Good morning. My name is Pasi Hiedanpää. I am the Director of IR and External Communications at Scanfil. Welcome to Scanfil earnings call for 2021. Our CEO, Petteri Jokitalo, will present our results for 2021. Questions can be asked via chat. All questions will be answered at the end of the presentation. Please, Petteri, floor is yours.
Thank you, Pasi. Good morning, everyone. My name is Petteri Jokitalo, CEO of Scanfil. Let's walk through our Q4 and 2021 key happenings and results of course. The year ended with record sales of EUR 192 million, 24% growth year-on-year. Driven by strong customer demand basically from all customer segments. I have to say also driven partly by material prices as well. Components availability remained an issue during the whole quarter, especially availability of semiconductors was a real challenge, and that was leading us to make some spot market purchases to secure our customer deliveries. Q4 adjusted operating profit EUR 10.2 million or 5.3% of our sales.
Adjusted earnings per share 0.14 EUR. Reporting earnings per share 0.13 EUR. If digging a bit deeper to our customer demand and to different customer segments, we can really see that the customer demand was like enjoying double-digit growth in each segment. Advanced Consumer Applications Q4 year-on-year growth 28%. Automation & Safety 21%. Connectivity even 61% year on year. Energy & Cleantech 43%. Medtech 15%. In total, 24.5% year-on-year growth. Just to mention a few product groups really backing our growth, elevator products, Handover Automation, Energy and Recycling Solutions really driving the growth during Q4.
New customers were widely behind our nice growth in Connectivity, which is still a bit lower when it comes to total sales, but with a high growth rate. IoT, wireless communication kind of products and applications there. As said, to secure our customer deliveries, we needed to use quite many times spot market. Those spot purchases during the Q4 were total like EUR 40.4 million. Also the segment split is visible there. The highest amount of spot purchases were under Advanced Consumer Applications customers and Energy and Cleantech customers.
Anyway, the growth even excluding those spot purchases were really robust that we can see that we were enjoying basically double-digit growth also basically in all segments without Medtech & Life Science. The growth rate without spot market purchases were like 50% year-on-year. Key takeaway the whole year record sales of EUR 696 million or 70% year-on-year growth mainly driven by Energy & Cleantech and Advanced Consumer Applications segments. Component availability impacted negatively our operations especially during the second half of the year. It was impacting in different ways, impacting the top line. We had even higher demand than what we were able to realize.
Other hand, the component availability was impacting our profit in very many ways, impacting productivity. It was impacting our inventories growth a lot. Going to discuss that a bit later. The whole year adjusted operating profit EUR 40.3 million or 5.8% of sales. Reported operating profit EUR 39.6 million. Adjusted EPS EUR 0.50 and reported EPS EUR 0.46. Other highlights of the year were that Hamburg production transfer to Sieradz and Wutha was finalized by the end of Q3, and basically all activities in Hamburg were stopped during Q4, and Hamburg factory is closed.
We also the Board made a dividend proposal as EUR 0.19 for year 2021, and if and when accepted by shareholder meeting will be ninth year in line we are raising our dividend. Here more key numbers in one table already. Focusing on whole year numbers. Almost EUR 100 million sales growth. Adjusted operating profit, a slight improvement, but pretty flat. Same adjusted EPS EUR 0.50, same like year before. If moving to those other KPIs also linked more to our balance sheet, return on equity ratio, net gearing. We see that still on robust, healthy level, but basically some weakening from year before and that was mainly driven by inventory growth.
You can clearly see that also that net cash flow from operations were negative. Basically, our net cash flow from operations last year went to the inventories. If going more to balance sheet, first of all, in total of EUR 474 million. Going to inventories, our inventories were growing last year by EUR 90 million to EUR 193 million. Several reasons, of course, a strong customer demand is automatically driving our inventories as well. More materials are bought, but definitely this material availability challenges are really impacting inventory growth as well. Even if 80% of material is supplied by supplier on time and 20% is missing, it's definitely slowing down the inventory rotation and growing the inventories.
Buying more expensive materials. Some part of that is bought from spot market and so on, and it's also impacting material inventory values. As we can see also our interest-bearing bank loans were growing by EUR 30 million and end of the day, the cash was like quite healthy, EUR 25 million level. We could say that our financial position is healthy and still stable, but it is very clear that we need to be able to level off the inventory growth during Q1 and Q2 this year. This picture is illustrating quite well how strong the year was sales-wise. That here you can see that all the quarters from Q1 were stronger than comparable quarter year before.
Also it's quite well illustrating how at least during the past two years, our quarters are like developing sales-wise. That normally the first quarter of the year it's bit slower, and it's impacted by Chinese New Year typically. Also some customers after Christmas and New Year, they start bit slower. The first quarter is normally followed by very strong Q2. Q3 again bit lower impacted by summer holidays and so on, and normally year-end with the high level and that was exactly what happened last year. If reducing those spot purchases and low margin trading away, we still see that we had very good quarter sales last year.
That even at taking away those spot lots, we were able to grow each quarter year-on-year basis. When going to operating profit, the picture is a bit different. I can see that the operating profit has been quite stable level, quarter level, like EUR 10 million per quarter. We see that operating margin has been clearly lower level now during Q3 and Q4 last year, like 5.7%, 5.3%. This is of course clearly lower level than what we are targeting to. We would like to somehow go towards 7% EBIT level and believe that this is a realistic level and possible to go. This is of course one focus area this year.
We need to improve our operating margins basically despite the materials availability and spot market purchases and then this Hamburg TOT, which impacted our profit last year and this is now basically fixed. If we put our sales into the bigger picture, this is still a compound annual growth rate like 16.1%. We have been able to see some absolute growth every year in 10 years' time. You can well see there the impact of PartnerTech acquisition 2015, making the jump that time. Then this 2021 jump, what was 100% organic and really based on great customer demand. Operating profit, also 10 years perspective, could compound annual growth rate.
As we see the past three years quite flat. Of course, same with earnings per share. When going to dividend and payout ratio, now EUR 19 and proposal from last year. What is good to note is that it is still a very healthy and sustainable payout ratio at 41% from last year and somewhere around 1/3 as our target is over the past 10 years. When moving to focus and outlook in 2021, first of all, we are enjoying very strong customer demand and customer demand outlook for 2021. The first priority, of course, is to utilize that potential and ensure the organic growth also this year.
There we need to be able to basically fulfill customer demand and then number one thing is that secure materials. There are different ways to do that. We are continuously trying to further enhance our supplier management. We have firm longer term fixed orders from customers in place, and then we are making longer fixed term orders to our suppliers. Still, I think that unfortunately we still need to make some spot material purchases, unfortunately still at least during Q1, maybe also Q2. Looking forward to see a bit lower extent of spot material purchases in Q2 at least, and especially the second half of the year.
Number one focus to utilize the sales potential what our customers are offering for us by securing materials. Secondly, we also need to be able to improve our operating margins and profitability. Getting closer and back towards that 7% target. As said, the Hamburg production relocation was already completed last year, will impact positively already this year. Spot market material availability remain a challenge during the first half of the year at least, Q1, Q2. We need to mitigate that challenge as far as we can. I'm slightly optimistic that during H2 we are able to improve that part as well.
That's very clear that so-called normal price inflation and cost inflation, we need to get to customer prices. I'm confident that we have been able to do that. With some customers, we have moved to quarterly based pricing so that we are able to react quicker and tackle cost inflation on time. Last but not least, definitely the level of the net working capital and inventory growth. Hard work there as well. Further enhanced inventory management. There are also other ways to tackle that. Like we have agreed with some customers and customer on consignment stocks, also some other measures so that customers are like participating and taking their part in this very difficult situation.
All in all, we estimate that 2022, our sales will be between EUR 710 million and EUR 760 million, and adjusted operating profit between EUR 43 million and EUR 48 million. Of course, there are risks this year. Two main risks are material availability, especially semiconductors, and secondly, this COVID-19 is not over, as we have seen. It's not over in Europe, it's not over in China, and the impacts can be versatile. Moving to long-term targets, we have adjusted our targets. Our former targets were set to year 2023, and we aimed like EUR 700 million sales. Actually, it was about done already last year. We were very close to EUR 700 million and we adjusted our long-term targets.
We are aiming to grow organically 5%-7% per year, and to pay growing dividends and approximately about one third of the annual earnings per share. That we have already published this year some actions to ensure our organic growth. We have acquired more production space in Atlanta and Wuxi. Last year we already told that we have started to plan expansion options at our Suzhou factory. Central Europe definitely is still seen as a very attractive growth driver for Scanfil, but at least this year we are really focusing to grow organically there. We have more production space in Wuxi and that we want to utilize that fully before thinking any acquisitions there.
In the long run, we definitely see North America and Asia is talking about outside China markets very interesting expansion areas and different reasons. First of all, our global customers, of course, are really aiming. They're already there and these are the key markets and we need to make sure that we are able to serve our key customers fully in their all key markets. Secondly, it's about polarization what's ongoing. Products are more or less manufactured in the main markets. If someone is aiming United States, North America as a key market, then the expectation is that supply chain is located there pretty much.
As well as if customer key market China then supply chain must be there. Europe pretty much the same. Can be also so that the Asia outside of China will also somehow follow the trend. Of course if our expansion and most likely our expansion to North America Asia outside China will happen through acquisitions also excellent way to widen our customer base. Yes, it's time for questions. Please.
Yes. Please, if you have any questions, so just write your question on chat box and we will ask them there. First question comes from Joonas Ilvonen. This is regarding most likely about the Finnish F-35 jets, what the country has decided to acquire. Could you remind us the nature of your Airbus account and depending on the answer, could you see Scanfil participating in some role in the Finnish commissioning of the F-35 fighter jets?
It was a question about Airbus?
Yes.
The Airbus customer is for us pretty much a legacy customer linked to professional networks business we used to have with Nokia at the time when that professional networks business was spun off and sold to Airbus. That, let's say, sales-wise the business is not very high and not really growing from that point of view. I would like to call Airbus a legacy customer we serve well and are pretty much dealing with products going to professional telecom networks.
Thank you. One question regarding the crisis between Ukraine and Russia. Do you have customers selling their end products to Ukraine or to Russia in a meaningful extent?
Mm-hmm. No. So far as I know, it's not raised up in that context.
Okay, thank you. Have you seen any weakness in Chinese construction markets, especially in new equipment installations? I think that this is regarding elevators.
We have not. Of course, the fact is that we are not directly selling anything to buildings and so on, and we are selling products to our customers who then may sell directly or indirectly some products to which are used in the buildings. On the other hand, the cycles are quite long that most likely this turmoil started last year is not so much visible when it comes to new installations yet.
Thank you. Question regarding market opportunities in Asian countries. Are there any other Asian country besides China where you might consider setting up a production plant? If so, would these be more advanced countries like Japan or South Korea or developing ones like Indonesia?
Mm-hmm. Yes, I think that was definitely thinking about that and was linked to what I said as part of a long-term targets that definitely this Asia China is somehow attractive part to be present and the existing understanding is that we could be more interested into have operations in more like developing countries quickly. Developing countries, maybe India, Vietnam, Malaysia could be excluding basically nothing but giving you a picture what kind of countries and markets we could be interested in.
Thank you. Question regarding, or quite many questions actually coming from Antti. Have you decided to invest in facilities in several factories? What kind of an investment plans do you have to fill the floor space with production lines?
What kind of investment plans?
Yes.
No, we have like two kinds of, first, if thinking of building more or getting more floor space that we have possibility to rent the space. This is exactly what we have done in Wutha and Atlanta. Suzhou we are considering to build a new in the same physical basically land we have there as where our existing building is located as well. That's of course a different investment if we are building or renting. What comes to further investments is depending what kind of processes we are planning to have there. Typically, if there are electronics processes, then of course this is like SMT lines related equipment, test equipment, automated inventories normally needed.
If more integration business, then of course the investments go to production lines a bit lower, at least what comes to the production itself. Inventory investments are pretty much the same. To give you some ideas about the investment values, if rented locations, then it's about production lines. Typically, one SMT line cost is like EUR 2 million-EUR 2.5 million, and then it's depending how many lines we are investing. Of course, those investments are done gradually in line with the customer demand and sales prospects.
Thank you, Petteri. That was actually good kind of an introduction for the additional question what Antti had regarding the CapEx for 2022.
CapEx 2022 without that possible Suzhou expansion, it's pretty much in line with what we had done, maybe a bit higher. Normally, we are investing like about 2% of our sales. We are talking about EUR 15 million-EUR 60 million investments. If we decide to invest new construction in Suzhou, that of course will be on top of that.
Okay. Continuing with Antti. Have you seen increasing labor productivity in January and February after some inefficiencies at the end of 2021?
Unfortunately, this productivity is, as said, pretty much hit by material availability and even we are taking a lot of efforts to improve, but until the material availability is getting better and our supplier OTD is getting higher, unfortunately, we are not able to solve those productivity issues totally. That I still believe that we are suffering from productivity at least Q1, maybe part of Q2 as well.
Good. Regarding the inventories, Jyrki had a question: When do you expect inventories again to be on a level, a lower historical level? Is there any risk that the part of the inventory becomes obsolete, thus leading into write-downs? Good question.
Very good question. Yes, normal level, definitely it's ready for sales and we were able to grow a lot last year and I'm still looking for growth this year as well. After that, 5%-7% annual growth and of course impacting the inventories. That absolute level will be higher for sure if we are successful with our sales targets.
Yes, to more normal level, I think that as soon as this material availability start to improve, the latest and even before that, as said, we are taking a lot of actions to stop and level off the inventory growth and looking for results Q1, definitely latest Q2, and then we should see the lower inventory levels in relation to sales, latest Q2. Yes, there are obsolete excess risk if you are not managing this well. Of course, we are paying lot of attention for that. We have good ways to measure our slow-moving inventories. We have covering customer contracts. We have always defined customer liabilities and checkpoints and so on.
Yes, good management is needed otherwise there are kind of excess obsolete risk, maybe getting more visible after two or three years or something like that if you are not awake now and alert. I'm confident that we have good processes to handle that.
Thank you, Petteri. Still going with the components, Pasi has a question regarding component prices and its effects on net sales. How much was the positive component price effect in 2021 net sales in terms of euros or in year-over-year basis and what was the volume growth effect in net sales growth?
Yes. Basically what we have basically counted and published is this really PPV-related sales and spot market related component purchases and related sales and Q4 it was EUR 40.4 million if I remember correctly. Whole year it was more like EUR 32 million. Of course, there are also what we call it like, should we call it like material inflation somehow on top and that's factored as well. This like I don't know if this is right word, but for lack of better word let's use the name like a normal price inflation or actual price inflation.
This is of course something we try to cover by customer price increases and believe that we have good processes for that and we are able to cover that by customer price increases. How much it impacted our sales last year, we have not published that exact number, but, what I could say it's not really high. Maybe we are talking about like, very low single-digit percentage.
Okay. Thank you. If there are no further questions, so we can actually wrap it up here unless somebody pops in with a question. No questions at this time. Thank you on my behalf. Petteri, would you like to-
Thank you.
... take up your words as well?
Thank you all on my behalf as well. Have a good day.
Thank you. Goodbye and have a nice week.
Goodbye.