Scanfil Oyj (SCANFL) Earnings Call Transcript & Summary

Good morning. Welcome to Scanfil's Q4 2025 report. My name is Pasi Hiedanpaa, I'm the Director of Investor Relations and Communications at Scanfil. Together with me here are our CEO, Mr. Christophe Sut, and Mr. Kai Valo, our CFO. Now handing over to Christophe. Christophe, please?

Thank you, Pasi. Welcome, and happy to start to give you some feedback on our 2025 ended. A few key events for '25 years. And Q4 was a very active quarter, very active in many ways with our customers. We had a significant development project that we agreed with our customer, Valmet, that is a long-term historical customer that we are very happy to serve. We also had very good development in our partnership with TOMRA, as you have, I'm sure, seen, they won a significant deal in the Polish market, which, obviously, we had to produce for them after that. So exciting project and good development from that side. Continuing on the expansion of the company in an organic way, we have also had a solid development for quite a long time in our operation in Suzhou and came to the conclusion that it was now time to expand that facility. So we have now initiated a project that will basically double our capacity in China and in our Suzhou plant that we are very proud about. So all those things were in Q4, preparing to fuel continuous organic growth. Then in the same time, we had 2 acquisitions that we have completed. Actually, the second one was completed just after the closing of Q4. But the first one, ADCO, was completed just before Christmas, and we have now a second operation in North America, which offers also an alternative to our customers. So very happy to have ADCO part of Scanfil. And then the second one that we completed this time just passing the new year but that we worked on during the whole '25 is MB Elettronica that is now part of Scanfil. And with MB, we have the chance to have a very modern facility in South Europe, a lot of competence in med tech and aerospace and defense and very valuable customers. So a few activities that were really important in our world journey towards a more stable, global and sustainable company. When we look at the number, I will say that the end of the year was solid. We posted organic growth of 7.6%, almost 8%, which is definitely even in line with our long-term expectation, even a bit higher. And we managed to keep the level of profitability at a solid level, 7.3% of comparable EBITA, which I'm very proud of because when you deliver this level of growth, it means that we had quite a lot of projects that were in an NPI phase, starting phase, where you have a level of cost that can be important. So balancing that with the profitability was, I think, a very good performance from the team. We continue to develop our customer base. We signed deals for a value of EUR 59.2 million during the quarter. And you will see later, it gives us a very good development when you look at the full '25. And we had also a very solid development in the 2 segments that we have identified as key for Scanfil's future, meaning Energy & Cleantech as well as Medtech. And then in parallel, we had strong momentum in North America, where we continue to grow organically at a very high pace and where we also started in second line of electronic manufacturing that will basically double our capacity. So will support our future growth. So I would say the numbers were solid. The number of activities were quite important and quite numerous. And that's, I think, a good combination for the quarter and for preparing the future. All in all, it resulted in earnings per share development positive. It was 40% above what it was last year, and which allowed us to propose increased dividend to EUR 0.25 that will be decided during the AGM later in the year. So many happenings but a positive and solid development in the quarter. I mentioned the development of the revenue and the profit, I think that, as I said, I think what is important is to see that we have managed to build the base and the stability level for now many quarters in our profitability that makes us both predictable and solid and robust, which I appreciate. So I think that for me, that's something that I keep with those curves and this quarter is -- we keep -- we manage to be where we are supposed to be quarter after quarter. And that, I think, is positive for Scanfil. When we look at our regions, starting with North America. North America had a positive development in revenue. We had EUR 13.9 million in the quarter, 19.6% organic growth for the quarter, which is a strong development. And the quarter full of activities, I mean, we had, in November, the start of our new SMT line in Atlanta, which will now be able to start to increase the production, which was, in a way, bringing some disturbances on the line. I mean, at least cost wise, we had to take some costs to be able to increase the capacity and to train people and to bring new people on board. And also, we had our ADCO friends that joined us at the mid of December, which was the time of the year where you don't really get cost to you -- don't really get revenue, you mainly get cost. So as an impact of that, the profitability was a bit lower than average but it was mainly due to those 2 elements that I will say. For Atlanta operation in December, we were already back to a good level of profitability and a new line up and running that was creating growth. And for ADCO, I think that nothing strange in that. I mean they just came and we had just the last 2 weeks of the year, which are not weeks where you get high level of revenue. So I would say, all in all, very pleased with the development in America. Momentum, good momentum with customers, significant win in Energy & Cleantech that are now materializing in our operations, and a good perspective for the future. APAC region had a quite stable ending of the year, an organic growth of 2.7% and a strong margin with 8.7%. That was very stable. I think there, I mean, we have good positioning with our strategy of China Plus One where we can now offer an alternative to China and Malaysia, where we get good interest. And we are starting to ramp up our Malaysian operation after we inaugurated the new capabilities in Q3. And we foresee a positive development there. And that's why we have decided to expand our future facility. I mean, we are coming to a point where we're bringing more space to support the needs of the business, which is a positive element. So I would say a solid quarter that was delivering to our expectation, and that is allowing us to continue the development of the region. Moving to Central Europe. We had the quarter with 9.6% organic growth, which was positive. And solid EBITA, comparable EBITA of 9%. It was also a very transformational quarter because MB Elettronica will belong and will be -- from the next quarter, reporting within Central Europe. So obviously, quite a lot of activity there to finish and to close that transaction and to prepare also for the integration. In the region, we have also initiated a plan to do some restructuring and adjustment. And here, it's just a matter of keeping ourselves up to split in terms of efficiency, and we believe that it will produce positive effect on the second half of this year. So I would say, all in all, a solid market where we see the growth of our Energy & Cleantech segment materializing step-by-step and also a region where we will have a transformation effect with MB joining. Northern Europe. Northern Europe, we had also a positive development in the quarter, an organic growth of 7.2%, which was driven by mainly 2, I would say, 2 sectors. One is Energy & Cleantech and I have one -- for one of them mentioned, I mean, the development with TOMRA that was positive with the Poland rollout. But also our defense business was also very positive in the quarter and driving growth. And we kept the level of profitability that is good for the region. So all in all, I think it was a solid quarter for Northern Europe and a solid performance. Looking at the impact on our customers, I mean, we can clearly see that our top 10 customers, and I have spoken many times about how Scanfil is trying to be a good partner for global leaders that want to expand across the globe. And we can see that this is materializing more and more. I mean, the weight of top 10 customer increased a little bit during the quarter, which is the outcome of long-term collaboration and development that we see materializing into new businesses. So from that perspective, positive. If we now look at our different segments, we had a slightly negative development year-on-year in terms of revenue for our Industrial segment, which is obviously a difficult segment to read through. It's many different types of customers. But I will say it's a flattish, slightly negative development on revenue based on mainly customer market condition. Then in terms of winning deals, I think that the quarter was at 17 million level, which was slightly below last year. But when we look at year-on-year, we had a positive development in that segment with a growth of about 15%, which is mainly due to the development of new global customers that we have brought on board and worked with over years, and that's now starting to materialize. So I would say we can have a more positive perspective for the coming years than what we had past year for that segment. Looking at Energy & Cleantech. In terms of revenue, we had a positive development year-on-year in the range of 5%, which was good. And in the same time, we had a very strong level of won deals with EUR 28 million, which was an increase versus a record Q1. So it was a very strong development and an increase versus last year. I mean if we look year-on-year, we have won deals for about 12% more this year, which I think is showing the momentum we have. And we can see that, in particular, in Energy & Cleantech, we have built strong relationships with our customers, and they are now getting closer to us and really looking at us and how we can help them in developing their business. So I think both the growth in revenue and the growth in deals that we won during the year are a positive signal to the strategy choice we made but also positive signals towards prospective for the coming year. Then Medtech & Life Science, Medtech & Life Science had a very strong quarter in terms of wins. I mean, for the second time, we passed the bar of 10 million of wins during the quarter. It has not materialized yet in terms of revenue. Obviously, it's a long-term effort. When you win a deal, it takes 6 to 18 months depending on the deals you win to materialize but a very positive development. And if you look at this year, I mean, we have 35% growth in deals win in that segment, which I think is also a good, let's say, good encouragement for us that have decided to develop our skill set and competence in Medtech & Life Science. So that's something positive to see that our customers are seeing that. We are also developing certification in many of our sites. China and Poland will be the leading site for that segment, and it's materializing now. So positive that things goes hand in hand and materialize together. Finally, giving you a picture on ESG development. We set target a few years ago for how we want to land in 2030. The first one was about CO2 emission. We closed '25 at a level that is far below even our expectation for 2030, which means that we will, during this year, we work our target to something realistic. I think that it's very pleasing that we can be as efficient, sustainable company, and that sustainability also brings us efficiency. And I think it's also very pleasing when you know our customer portfolio, to see that the journey we are making is the journey they are making, and all hand in hand, we can move forward. I think we won quite a few awards from our customers for our sustainability development. And in end with the CO2 emission, the share of fossil free energy has also reached the 2030 target. So will also have to be revised. We believe there is still progress to be done on both of it. And then employee satisfaction was also increasing this year to 72 from 70 last year. So in the journey of making the company a more sustainable and respectful company to the stakeholder and environment, we are both very excited by the outcome but also very excited by all the activities we make every day. And I'm also very proud to see that we do that in a way that is economically sustainable as well. So I think it's a nice picture and a good development for us and inspirational for us. With that, I will hand over to Kai.

Thank you, Christophe. Good morning. I will start with the -- and go back to the profitability and comparison to the previous year. This is Q4 comparable EBITA. Q4 '25 is on the right side and the previous year is on the bar on the left side. And like Christophe mentioned, the turnover organic growth was very strong, 7.6% and EUR 16 million. In addition, we got turnover increase from M&A from ADCO, which was mentioned that we closed in the middle of the month and therefore, not that significant number but being included all in all. And -- but have a bit like a headwind with foreign exchange rate when we translate the local currencies to our reporting currency, euro, especially coming from U.S. dollar and Chinese yuan. We lost EUR 5 million in the translation in comparison to the previous year, and that is equal to over 2%, 2.3%. Also, last year, we had like onetime in invoicing regarding the consignment inventories, EUR 14.5 million, which is not a repeatable turnover and therefore, showing that also as a negative here. EUR 14.5 million, 6.8% percentage-wise impact. Besides the turnover organic growth, we also have some growth in the inventory, EUR 2 million, equal to 1%. And that is basically in products, which were produced and more likely shipped than on the way. But based on the delivery terms, it's not considered as a revenue, even it would be invoiced already. So the production volume was even a bit further higher in comparison to the previous year, 1% more. So in that sense, when looking at the expenses, it's a very moderate increase, very low increase in the depreciation and other expenses. So we ended up to EUR 15.5 million of comparable EBITA, 7.3%, which is very strong, coincidentally, very same as last year, it also was a very strong year, comparison year. But stepping to the full year view, same principle here. Organically, we grew 2.6% in the full year last year, over EUR 20 million, and that was generated in practice in the second half, like Q3 was in the same level roughly than Q4. Turnover from acquisitions was 3.4%. SRX still generating inorganic growth for part of the year and then this short period of ADCO being included. In the full year level, we had the same impact in -- coming from the dollar and Chinese yuan in the full year level impacting almost EUR 16 million negatively in the turnover and 2% of revenue. And also, we had the same consignment inventory in invoicing, which happened in the Q4 and 2% negative impact in this comparison as well. Same as what I mentioned, the inventories were increasing and then expenses in relation to the production volume. So we finished the year at the target level, 7.1% and EUR 56.5 million of comparable EBITA, a bit value-wise higher than last year and same in the percentage. Balance sheet is no big changes. Inventories were growing a bit but organically, the inventories were declining some millions goodwill increase with the acquisition. We had very good end of the year in terms of cash. And for that reason, the cash is actually quite high, EUR 75 million of cash in hand and a bit higher than a year ago. Also preparation for the MB closing, which happened right after the year-end. Interest-bearing debt in total, it's EUR 84 million but that's including the leasing liabilities. So excluding those, we have about EUR 60 million, a bit less than EUR 60 million of debt. And practically, we are debt-free without this leasing liabilities. Equity is representing 5 million -- EUR 5 per each share. So it's quite good level. Cash generation, like I said, the year-end was good with the cash flow, and we ended up with the full year cash then over EUR 64 million, very strong from the cash point of view. We were able to generate from working capital, about EUR 10 million. It's a bit less than -- and that's basically the difference to the previous year, that it's a bit less than what we were able to do in the previous year. But now also, we had very -- like a positive turnover development in the second half. So it makes a bit more challenging to take the cash out there. I think it was a good result from that perspective. In the 3 years, it has been totally like EUR 220 million of positive cash flow generated, and that has been able to make possible also then to finance the acquisitions, what we have generated more with the -- more or less with the incoming cash. Like mentioned, the debt ratio is very low still at year-end, it will be increased a bit when reporting next time but now at the level of 0.12 and EUR 10 million of net debt and -- it's -- when looking a bit back in comparison to Q3 of '24, we are now at a lower level in net debt than over a year ago. And considering that during that time, we have executed 2 M&A acquisitions and in Q4 '24 and then Q4 '25. So we have been able to finance that with those -- with the incoming cash flow. Liquidity level is good, EUR 250 million of liquidity, and we have unused credit facilities, EUR 180 million, and then EUR 75 million cash in hand. Key figures, no big changes. Equity ratio remains relatively high, 54%. And return on equity is quite the same as the previous year. Net gearing naturally lowering still, and then earnings per share, EUR 0.04 higher, EUR 0.63 in comparison to EUR 0.59. Like mentioned by Christophe, then is also contributing for the growing dividend, EUR 0.25, to be proposed to the Annual General Meeting. And this is year #13 with the growing dividends. All right, I will give it back to you, Christophe.

Thank you. So outlook, we -- a few weeks ago already, we gave our guidance for '26, where we see revenue going between EUR 940 million and EUR 1.060 billion and comparable EBITA between EUR 64 million and EUR 78 million. We have, during the last years, prepared and built a solid operational execution, and we believe that, that will obviously allow us to deliver those numbers during '26. We have the integration of ADCO and MB that are a focus area for us to be successful during 2026. And then also continue to drive the good momentum on organic growth that we have seen during all '25 on the order book that have come in and that have started to translate already during Q3 and Q4. So all those elements give us a positive view on '26 and allow us to come with this level of outlook. So with that, I think that we'll hand over to you, Pasi, for the Q&A.

Heading for the Q&A. A lot of questions already in. So starting with the European MB Elettronica. MB Elettronica's growth was exceptionally high during 2025, over 20%. Do we expect it to continue in '26 or to be moderate into more normal Scanfil's organic growth level?

Yes. I think that we were very pleased -- first, I would say, we were very pleased, obviously, to see the level of performance of MB during '25 because it confirms our choice to -- of MB joining us as it could be a driver for growth. And I mean, also one of the reasons we bought MB is for the portfolio we have in aerospace and defense that we all believe can be driving a higher level of growth than average in the coming years. So from that perspective, we have a prospective of continuous high level of growth in MB during '26, which should be higher than average organic growth in Scanfil.

That was a good bridge a follow-up question actually regarding the Aerospace & Defense because ADCO and MB are actually giving us a lot of Aerospace & Defense customers. And the question follows, do we expect to report Aerospace & Defense separate customer group in the near future?

We will do that. From Q1, we will give you visibility on the development of Aerospace & Defense, as we have indicated before. So the answer is yes.

Thank you. Quite many questions regarding the NPIs because it brought some volatility to EBITA margin. Which regions saw the most NPI activity in Q4?

Yes. I would say, we have a high level of activity in NPI right now. The region that have the highest exposure are obviously Central Europe, where we have our big Polish operation, as well as North America, where we have a high level of growth that, of course, come from NPI implementation. Then there is also activities in our APAC region, where I will say, I have mentioned it, our future site keeps developing in a good way, which includes high number of NPI but also our Malaysian site has a big activity on implementing new projects.

Okay. Thank you. Will the NPI number increase or decrease in Q1, Q2? So trying to get a bit of flavor about forthcoming NPIs.

I think that what we can see is that we have still win a significant number of deals. If you look at the last 2 quarters, I mean, the number of deals we have won is important. Then in terms of load of our factories, I think it keeps it quite linear that we manage to have a level of implementation of NPI versus level of manufacturing that is equivalent. So I think there is no dramatic change to foresee in the coming quarters in the level of cost and activities related to that. We are on a trend and we're just working with it and are stable on that from that perspective.

Will 2026 be a year of integration focus? Or will you be able to complete one to two acquisitions this year too?

I think that obviously the integration of MB and ADCO is an important step for Scanfil. So we have a focus on that. In the same time, we continue to monitor the market. And I will say, a company -- that if we find a company that will fit our purpose and our strategic goals and that are at the right price, we will eventually add acquisitions. And it's a bit early to say but there is no stop even if the focus is obviously integrating the one we have got.

Thank you. Pasi asks about organic growth. Organic growth was 8% in the fourth quarter. Will it split it -- what is the split between volume and price-related growth?

I would say the majority in the fourth quarter is volume related. I think there is very little price-related growth on that one. It's mainly volume related.

Additional question from Pasi. You decided to expand Suzhou. Is there any demand coming from Chinese market or Western markets for this site in Suzhou?

I mean Suzhou today is in a high majority delivering to the Chinese market. So the demand that we have there is for the Chinese market. I mean we mainly deliver product that we had consumed on the Chinese market, in a big majority, I would say.

Maybe the next one goes to Kai about the PPA amortization in 2026. What is the -- can you give some kind of an estimate or flavor on that?

Of course, there will be, naturally a bit of growth in the MB but maybe I'm not with the numbers yet. Let's do that in Q4. But of course, MB will naturally increase part of that. ADCO, not that huge impact on that.

Maybe after Q1 report, it gives a bit more flavor about that. [indiscernible] from Carnegie. After the recent acquisitions, do you think you need to -- time to digest? Or -- okay, this is actually the same as the previous one. I will not ask it. Antti-Pekka Viljakainen from Inderes. Do you see demand environment improving in Europe compared to the 6 months ago?

I think that we see 2 things. We see a slight improvement in demand, but we mainly see the payback of our efforts in winning new projects. So I would say the European market is maybe slightly better but it is not something that I will say is fantastic. However, we see that the new projects we have won are translating into sales.

Okay. And continuous, what are the key variables that will determine whether you end up to the upper or lower end of your guidance this year?

I mean the key variables, they are very simple. There is one element that is about the performance of the acquired entity. I think we have expectation of a high level of growth that maybe can be even higher than what we expect. And then the second element is the organic growth we generate, I mean, transforming those NPI projects into revenue and sales in a timely manner. So those are elements that -- in a way, we have in hand to deliver.

Okay. Actually, going back to Laura's question because there was a bit of a twist in it. So about M&A, what are the availability of targets in M&A market at the moment?

Yes. I think that if you look at the world of EMS, it's a world that is in the segment we operate, which is mix, low volume industrial, still extremely fragmented. I mean there is MB type of company in every country in the world. So the availability is big. Many of those companies are family companies. So there are deals that show up, but there are also a company that might be open to a discussion. So I don't believe that there is a shortage of target. On the opposite, I think that we are in an industry that can carry an M&A journey for extremely many years. So obviously, at least '26, when I say that.

Okay. About SRX. When it comes to the acquisitions, SRX earn out and Antti has a question. What were the main reasons in SRX's performance that resulted earn-out not to be paid at all?

I think I have said it before, I mean, as I said, there is a numerous company for sales. We have a philosophy that we want to pay a fair price for the business at the moment we acquire it. And then we are absolutely open to pay extra for a fantastic performance. Then in the SRX case, unfortunately, for the seller, it has been a timing issue with some of the deals not materializing or in manufacturing during '26, which impact -- which has impacted their earn-out. But I think that from our perspective, we are very pleased with the SRX acquisition. It is still a very healthy company. It has offered us a platform for Malaysia that we are starting to capture. And in a way, those things that may not materialize in '26, at least started to materialize, and we believe will materialize -- or in '25, will materialize in the future time.

Okay. Thank you. Aerospace & Defense has been under discussion and also organic growth. Cinder has a question about our margins. Organic growth is returning on Aerospace & Defense exposure is growing. Are you aiming to increase margins towards 8%?

I think that we have a corridor there of 7% to 8%, which obviously, when we will -- when we go in an organic growth mode or when we have a growth of volume, could add towards the higher part of the corridor. However, what we have tried to balance as well is to fuel the growth. So if you look at the quarter, for example, I mean, we have, in a way, 8% organic growth, but a stable margin. And what is making the difference is therefore we put to prepare the future. And I think that for now, our focus is to remain in that corridor and make sure that we fuel the growth because we see the opportunity. So we will remain in the corridor, and we will grow the business. That's the plan.

Still time for questions, if you have any. We see it already, quite many. If not, you can always approach me, for example, to post questions separately. One more. How do you feel about adding ROCE target to your financial targets, return on capital employed.

Yes. I mean, for now, we have not discussed to change our long-term targets. So that's always something to consider. That's something we follow even if we don't talk about it. But for now, we have no plan to change our financial target. But we can't always think about it.

Okay. Thank you. Good question. All right. Handing over to Christophe for closing.

Okay. Thank you. So if I -- for closing, I mean, maybe a few key takeaways from '24 -- '25 or in Q4 '25. We believe that for us, it was a transformational quarter in many ways, first because we have 2 acquisitions that were happening, that are changing in a way the scope of the company, both in size but also bringing a strong portfolio in Aerospace & Defense, we have been looking for. It was also an important quarter because we once more materialized a strong level of organic growth as we had already done during Q3, which is a proof of the development of our focused strategy in terms of market segment, and that was very pleasing. And we had a business pipeline that remains strong. So from that perspective, we see it as a solid quarter that ended up with a solid level of margin of 7.3%. So from that perspective, we see this quarter as important in the life of Scanfil because it anchors the effort we did over the past years, and it pushes towards '26 in a good way. From that, I mean, we have 2 significant acquisitions that should allow us to increase our revenue during '26, and that should also have a positive development. And in the same time, we have a solid customer base and solid customer portfolio and pipeline and backlog entering '26. So we believe that our balance sheet is strong. Our business perspective is positive, so all in place to deliver the guidelines we have shared with you. With that, I want to thank you for joining us, and wish you a good day. Thank you.

Thank you.

Thank you.