Scanfil Oyj (SCANFL) Earnings Call Transcript & Summary

Good morning. Welcome to Scanfil's Q3 2025 Results Webcast. Together here with me, my name is Pasi Hiedanpää. I'm the Director of Investor Relations and Communications. Together here with me is our CEO, Christophe Sut; and our CFO, Mr. Kai Valo. [Operator Instructions] Now handing over to Christophe. Christophe, please.

Thank you, Pasi, and welcome to all of you for this Q3 report. Really, really pleased to be with you today. Let me start first by giving you an update. As you might have seen, we had a fire in an operation in Italy that we are planning to close in Q4. So I felt I just give you an update on that before we go to the formal quarterly report. And fire broke in the 17th of October in one of the wing of the building where we have the outgoing good warehouse located. The good news there is now all employees are back to work and the team locally is ensuring business continuity and working with customers to restore situation as normal. This is a company that we announced we will acquire during July, and we are still planning to close that acquisition during Q4. So that's the update on the situation there, and I felt it was good that you can get that information from us. Moving now to the Q3 report 2025 and the key events. This is a quarter that was extremely rich in activities and happenings. We acquired significant amounts of new contracts during the quarter in the range of EUR 70 million. One of the one that we promoted during the quarter is the deal we closed Stäubli, which is a significant player in their industry and have decided to go with Scanfil as a manufacturing partner. So very pleased about that and thanking them for that. We also continued to prepare our growth journey with SRXGlobal, where we inaugurated the modernized factory in Johor Bahru in Malaysia. We have now a fully operational factory, one of the most modern you can have, and we are already starting to ramp up some of our customers in that operation as in the same time, we are also getting a lot of interest. I mean I was myself down in Malaysia 2 times during the previous quarter and a lot of people flying from around the world to see that operation, extremely, extremely pleasing and moving accordingly to our plan. We also continue to build a competence in our company, and I was very pleased to have Anna-Maria Tuominen-Reini joining us. Anna-Maria has a long-standing experience in supply chain. We know that supply chain and procurement is important in our industry. So very pleased to complete our management team with our competence. So a good add-on to our team. Then we announced during Q3 the intention to acquire MB Elettronica in Italy. This acquisition is key to Scanfil future and to our strategic development. It will give us a very strong footprint in Aerospace and Defense with some very major customer in that field in Europe. So a very good complement to Scanfil today. So very pleased with those development. And then last but not least, during August, we announced that we have received a gold rating from EcoVadis. And I think it shows -- and it, in a way, give us the comfort with all the efforts we have been doing on building a modern company I mean sometimes maybe manufacturing doesn't get the place it should deserve, but getting from EcoVadis this gold rating show that we can be a sustainable company. We are respecting our employees. We are respecting our environment. And that's in a way a proof of that. So very pleased with that development. Moving now to some numbers related to that. And I think that in a way, the number reflected the high level of activity and enthusiasm we could see in the quarter. We landed at EUR 191.3 million of revenue, which was an increase of above 10% versus last year. And it was a mix of acquired growth, but also a return to organic growth with almost 8% in the quarter, which is, I would say, a strong performance from all our teams and very pleasing to see that the contract we had been piling over the last 12 months start to create revenue. The impact on our EBITA was positive. We landed at EUR 14.1 million, which was an increase versus last year of 10% and a very solid margin at 7.4%, which allowed us to deliver an increase in our EPS. So I will say the financials were positive. A few other KPI or number that I think are very pleasing to me. First of all, and it's maybe the most important, we are measuring on a regular basis our NPS score. And it was actually all-time high, the outcome we got during September, landing at 54. And I think 54 NPS is, I think, a good performance for a service company, but that's where we want to be. And I think we have put significant effort to be a better partner over the last years, and it was very pleasing to see that. We also saw a development in our employee satisfaction survey that went up 2 points, which also is going and pointing in the right direction. So from that perspective, not only the numbers or the financial numbers were good, but also the way we can measure satisfaction of our employee and satisfaction about our customers showed in a good way. In the same time, we acquired for EUR 72 million of new contracts during the quarter, which is something that will be delivered over time. And you will see later a little bit more in detail, but a very strong MedTech and Life Science related to that. So that was very positive. In the same time, we continue the transformation of our APAC region, having strong momentum and the transformation of our American region, where we have now become a very significant and solid electronic supplier through the transformation of our Atlanta site. So in many ways, the quarter was proving the strategy implementation. As I mentioned before, I mean, revenue increased to EUR 191 million from EUR 173 million last year in the same quarter, and EBITA was also obviously significantly impacted, going up to EUR 14.1 million against EUR 12.8 million during the same quarter last year. So a positive development on those 2 indicators. Looking now a little bit to our regions. Americas, we landed the quarter with EUR 12.7 million. Very, very pleasing to see that we were coming with a new quarters of growth. I mean, now 7 quarters of growth. And as I said, we started 2 years ago a journey to transform that factory to be a real player in the electronic manufacturing. And we can see now that this has taken off and is in a way, landing in a good way. Revenue is increasing, number of projects in that operation is increasing. The pipeline is strong. The profit is in line with our expectation. And we, therefore, decided to invest in a new line in that operation. So we will add another manufacturing line that will be up and running towards the end of this year, beginning of next year to continue to support the growth. In the same time, we are working to close the acquisition of ADCO Circuits that should be closed during Q4. And ADCO Circuits, which is located on the north part of America in Detroit will actually bring a lot of complementarity, a lot of redundancy, will allow us to secure our customers in the region and therefore, will be a perfect complement to our American strategy. So very pleasing development in Americas. Continuing with APAC, where we also had a positive development, growing to almost EUR 54 million against EUR 42 million last year at the same time. We continue to enjoy a strong development in our operation in China, where our Suzhou operation remains a best-in-class operation and state-of-the-art operation and wins traction from customers on a continuous basis. We were also extremely pleased with the performance in the quarter from our operation in Australia that we were actually in the top of Scanfil deliveries, I mean, in terms of growth, in terms of profitability. So very pleasing to see that this operation we acquired a year ago is proving solid results. And then last but not least, I mean, we have been working and the teams there have been working very strongly to transform our Europe operation in what we call between ourselves, [indiscernible] , meaning a very modern factory with top-notch equipment. And I was pleased to be there with customers, as I said, during Q3 to demonstrate our new capabilities there. And I'm convinced it will make a difference for Scanfil. Central European region. For Central Europe, the quarter was a little bit of what I will call a transition quarter. I mean they had a slight decline in revenue, a 3% decline and also a decline in profit, 6.5% against 7.1%. It's always -- you could say it's always disappointing when you don't go up. But sometimes that's the price to pay. I mean, they will have a very strong first quarter, and we had to prepare for it and get the resource in place and the people in place for that. So that happened accordingly to the plan, and then we started to gain momentum during the end of Q3, but that will translate in the future. We also had a lot of activity on the M&A front, as I mentioned before, since we signed an agreement to acquire MB Elettronica during that quarter, and the business will be actually included in that region when it's joining Scanfil. Moving now to Northern Europe. We had very positive development in Northern Europe, moving to EUR 63.1 million from EUR 56 million last year. And a good contribution on profit with 8.6% EBITA, which is a very strong performance. I mean here, we got mainly two drivers. The first one is an extremely strong performance and development from our defense customers that grew extremely significantly. And then it was complemented by a good development from a couple of Energy & Cleantech customers that are delivered out of that region as well, which landed in a good development in sales with an organic growth in the range of 12%, which is good for Northern Europe, I will say, and also a good level of profitability. So a positive development from that side. And I think that mixed with good cost control, it allowed us to deliver in a good way on that region. Looking now a little bit at the customer picture. We remain with a balance that is quite close to the previous quarter, even if you can see that our top 10 customer is right now very active. And I think that it's probably the outcome of the effort we have been putting over the past years to create a strong relationship, and we have won a significant amount of deals with those customers. So what we can see is that they are moving more and more towards us. It translates in our number, and it shows also that our focus to deliver to those customers is creating growth in a good way. Now looking at the different customer group we have. First of all, industrial was still slightly negative in the quarter. And you know industrial for us is a mix of many things. And some were very positive. Actually, defense customer, as I mentioned before, were growing extremely high double-digit numbers when some more traditional industry were more flattish or slightly negative. The positive side was we won an amount of deal in the quarter in that segment that was very important with EUR 39 million. And it was mainly driven by one customer in the logistics sector that has decided to get closer to Scanfil and push a very bigger part of his manufacturing to Scanfil. So we thank him for that. Very appreciated, but it also shows the commitment we have had over the years to win that position with the customer. So very pleasing development. Looking now to Energy & Cleantech, I was very pleased to see the outcome of the quarter. I mean I have said for many quarters now that I believe in Energy & Cleantech long term, even if it went through tough time after the hype of 2023. And it bounced back in a very good way in the quarter, up 28% versus where we were last year, going up to EUR 70 million. It's very pleasing to see that now all customers in that customer group are coming back to a good level of business. In the same time, they are appreciating our help. So we are discussing new projects with them, and it translated in wins of EUR 18 million of win. So good to see that the long-term dynamic of that customer group is positive and that it now start again to translate in numbers. And then last but not least, we had a very strong development in our MedTech and Life Science business with a growth of 16%. That was also coupled to very significant wins with EUR 15 million, which if you look at historically, is an outstanding numbers. We have not had that. And I think that the reason for that is a mix of the current turnover. We have grown and developed our current customer in a good way, and we have a good partnership there and it translates in the numbers. But the won deals also shows that now we are onboarding new customers that the effort we have made to build competence in that field to get certification to deliver to that customer group in many of our factories is now something that is getting recognized with our customers. So we got a few strong brands and name joining us during the quarter. And that I'm extremely pleased with because when we decided to create focus on that customer group, it was hoping to reach such a result. So very pleased with that development. I will, with that, hand over to you, Kai.

Thank you, and good morning from my side also. I will start with the EBITA bridge from year-on-year Q3 numbers. And on the left side bar, you can see the EBITA last year Q3, which was very strong, EUR 12.8 million, 7.4%. And on the right side, you can see the EBITA of this year, Q3, EUR 14.1 million and even improvement from the last year. And how did that happen? The main driver is the organic growth. We made almost 8% in the quarter year-on-year. And besides that, we have a 5% growth coming inorganically, meaning SRX acquisition of last year. So in total, it was driving the growth of 13% year-on-year. Although we have then impact translation of the P&L was causing negative impact due to the weakening Chinese yuan and USD, and that was EUR 4.3 million negative impact in the revenue. Even after that, the growth were on the level of 10.4% in total. 10.4% growth was well in line with our expenses growth 10.3%, a bit less and with a good efficiency and keeping in mind that there is activities ongoing for preparation of the new product ramp-up and for Q4 volumes. Depreciation was eating a bit the percentage-wise and then it means the investments for the future, for instance, the investment in the Malaysia electronic line. So end result, 7.4%, very nice for the quarter. That was also supporting us to catch up for the year-to-date, and we are now here. I'm showing the year-to-date numbers in the same way. Left side is the last year, 7.1% year-to-date, EUR 40.2 million of EBITA. And on the right side, then this year, now we are year-to-date EUR 40.9 million and 7%. And year-to-date as well, we are organically on the growth mode and overall growth over 5% in the revenue. Again, an even larger impact due to the translation differences of FX for the same reason than Q3, after which the growth is 3.2%. Anyway, it's well in line with the expenses growth and the efficiency we have been able to keep on the good level. Again, the depreciation slightly impacting to the relative result. Anyway, good result, 7% year-to-date jump into the balance sheet, not big news here. Inventories have declined EUR 7 million year-on-year. The pace is a bit lower, but in Q3 also, we were growing a bit with the inventories for the reason that the volumes were growing and that's quite natural effect. Cash we have in hand, nearly EUR 5 million more than a year ago. Good to remember that includes the effect of SRX acquisition. So that happened in between. So we have now a bit more cash than we did before the acquisition. That cash compared to the debt interest-bearing debt, EUR 66.4 million and EUR 66.4 million including the leasing liabilities is about EUR 28 million, almost EUR 30 million. So the debt is less than EUR 40 million from the financing. And then basically, we don't have a net debt excluding the leasing liabilities. Equities is clearly more than half of the total EUR 550 million of assets. Cash generation for the same reason that we needed to buy the -- take some inventories in for the growth and higher volumes, then the cash generation was a bit more modest than in the past few quarters, although still clearly positive EUR 7.4 million. And year-to-date, we are now EUR 40 million of positive cash flow. And looking this last 2, 3 years, almost 3 years now, we have generated over EUR 200 million of positive cash flow. Half of that we have spent for the dividends and for the machine investments. So then there has been another EUR 100 million remaining after those expenditure. Net debt is -- I can say that it remains low level, like I said, EUR 10 million, practically no net debt, excluding the leasing liabilities. And we are slightly below the last year Q3 level and keeping in mind that in between, we had this SRX acquisition. So basically, that has been neutralized in our net debt by now. And in relation to the EBITDA, it's 0.14x a year ago, 0.15x. And our liquidity status is good. We have EUR 250 million of liquidity, which then, of course, consists of this EUR 50 million of cash and then we have about EUR 100 million of unutilized loan commitments and agreements and then about EUR 100 million of like overdraft or working capital facilities. And the last page, we have the key figures here, 55% of equity ratio. It's rather flat, some variation in quarter-to-quarter, but more or less in the same level. Return on equity, nearly 13%. Gearing is reflecting the debt level and earnings per share in the quarter is EUR 0.01 higher than last year. That was all from my side and hand over back to Christophe.

Thank you, Kai. So we reiterate our guidance, no modification on that side. As I mentioned, we have a couple of focus areas. One of them is obviously the closing on the M&A we have announced in the previous quarters, and we aim for that during the coming quarter, during Q4. And then the second one is obviously, we want to continue and keep the momentum on our organic growth, both in delivering on it, but also in acquiring new contracts with customers. And finally, we try to do that with keeping cost control and keeping control of our inventory. So that was for our Q3. Pasi, I hand it over to you.

Now heading to Q&A. Well, we ended the presentation to guidance. So let's continue with the guidance. Jakob had a question. What are the factors withholding you from narrowing your guidance?

Well, I think that for us, I think that the policy we have had is as long as we are in our guidance, we will just remain in it and not change it. I mean, for me, I think I prefer to focus on delivering than playing with a guiding number left and right. So from that perspective, we will keep the guidance as long that we are in that corridor. If we get out of the corridor, we will just change it.

Jakob continues. Is there anything else you can do on the cost side? Or will it be higher volumes required to expand margins from here?

I mean it's -- there is a double answer. There is always something you can do on the cost side. And as you know, we work with our Dream Factory program, which aims at creating efficiency. I mean we have implementation of AI in our factories and in our admin functions to improve efficiency. We work with automation. So there is always things we can do, and we do it on a regular basis. Then it's also obvious that I think we are still at a level of occupancy of our operation that leaves quite significant amount of room. So obviously, when the programs are ramping up, you can see a positive development on EBITDA. I mean it was the case in this quarter, but there is still room there to benefit from that.

Thank you. A question regarding the growth in Americas. Scanfil's turnover in Americas is growing faster than the other regions. ADCO acquisition further increases turnover in this area, but still the market there is quite small compared to the others. Are you looking clearly higher growth in the Americas to balance turnover globally or to mitigate any problems caused by trade wars, wars or changes in custom policies?

I think it's yes on everything. First of all, I mean, we have global customers. They need support in the Americas region as they need support in the rest of the world. So that's why we decided to invest in that region. That investment has been clearly successful. It's 7 quarters of growth for that region, which is very pleasing. We have decided to invest in more capabilities just to support the orders we have got, the pipeline we have and follow. Then that's for the organic exercise. Then as you saw, it remains a small region that has a lot of potential. So in order to support that growth, we have also looked at M&A, and we were very pleased to find ADCO that brings both a nice customer portfolio, but also very good competence in manufacturing, but also in fast prototyping. I mean they have fast prototyping capabilities, which will help us to win customer to ramp up projects. So very complementary. But definitely, I mean, we see an opportunity business-wise. There is actually a trend to co-locate, to relocate and to become more regional in the world. So Americas is definitely strongly impacted by that. Our customers trust us. So for us, no reason to not expand there on the opposite.

Okay. Thank you. Now when we are talking about the regions, so let's continue with the Europe. [ Antti ] asked about the European macro environment, and it has shown some signs of recovery. Have you seen changes in demand environment or customer forecast in Europe during the Q3 or in October?

I mean, in a way, we were expecting it to go that way. But the first thing you can see, and you saw in our report is a strong growth in Energy and Cleantech and the strong growth is in big part coming from Europe and that has either already come in during Q3 or is going to continue during Q4. So in that perspective, yes, we see a rebound on that sector. Then the second element that is driving Europe for us is also defense that is growing very fast. And it's, I would say, only our European factory that are operating in that field. So I will say the overall business is bouncing back in Europe for our traditional markets like Energy, Cleantech and Medtech, where we are strong. And then Defense is giving, let's say, it's cream on the cake from that perspective.

Okay. Continuing actually with the Defense, what you mentioned in here. Cyndra asked, do you work with the new customer prospects in Defense in Northern Europe?

I think that we -- I mean, we -- there is 2 things on Defense. We have already nice customer portfolio. And what I mean by that is in our portfolio, we have customers that can be sizable players that don't necessarily have a sizable partnership with Scanfil. Obviously, we are talking to those ones to improve the situation. Then in parallel, we have strong manufacturing in quite a few countries in Northern and Central Europe, and it's very natural that we talk with local authorities to see how we can support them in that way. So the answer is obviously yes there.

Given the easing comparison in Q4 2025, do you think that the current ramp-ups will still enable you to show this high organic growth?

Well, I think that the -- what I am very positive with is if you look at the amount of contracts we have won over the past year, if you look at the satisfaction of our customers, I believe that we are building up a situation that will allow us to sustain our long-term target in terms of organic growth. Then it will be a quarter that will be better than others. But I think we should be able from now on to deliver organic growth on a constant and continuous basis. And we are prepared for that. I think that I was mentioning, I think I believe that Q4 will be good in Central Europe. I think we are prepared for a good momentum. I think that we will continue to see organic growth from now on.

Okay. Continuing actually, Jakob continues with the order intake numbers. Would it be fair to expect a return to order intake numbers more like Q1, Q2 2025. But do you see underlying improvement in sentiment leading order intake somewhere between Q2 and Q3 ahead?

I think it's an incremental step. I think that we have started to see that coming previous quarter. I believe it will continue. And it's a mix of the sentiment. And that I said, we have seen people returning. I mean people that had a hard time last year now are back to a good level of revenue. And then it's also mixed with us winning projects. I think that our pipeline of project has never been as strong as it is now. So it will continue to build up. Then we are in an industry where things takes time. But on the other hand, it's also for the good of it. I mean it's in a way, predictable business.

Okay. [ Antti ] asked about MB Cortona. What is the status at MB Cortona as we speak?

Yes. As I said, all employees are back and are working and manufacturing is ongoing and delivering to customers. I mean what you noticed in my comment is that it was a wing of a building that was impacted, which -- and it was a wing where we have a shipment going out from. So I would say the main building and main manufacturing building was not impacted at all. So they are working. It's obviously not fun or pleasant event to have. But for the one that have seen some videos, it looks more dramatic on the video that it is in reality.

Okay. [ Antti ] continues about the possible impacts on M&A. Does the fire have any impact on the ongoing M&A anyhow?

We are working on closing that acquisition. So we continue to work. It had an impact in the sense that we needed to understand where it was. But for the rest, I mean, the activities are going on to close during Q4, which was our goal. So there, it's nothing strange happening there.

Okay. Thank you. [ Antti ] continues about M&A and consolidation. Consolidation of European EMS market has been speeding up recently. Do you expect this to change competitive environment visibly from Scanfil's point of view in the next few years?

Yes. It's good that you have noticed that. I think for me, it means that in the next few years, we will see a couple of sizable EMS company building up. I believe that the strategy we have with a mix of organic growth and acquisitive growth is the right way to go to build that. I believe that we have strong customer portfolio, dedicated team that we have a strong financial position that helps us to carry that journey. So your answer is probably, yes, the landscape will evolve. You will see a few players emerge. And I think that Scanfil is very well positioned to be one of them at least.

Okay. Still if you want to ask questions, type in the chat box window and we'll see if we can have more questions coming in for a while. Sometimes it takes a bit time. Okay. If there are no further questions, so handing back to Christophe, please.

Thank you, Pasi. So as a summary of this quarter and takeaways, I mean, you have seen revenue gaining speed with an organic growth of 7.8% and total revenue growing 10%, which is nice to get back to a position where we can capitalize on the efforts we have made with our customers. It impacted our profit level that was also quite strong in the quarter. You could also see that in reality, our operational performance is looking even better than it is since we were impacted by currency during that quarter and during the first part of the year. But we -- I will say that we have a good control of the situation. In the same time, I mean, we are continuing to work on our growth plan, both organic and acquisitive. I believe that the acquisition we have announced will really contribute to build a position in Aerospace and Defense, which is a nice way to do it. We have also done major steps in building organic growth. I mean we inaugurated our new site in Malaysia or at least the modernization of the site in Malaysia. And we have announced investment in the U.S. to support the growth. And all of that is driven by the high level of contract wins that we have had in the quarter, EUR 72 million was strong. And as I mentioned, very pleasing to see that the effort we made to focus on MedTech and Life Science paid off with a very high level of wins and new logos coming in, which was very pleasing. and all of it with a strong balance sheet that should allow us to continue to prepare the future and to make Scanfil a strong player in the EMS field. So positive development during that quarter. I want to thank you for listening to us today, and wish you a good day.

Thank you.