way to get started. And we already have some known projects we are even aiming to move some manufacturing from Europe to United States. And then the next step is we start to sell that extended service to new customers [Audio Gap].
[Audio Gap] asking about [Audio Gap] strong enough to consider acquisitions? Or do you want to wait until your inventory levels are lower and economic outlook becomes more certain?
We are expecting that our balance sheet is [Audio Gap] remarkable, stronger, position somewhere in next year, maybe the first half of next year or second half of next year at the latest. So -- and knowing that acquisitions time line, if you want to finish a major acquisition. It's easily like 6 months to 8 months time after [Audio Gap] for that.
Okay. Thank you, Petteri. There are no more questions actually at the moment, if you like to ask some questions, please post us on the chat, and we can get back to those, but let's continue with the summary. Petteri, please go ahead.
Yes [Audio Gap] strong customer demand, continued strong sales, Q3, actually all-time record sales, with a bit upturn on margin spot purchases. We expected improving profit ex the recorded, we are looking for further [Audio Gap] turning point what we had during Q2. We continued that development in Q3, where we had EUR 8 million positive net cash flow from operations. We were able to stop our inventory growth and now looking forward to start to reduce our inventory levels and make our balance sheet stronger, what we are expecting to [Audio Gap] yes and we are expecting to see strong customer demand, strong [Audio Gap] positive development, a lot of positive development during Q3 and looking forward to continue that during Q4.
Thank you very much and have a good day.
Thank you, Petteri. One reminder about our -- for our investors. You will be approached by the company at the end of November with a questioner regarding Scanfil [Audio Gap] as well, and good day.