Scanfil Oyj (SCANFL) Earnings Call Transcript

Good morning. Welcome to Scanfil's Q3 2026 Interim Report Call. Together with me here is our CEO, Mr. Christophe Sut; and our CFO, Iiris Heiskanen. [Operator Instructions] Now handing over to Christophe, please.

Thank you, Pasi. Welcome to Scanfil Q3, and let's get started. Starting with a couple of news related to what happened during the quarter. We continue our expansion with new customer and customer contract, which is also driving the expansion of our facilities. And we were pleased during the quarter to announce that we will increase the size of our facilities in Poland, in Myslowice. And the expansion will actually bring the overall size of the factory to 36,000 square meters, which will make it our biggest operation in Europe. This site is focusing on system integration and has shown on a very consistent basis, strong performance and we've been rewarded by our customers and confidence and trust from our customers. So very pleased that we can support the growth of our customers in that operation. In the same time, I felt it was good timing to update you on the progress we are doing in Suzhou. We announced in the spring the need we had for an expansion of our Suzhou operation to support our customers in China. And as you can see on the picture, this is going well and moving forward, we are now in full speed at preparing for the go-live date. And at least the building is growing and building up. The plan is to have the building ready by mid next year. So moving forward as planned and as expected. On another note, when it comes to news in Q3, we had a Capital Market Day where we adjusted our long-term target and 2 adjustments were made towards the long-term target. One was the growth number that we moved up to 15% as well as the debt level that -- where we modified to have a corridor between 1 and 2 in order to support our growth and continue our expansion. So as you can see, driven by customer acquisition, quite a few number of projects going on in Scanfil to continue to prepare the future. But let's go back to what happened and how Q3 unfolded. Q3 was a very strong quarter for Scanfil. We landed at EUR 252.2 million, which was a growth of about 32%, which was including an organic growth of 8.5%, which was definitely a strong number and showing a very positive trend and development. In terms of profitability, EBITA was EUR 17.8 million, growing 26% and at 7.1% within the corridor we are aiming for. So a continuous positive development. And then finally, our earnings per share also strong, growing 25% at EUR 0.18, which was the outcome of, I would say, a solid quarter. When we look at the revenue trend, we continued expansion driven by both the mix of organic and acquisitive growth. I will get back to it a bit later, but we continue to see in Q3 a strong performance from the acquired entity, which contributed to the growth as we were also ramping up projects that on that side contributed to the organic growth. When it comes to the profitability, profitability was obviously benefiting from the growth moving up to the range of almost EUR 18 million, which was in line with what we were expecting from the quarter. Looking now at the different regions. Americas region is continuing to gain speed, reaching soon 10% of the total revenue of Scanfil. We had a record quarter, with growth of 74% of the overall revenue, 5% of it being organic. We have in North America, a strong development of our acquired entity, ADCO and also a strong development of 2 customer segments, Aerospace & Defense that is developing very nicely, as well as Energy & Cleantech that is also seeing a positive development. What was also pleasing to see is that we continue to deliver consistent good level of margin. The third quarter was 8.7%, which was the outcome of all those new projects that we had launched end of last year that are now getting in maturity and contributing positively to the profitability of the region. So all in all, following the growth trajectory we have grown for Americas and positive. APAC region, a very strong growth in the quarter. We are talking about 16% of growth in the quarter. And quite a lot happening in that quarter for APAC. As you saw in the picture, first of all, we are fully busy expanding Suzhou, which can create some disturbances on the operational level. But moving forward, at least in a very good speed. In the same time, we have also a significant amount of projects that are ramping up in Suzhou, which was positive to revenue, but negative to the margin, which is quite common, and we have the same story a few quarters ago with North America, and then it unfolded in a very nice way. So here, we are at the same step, a lot of new projects coming in Suzhou operation. In the same time, another area where we have also the same type of happening is our SRX operation, where we have quite strong change of mix in those factories, which also was having a negative impact on profitability, but all in all, a positive impact on revenue. So I will say this quarter was, in many ways, pleasing for APAC because those new projects that are coming in and that are building the speed and the momentum of the growth will pay back in the coming quarters. And we -- as we have seen before for Americas, we foresee already that Q4 will see a continuous development and growth of the region, but return to normality on profit levels. So good development in APAC. Central Europe also saw a positive development. We had in Central Europe a development of 57% versus last year, which was driven both by a good -- continued good performance from acquired entity MB Elettronica in Italy, but also by a strong organic growth above 8% in the quarter, which obviously was positive. I think we should remember that now Central Europe is the biggest region in Scanfil, almost 40% of the total revenue. And that quarter is a quarter that is disturbed by vacation period. I mean all our operation in that region had between 2 amounts of closing. And therefore, delivering this level of profitability and this level of growth during that quarter was a very good surprise in the sense that it means that they managed the situation and did a good work. What was also pleasing to see is that now we have gone out of the restructuring time in Wutha. We have an operation that is healthy again, and that can, from that new point, grow and contribute to the overall group. So overall, a positive picture for Central Europe, but also paving the way for Q4 because as you can imagine, to deliver this quarter with vacation period in July and August, it meant that the quarter ended at a very, very strong speed. Finally, closing on Northern Europe. Northern Europe was, I will say, in line with what we see on that market, a little bit slower growth, 2%. At least Aerospace & Defense is the one driving the positive momentum in the region when other customers are more flattish. We were still having very consistent delivery when it comes to margin in the range of 6.7%, which is more or less where they have been for many quarters already for the last 3 quarters. So continuing to deliver at a good level. It was slightly below the comparable of last year, but last year, it was some one-off that we mentioned at the time that bumped that quarter in the region. So I would say 7% is a level that we can expect from that region. So I would say no drama consistent delivery was the sign of this quarter and of this region that has now become the third region of Scanfil behind Central Europe, behind APAC. When it comes to our customer portfolio, we continue to rebalance the customer portfolio. I would say now the first customer is in the range of 10%, 11% still. When the 10 following customers are in the quarter weighing only 42%. And what it means, it means that our portfolio becomes more diverse and the 10% to 20% is significant and has a very positive development. So I think it's pleasing to see that and to see how that rebalance the risk of the company. Then Energy & Cleantech remain the biggest, I would say, specific customer group we have, if you consider industrial being much broader in its definition and remain very strong. Very pleased to see quarter after quarter Aerospace & Defense gaining speed. It's now 11%, if you look at the year-to-date performance of the company. And then Medtech & Life Science, where we also see a very positive development, but a positive development to come as well. I will get back to that a bit later. Aerospace & Defense, we can see obviously a very strong momentum. We have now moved to a revenue in the quarter of EUR 30.9 million, which was characteristic of both organic growth, obviously, but also the acquired entity. I mean we continue to have a strong development on that segment and the strong momentum. Energy & Cleantech had a very solid quarter, growing 14% in the quarter, which is the outcome of the project we have won. I mean we mentioned that many times that we were seeing development and new project to come live during Q3 and Q4. And this is what has happened during that quarter already, where we can see that the project we won in the past are now gaining manufacturing -- beginning the stage of manufacturing. And that also, I mean, this segment has a growth that is above market average very clearly. So in line -- I would say, in line with our expectations. And then finally, industrial. And industrial development was mainly supported by acquisition, obviously, in the acquired entity. We have also industrial customers, and they are growing. The level of sales was still significant below last quarter, but still significant. But it's a group -- customer group where the expectation of growth are slightly lower than overall. Finally, Medtech & Life Science, where we are reaching new level in sales, passing EUR 46 million. And we continue to gain customer projects. In this quarter, it was another EUR 11 million that came up. I mean, we have seen between EUR 11 million and EUR 15 million for quite many quarters now. That's positive. We can see that most of the customers are having a positive dynamic in that segment. The good news, however, is most of the growth is not captured yet because many of those new projects we have won in the last 4, 5 quarters are just starting to kick in. I mean, quite a few of them were just starting to move to manufacturing during the last part of the quarter. So I would say, on that one, the growth is in front of us. Thank you. I will hand over to Iiris for the financials now.

Thank you, Christophe, and good morning on my behalf as well. If I start with turnover and comparable EBITA, so our turnover increased 31.8% to EUR 252.2 million. It was a strong contribution from acquisitions, EUR 40 million in the quarter and also organic growth, which was 8.5%, so EUR 16 million, positive across all of our regions. And we also had a positive impact from exchange rate of EUR 4 million, mainly in our APAC region. Then comparable EBITA increased 26.1% to EUR 17.8 million. Margin was 7.1% compared to last year, 7.4%. And as we can see, it was the largest contribution from Central Europe and also Americas and both of them had solid margins. Then with APAC, the higher volumes kept EBITA broadly stable year-on-year despite their having a lower margin level. And in Northern Europe, it was a strong prior year comparison, but they have had very stable performance quarter-to-quarter. Then turning on to cash flow and net working capital. Our operating cash flow was EUR 10 million, January, September. And then in the third quarter, EUR 4.1 million compared to EUR 7.4 million previous year. And we have strong revenue growth, and that is increasing our working capital. Our working capital increased to EUR 254 million. It was EUR 180 million last year, and that increase is explained by the acquisitions. And then quarter-to-quarter, the increase is coming from higher inventories. We have higher business volumes, receivables increased, we have higher sales levels. But then if we look at the net working capital in relation to sales, it has been stable quarter-to-quarter in the first quarter, second quarter and now in the third quarter. We continue to focus on our working capital management and cash generation going forward. Then on our financial position, our net debt was at EUR 141 million at the end of the third quarter compared to EUR 10 million last year, and that increase is coming, of course, from the acquisition financing and then quarter-to-quarter, some movement from working capital increases. Net debt/EBITDA was 1.5, so right in the middle of our corridor, 1 to 2. And we have a strong financial position, available liquidity, strong over EUR 150 million in unused credit limits and loan facilities. So we do have financial flexibility also going forward. And then a couple of words about key figures on balance sheet and shareholder returns. Equity ratio was 41.3%, last year, 55% and net gearing 42.2% last year, 3.5%. So that is showing the higher leverage as we discussed in the previous slide. And then return on equity increasing to 13.3% last year, 12.7% and then earnings per share now EUR 0.18 compared to EUR 0.14 last year, showing steady development. With that, I think I will now hand over back to you, Christophe.

Thank you. So outlook, as we have said many times, I mean, we are still in the corridor we gave at the beginning of the year. Then obviously, I can say that we are now -- we have now reached a point where we are very confident with that corridor and probably in a better shape than we were hoping when we gave that corridor at the beginning of the year. So all in all, I think this third quarter, both by its performance, was positive, but also by the outlook it leaves in terms of opportunity, but also in terms of backlog and how we foresee Q4 and 2027. So pleasing to see that the choice we have made in terms of customer segment are driving momentum and organic growth. We see a positive development and opportunity with the acquired entity. And then we continue to have good cost control and hard work on managing supply chain that allow us to run the business in a smooth way. With that one, I think I will hand it over to you, Pasi, and thank you.

Thank you. So heading to the Q&A. So please type in questions in the chat box, and I will read out those questions in here. All right. We already have some questions from Marcus. Firstly, about the Q3 and finishing that and momentum. You mentioned a strong finish to quarter 3. Has this momentum continued into Q4? And could you give some color on that?

Yes. I mean, first of all, I mean, it's obvious that when you consider Q3 is July, August and September and July, August is vacation first in the Nordic and in Central Europe, then August in Italy. Obviously, September has to be strong. And it's also the time where we start usually to ramp up new projects. So that's, I would say, a normal dynamic. But when you see the number, it obviously means that it was a very strong dynamic. And as I said in my conclusion, we foresee that to continue. We have a strong expectation on Q4, and we start to have a positive -- a very positive outlook for 2027.

Okay. Continuing now with Marcus. Can you share some more details what is driving the strong growth in APAC?

Yes. I would say on our APAC region, I mean, there are several factors. Obviously, the reason why we announced the expansion of Suzhou was because we have in our pocket new contracts that are to expand our revenue. And the new contracts, they are driven by 2 type of customers, mainly it's Energy & Cleantech and it's Medtech. And it's mainly international companies that are requesting manufacturing from us on the APAC region. So those are the main driver for the growth. And then step by step, we are starting also to see traction on our Malaysian site, so where we are starting to move there in with some of our global customers. But Energy & Cleantech and Medtech are strong drivers in our APAC region.

Okay. And now continuing actually with the APAC region. On APAC margins, you actually touched about this already in the presentation, but maybe good to repeat it. On the margin in APAC affected by NPI costs, should we expect this to also weigh on Q4?

I think what you should expect is that it will normalize. It will go back. I mean we have -- you have seen a bit same trajectory for Americas. So you get a quarter that gets hit because of the volume of new projects and then it normalize -- start to normalize the following quarter. So you should see an incremental improvement on that.

All right. Okay. Now heading to the customer groups and markets actually is still continuing here. A&D sales were very strong, but order intake was lower than this has been actually if you look to the past. Any guidance what we should expect? And continuing on that, are you seeing any signs of defense slowing down?

No. I think that the challenge with those contracts is they are very long, long-term contracts, so they don't come very often. So that's one of the elements. But what we can see is that we continue to see growth in that segment, and we continue to be positive to that segment. Then some of the customers grow 70%, 80% during the year. Probably they don't grow 70% to 80%, but that's not what we count on the long term. So I think we remain positive. Business is moving in a nice way. But yes, we don't count 70%, 80% growth, and I never counted on if you remember what we presented in Capital Markets Day.

Okay. Thanks a lot, Christophe. Now Pasi from Nordea. Could you offer a breakdown for volume and price related to organic growth in Q3? Maybe...

I think I can take that one. What we consider is that the impact of price growth is 1.5% in the quarter.

Maybe that's enough sufficient. All right. Antti from Inderes. How much price increases had impact on organic growth in Q3? I think that was actually that. What do you expect in terms of pricing in coming quarters and inflationary pressures seems to be picking up?