Scanfil Oyj (SCANFL) Earnings Call Transcript & Summary

Good morning. Welcome to Scanfil's Q2 2026 Report Webcast. My name is Pasi Hiedanpaa. I am the Director of Investor Relations and Communications at Scanfil. Together with me here is our CEO, Mr. Christophe Sut; and our CFO, Iiris Heiskanen. And we have the Q&A at the end of the session. So there is a chat box window for that purpose. So type in the questions, and we will read those questions in here. Now handing over to Christophe, please.

Thank you, Pasi, and welcome to all of you. Starting with our Q2 report with an info that we will not come up with every day. We celebrated during Q2 our 50 years. It was a great milestone and a fantastic milestone for the whole Scanfil, opportunity also for our teams to get together, but also to look back at what we have achieved and look forward at what we can do together. So as a key event, we felt that one that is good to remember. Going back to the business. We had a very strong quarter when it comes to customer interaction. It will materialize in many different ways. We run on a regular basis, customer satisfaction survey, and it came out this quarter with highest NPS result that we have ever had, which shows the commitment we have to our customers and the development of the relationship with them. It also materialized in a new contract. We had the pleasure to have an agreement with Brucker AXS division, which will start to build product in our facility, both in Poland and Estonia, which is a great milestone in the development of our Medtech & Life Science business and also a great milestone in the relationship with Brucker that is a significant player in their field. We also closed a deal in the field of Energy & Cleantech that was very material for Scanfil. It's a EUR 25 million deal on a yearly basis. And we expect manufacturing for this new product line to start during the second part of the year, probably towards the end of the third quarter, which means that it will have a positive effect to us. So a great milestone also in being recognized for our capabilities in Energy Cleantech, which drove this new win. And then in the same time, as we had announced, we are expanding our facility in Suzhou and the work started, and we expect to get delivery of the new facilities in 2027. They will actually -- it's actually an expansion on the current facility on the same land, that will bring us additional space for supporting our customers that are in demand of our capabilities in Suzhou. So many events that are driving future growth for Scanfil and that are preparing for future growth. When we look at the performance in the quarter, we reached EUR 259 million in the quarter, which was an increase of 28.1%. And out of it, around 5% was coming from organic growth, which was pretty much in line with our targets and expectations. I would say it shows both the dynamic of the overall Scanfil customer portfolio, but also the success of the acquired entity that performed strongly in the quarter and continue to develop nicely when in the same time, we keep having a strong performance from both Energy Cleantech and Medtech Life Science that is driving our organic performance. In terms of order, we also had -- when we are talking about future business, we also had a very positive development since we reached EUR 72 million in one deal in the quarter, which is a record number for Scanfil. And all in all, it delivered a profitability of 18.6%, which was increase 30.8% versus last year. with a comparable EBITA margin at 7.2%, also an increase of 0.2% versus last year. And finally, EPS at EUR 0.17. So I would say, a solid quarter in terms of delivery and reinforcing the performance that was expected towards 2026. One of the components was also the excellent growth in North America, but I will get back to it a little bit later. As mentioned before, revenue continued to expand. I mean, we can see a clear trend quarter after quarter of the benefit we are gaining both from acquisition and from organic development, which made this quarter a record quarter in terms of sales. Looking at the development of the margin level, 7.2%, which was an improvement against the first quarter last year -- the second quarter last year that was at 7%. And obviously, combined with the impact of the growth, I mean, bring us an increase in value that is significant in the quarter. Looking now at our different regions, starting with Americas, that is right now weighting 8% of the total Scanfil revenue. In Americas, we have a combination of organic growth and acquired growth. We had an extremely strong organic growth. We had announced it the previous quarter where we were impacted by development of new project implementation, which was a bit weighting on the profitability. But this quarter, things started to pay out. We had organic growth next to 10% and then the margin getting up above 8%. And that was a combination of, obviously, those new projects and the organic growth contributing positively, but also a strong performance from ADCO that we acquired at the end of last year that keeps delivering in line with our expectation and in a very robust and solid way. Looking at the APAC region. APAC is 24% of our revenue. We had a strong quarter in sales and a solid margin level. Organic growth was more flattish. It was in the range of 1% in the quarter. We have started the expansion of our Suzhou facility. I mean it will allow us to grow and to develop the business, and we definitely need that. In the same time, we have started in the quarter to see implementation of new projects in Malaysia, and that is something that is going to continue and become more material on the second part of the year. So that's probably where we can expect organic growth to come from. Looking now at Central Europe, that is now our biggest region and obviously sizable and significant to the whole Scanfil. There are a lot of things happened in the quarter. We break the floor of EUR 100 million during that quarter, solid profitability around 7.8%. Organic growth was in the range of 5% in the quarter in Central Europe, which was a mix of a very strong development in our Polish operation. I mean, we have both in Myslowice and in Sieradz, one significant amount of new project that started to materialize in the quarter. In the same time, we did finalize the restructuring of our German operations that we announced at the end of last year. So we are now in a shape to recover from the point we had, both in terms of business development, but also in terms of cost. So if you balance those 2 events, you will realize that, yes, in reality, Poland was far above this 5% and the strategic part of Scanfil was behaving in a very nice way. And then finally, but not something to minimize, I mean, still a very strong development from MB Electronica in Italy that we acquired at the beginning of the year and that where we got the first time in the quarter and MB was still accretive to the total of Scanfil and both developing nicely top line and also in terms of margin. So all in all, quite a lot of activities in Central Europe during the quarter. And I will say all of them unfolding as we were expecting to unfold, not only the number. And then finally, Northern Europe, that is 27% of our revenue. Posted a solid organic growth of 5.5%, strongly driven by our aerospace and defense customers that are developing in a nice way, but also by the Energy and Cleantech segment. And the margin was stable in 6.7% level, which was in line with what we have seen in the previous quarter and an improvement versus the second quarter of last year. So overall, we can see that the development in the different regions was positive in the quarter. When it comes to our customer portfolio, we continue to rebalance our portfolio for the first time in the quarter. Our biggest customer was below the 10% mark of total revenue, which brings in year-to-date to an 11% and we can clearly see that the weight and the list of customers is growing and rebalancing our portfolio and rebalancing the opportunities we have. Then looking at the different market segment, I mean, defense and aerospace is now year-to-date in the range of 10% of the total of Scanfil. Energy and Cleantech continue to be a significant part of our growth and development with 31% and Medtech and Life Science, roughly 20%. When we look at the development and business activity during the quarter, during the quarter, Aerospace and Defense was 11% of the total. We won deals for a value of EUR 2.5 million. I mean, obviously, this business is a very cyclical business. We get sometimes very big deals, sometimes smaller deals. However, the level of activity is currently extremely high, where we are having active discussions with customers to see how we can leverage on our presence across Europe to support them in their deal and in their development. So I would say a very pleasing development there, both in activity, but also in delivery where the growth in sales was significant. Energy Cleantech was very positive since we have one order for the record amount of EUR 41 million. I mentioned earlier this EUR 25 million deal that we closed in the quarter and that will start to materialize during the year. It shows, I mean, the interest around our capability for that portfolio in that field, which is positive to the overall company. And then Industrial had a more moderate growth in the quarter, but that's here, we have a bit of seasonality and also volatility between deals. So here, quite standard development. Finally, Medtech and Life Science, that is an area where we are investing strongly. And we can see that since Q3 last year, we have taken a step-up in the won deals that we bring in per quarter, reaching the EUR 15 million bar. And this quarter was not an exception to it. It was coming back also as a solid quarter in the number of deals we have won. So very positive development in Medtech and Life Science. With that, I will hand over to Iiris, please.

Thank you, Christophe. So let's take a look at our turnover and comparable EBITA bridges first. So if we start with turnover, it was a growth quarter for us, the second quarter. Turnover increased 28.1%. It was a strong contribution from acquisitions and supported by organic growth, which was 4.7%, and it was positive across all of our regions. We also had a small positive impact from exchange rates. Then in comparable EBITA, it increased to EUR 18.6 million with a margin of 7.2%, while last year was at 7%. And what is pleasing to see here that all of our regions increased their comparable EBITA compared to previous -- or the last year. And the improvement was driven by, of course, turnover increase, but also good execution level. Then cash flow and net working capital. Our operating cash flow was EUR 5.9 million in the first half of the year. Working capital increased with the volume growth and organic growth. We saw increase, especially in accounts receivable and that compared to last year, cash flow is at a lower level. However, we improved the cash flow in the second quarter compared to the first quarter. Then net working capital increased during the first half of the year. Of course, we have acquisitions now included in the figures, but also higher business volumes in the first half of the year. And in the quarter, accounts receivable increased compared to the first quarter, but we -- inventories decreased. So that partially was offsetting the increase in accounts receivable. Then net debt and leverage. Our net debt was at EUR 139.6 million at the end of the quarter, which is 1.6 leverage rate. Compared to last year, acquisitions financing is explaining this increase. And then compared to the first quarter, working capital increase is tying up cash. We have a good level of available liquidity at EUR 170 million in unused credit limits and loan facilities. And our long-term target for the leverage is 1.5, and we expect that the leverage will improve as the earnings develop in the second half of the year. Then development of key figures. Our equity ratio was 41.6%, decreasing from last year due to the acquisition with larger balance sheet. Net gearing increasing due to acquisition financing. Return on equity was same level as last year at 13% and earnings per share increased to EUR 0.17 while being EUR 0.16 last year. So with that, I would like to hand back over to you, Christophe, for the outlook.

Thank you, Iiris. So as we said, second quarter was very positive and was indeed confirming our positive view on 2026. The guidance we have given remain unchanged since we are definitely traveling within this range. But obviously, all the events I mentioned before are leading towards a positive development of the year. We have good momentum in organic growth. The investment that we have made in acquisition and inorganic are paying off the way we wanted with integration going nicely and bringing a lot of results but joy as well in the company, which is positive. And we continue to control both our cost and our inventory to be a resilient company. So all in all, a positive outlook for Scanfil. With that, I will hand over to Pasi for the Q&A.

Thank you, Christophe. Well, you talked about net working capital or inventory. So let's deep dive directly into that question. [ Markus ] asks about net working capital. Can you please give some more color on cash flow effects we saw this quarter, particularly changes in net working capital? Should this working capital build as a permanent change with more A&D, so aerospace and defense? Or how should we look at that?

Maybe I start and then if you complement.

Yes.

So if we look at the net working capital increase in the quarter, it is volume. It is organic growth driven, and we see the increase in accounts receivables, which is very natural when the sales levels are higher, accounts receivable level is higher. And of course, we can expect some improvements in the second half. That's natural. It's a high focus area for us to improve. But then at the same time, as we -- as the business volumes continue to grow, it is likely to keep the working capital requirement also at a higher level.

And I would say on complementing on the aerospace and defense, I think that it is true that there is a slightly different profile. In the same times, we also see areas where we can make improvements. So I think that we are able to balance the situation.

Maybe to the project wins, and we have said that we have to win around 5% of net sales in order to keep the level of revenue going forward. And there's a question about aerospace and defense. If Scanfil wins a project in aerospace and defense, it's on average longer project than in other field of operations. That's a question. Is it lighter?

Is it a question or an answer? I think the answer is yes. It is longer prospect. It's slightly maybe different profile there, where it's very long term commitment and prospect. So I think the answer to the question was yes. Thank you.

About aerospace and defense is that there is a lot of interest around that. How do you see your overall development in aerospace and defense globally in the future, so going forward?

Yes. I mean, for us, I believe that we have 3 growth drivers in the company. One is Energy Cleantech, one is Medtech and one is aerospace and defense. And we have taken the past to be proactive in those 3. So we believe that we are building focused activities to develop the 3 segments, aerospace and defense being one of them, but we also want to keep a balanced portfolio and exposure for the company. So we have very positive outlook and very positive both delivery of the numbers, but also discussion for future opportunities, but still in a balanced way.

About the deals won in Medtech and Life, I think that you already actually talked about it a bit, and there's a question around that. Deals won for Medtech and Life Sciences to be -- have a new plateau. Is this how we should view it in going forward?

But I think that, as I mentioned, it's an area of focus. So obviously, with the effort we have produced over the last 3 years, we have, during the last 8 months, reached a new plateau, and I would agree to that. Then up to us to think how we take the next step. But I think definitely, we have now reached a level that will bring us to a different dimension in terms of revenue for that customer group.

Yes. Thank you. Do you see any challenges with supply of components as PCB and memories?