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Scanfil Group’s Interim Report for 1 January–30 September 2021: Robust customer demand supported record-high turnover growth. Healthy profitability despite challenges in material availability.
- Turnover totalled EUR 167.8 million (7-9 2020: 141.6), an increase of 18.5%.
- Adjusted operating profit was EUR 9.5 (9.9) million, 5.7% (7.0%) of turnover.
- Operating profit was EUR 9.5 (21.2) million, 5.7% (15.0%) of turnover. Comparison includes a non-recurring capital gain of EUR 11.4 million from the sale of the Hangzhou factory.
- Adjusted net profit was EUR 6.8 (7.5) million.
- Net profit was EUR 5.1 (18.0) million. It was negatively impacted by a non-recurring tax item of EUR 1.7 million.
- Adjusted earnings per share were EUR 0.10 (0.12), earnings per share were EUR 0.08 (0.28).
- On 13 October Scanfil revised its outlook for turnover and adjusted operating profit.
- Turnover totalled EUR 504.0 million (1-9 2020: 441.3), an increase of 14.2%.
- Adjusted operating profit was EUR 30.0 (28.7) million, 6.0% (6.5%) of turnover.
- Operating profit was EUR 30.0 (40.1) million, 6.0% (9.1%) of turnover. Comparison includes a non-recurring capital gain of EUR 11.4 million from the sale of the Hangzhou factory.
- Adjusted net profit was EUR 23.0 (23.3) million.
- Net profit was EUR 21.3 (33.8) million. It was negatively affected by a non-recurring tax item of EUR 1.7 million.
- Adjusted earnings per share were EUR 0.36 (0.36), earnings per share were EUR 0.33 (0.52).
Due to strong customer demand and increasing material prices Scanfil revised its outlook for 2021 on October 13. The outlook is as follows:
Scanfil estimates that its turnover for 2021 will be EUR 670–710 (previous, issued June 11, 2021: 630–680) million and its adjusted operating profit will be EUR 41–44 (41–46) million.
The guidance for 2021 involves uncertainty arising from the potential negative impact of the availability of certain materials, especially semiconductors, and the COVID-19 pandemic on customer demand, as well as the delivery capability of the component supply chain.
Scanfil’s long-term target: in 2023, Scanfil is organically aiming for EUR 700 million turnover and 7% operating profit.
The third quarter turnover was EUR 167.8 million, an increase of 18.5% compared to the previous year. Record-high turnover growth was boosted by robust customer demand and also rising material prices. Customer demand was especially strong in the product groups within energy efficiency, indoor climate, automation, recycling, and elevators.
Turnover growth of 18.5% includes EUR 11.7 million of transitory separately agreed non- or low-margin customer invoicing. This was due to material constraints and the use of often more expensive spot market in order to secure customer deliveries. Turnover excluding these transitory customer invoiced items increased by EUR 14.5 million, 10.2% compared to the previous year.
The operating profit for the quarter was a healthy EUR 9.5 million, 5.7% of turnover, but below our 7% operating profit margin target level. The main negative impacts on the period’s operating profit came from challenges in material availability and costs related to the Hamburg factory production transfer and closure.
The production transfer from Hamburg to our factories in Poland and Germany was finalized by the end of September and production ended in Hamburg. We continue to have a small team left in Hamburg until the end of the year to support the production in other factories and customer communications.
Material constraints were negatively impacting the operating profit in two ways: factories productivity decreased due to continuous changes in production based on material availability and ensuring required materials by more expensive spot market purchases, which the customers compensated for mainly on a no-margin basis.
The negative impact on the quarter’s operating profit caused by material constraints and the Hamburg factory closure was about EUR 2 million or about 1.2 % of the turnover. This is the operating profit potential we are determined to realize in the coming quarters.
Scanfil’s balance sheet remains strong and enables all necessary investments as well as the seizing of business opportunities. The equity ratio was at 46.8% and net gearing at 25.2%.
Strong inventory growth has impacted our cash flow from operations during the quarter. We have increased our inventories to ensure materials for strong customer demand, and at the same time, material shortages have decreased the rotation of our inventories. Actions to slow down and finally stop the inventory growth have been started and results are already expected during the fourth quarter.
The net profit for the quarter was EUR 5.1 (18.0) million and the adjusted net profit was EUR 6.8 million (7.5). The reported net profit was negatively impacted by a non-recurring tax item of EUR 1.7 million.
We expect strong customer demand to continue for the remainder of the year. Key risks are related to the availability of certain materials, especially semiconductors, where we believe circumstances will continue to be challenging with no quick recovery in the foreseeable future. We need to consider the material situation as a new normal where deep co-operation with customers and suppliers make a difference. We are also confident that we can gradually increase our material margins back to the normal level.
The situation with the pandemic has improved in most of our geographic areas of operations, and we have continued to reduce our preventative actions in our factories.
In October, we revised the outlook for 2021 and we expect our turnover to be EUR 670–710 million and operating profit to be EUR 41–44 million.
The year has been exceptional. Strong customer demand, challenges with material availability, the fight against COVID-19, and the Hamburg production transfer have required a lot from our staff. I want to thank our dedicated employees for a good job and our customers for their support and trust.
The Group’s turnover for January–September was EUR 504.0 (441.3) million, an increase of 14.2% compared to the previous year. Turnover includes EUR 28.4 million of transitory low margin customer invoicing, of which EUR 10.5 million was intermediary trading and the remaining EUR 17.8 million was low margin invoicing related to securing the availability of certain materials and deliveries. Turnover excluding transitory invoicing and intermediary trading was EUR 475.6 million, an increase of 7.8% compared to the previous year.
Turnover by customer segment developed as follows:
Advanced Consumer Applications: Turnover increased by EUR 41.8 million (38.0%) compared to January–September in 2020. The key drivers behind this strong growth were new customer ramp-ups, and good demand in elevator products and hand-over solutions. Transitory invoicing was EUR 9.8 million.
Automation & Safety: Turnover decreased by EUR 4.3 million (-4.0%). Despite the slight negative change, the development of this segment has been steady. Transitory invoicing was EUR 2.6 million.
Connectivity: Turnover increased by EUR 0.5 million, EUR 22.7 million (2.3%).
Energy & Cleantech: Turnover increased compared to the corresponding period in 2020 by EUR 30.4 million (31.0%). The key drivers behind this strong growth were good demand in reverse vending machines, energy systems and indoor climate control systems. Transitory invoicing was EUR 3.9 million.
Medtech & Life Science: Turnover increased by EUR 8.3 million (10.7%) compared to the corresponding period in 2020. Transitory invoicing was EUR 1.3 million.
Turnover of “Discontinued” was EUR 10.5 million and consisted only low margin intermediary trading.
The Group’s operating profit for January–September was EUR 30.0 (40.1) million, 6.0% (9.1%) of turnover. The operating profit for 2020 includes EUR +11.4 million of adjustments related to the divestment of the Hangzhou factory. The adjusted operating profit for 2020 was EUR 28.7 million, representing 6.5% of turnover.
The operating profit was positively affected by the increase in customer demand, but received a negative impact from the Hamburg production transfer as well as inefficiency caused by material shortages. In addition, the transitory low margin invoicing of EUR 28.4 million lowered the profit margin.
The net profit for the review period was EUR 21.3 (33.8) million. The adjusted net profit was EUR 23.0 (23.3) million.
Earnings per share for the review period were EUR 0.33 (0.52). The adjusted earnings per share were EUR 0.36 (0.36). Return on investment was 16.7% (24.1%).
The Group’s effective tax rate was 24.7% (13.0%). The tax rate was higher due to the tax adjustment of EUR 1.7 million. It is related to confirmed losses of EUR 8.1 million of the Hungarian subsidiary, which was merged into the parent company in 2018. Based on the losses, the parent company made cross-border tax deductions in 2018 and 2019. Finnish tax authorities resolved this matter against Scanfil’s interest on 28 September 2021. The company considers to appeal in the administrative court in this matter.
The Group’s turnover in July–September was EUR 167.8 (141.6) million. Turnover increased, by 18.5% compared to the corresponding period of the previous year. This turnover includes EUR 11.7 million of transitory low margin invoicing related to price increases of materials, components and freights and securing deliveries. Turnover for the period excluding the above- mentioned invoicing was EUR 156.3 million, an increase of 10.2%.
The operating profit was EUR 9.5 (21.2) million, 5.7% (15.0) of the turnover. The adjusted operating profit for the previous year’s third quarter was 9.9 EUR million, or 7.0% of turnover. The production transfer of the Hamburg factory and inefficiencies due to material shortages had a negative impact on the operating profit. In addition, the transitory low margin invoicing of EUR 11.7 million lowered the profit margin. The total negative impact in the operating profit was about EUR 2 million or about 1.2 % of the turnover.
The net profit in July–September was EUR 5.1 (18.0) million, which was negatively impacted by a non-recurring tax adjustment of EUR 1.7 million. The adjusted net profit was EUR 6.8 million (7.5).