Good morning, and welcome to Scanfil's first half of 2022 results webcast. My name is Pasi Hiedanpää, and I'm the Director of Investor Relations and Communications at Scanfil. Here together with me is our CEO, Petteri Jokitalo, who will be presenting our first half of the year results. If you have any questions, please use the chat function, and questions will be answered at the end of the presentation. Petteri, please go ahead.
Thank you, Pasi, and welcome to Scanfil Q2 results call also from my side. Starting with the highlights for Q2, of course, sales, our turnover in the quarter was on a record level, EUR 230 million, 23% growth year-on-year. Our sales was driven of course with a high level of spot market purchases. In addition, our record sales was also driven by very strong demand, basically from all customer segments. Especially I could mention products like analyzers, frequency converters, recycling equipment for bottles, indoor climate products, coolers, heaters, where we had a very good demand. Generally all those products are somehow related to Life Science, energy efficiency, Cleantech type of businesses.
Also I'm very delighted the fact that our net cash flow from operations was positive after 12-month period where we didn't have positive cash flow because of increasing working capital and especially inventory levels. Now we were able to see changes there and of course plan to continue with that trend. Our operating profit was EUR 10.1 million. Operating margin 4.8%. Net profit EUR 7.1 million. Earnings per share 0.11 EUR. The challenges in material availability were continued. We had a high level of spot market purchases during the period. We still saw some increase in inventory.
Material availability was impacting negatively to our productivity. We needed to use lot of time and resources to solve continued issues with materials. We also faced some COVID measures in China, meaning basically lockdowns in China, especially April, early May. That was impacting our operations and profitability, especially in China, two ways. We had more than normal issues with material availability that time. Secondly, some of our customers they also faced the impacts from lockdowns and even some customers they had some factory closures. That was impacting our delivery volumes in China, especially in April, early May. Situation has normalized quickly in May, and June was again a good month also in China. Exchange rate impacted.
The exchange rate changes impacted our operating profit quite heavily. We saw basically a quite heavy or strong appreciation of USD during the quarter. Especially in April, we saw big changes. Basically USD was appreciating against all key currencies we have, meaning Euro, Swedish krona, Polish zloty in Europe, and even Chinese yuan in April. This impacting our operating profit by EUR 1.8 million during the quarter. About the demand in different customer segments, EUR 230 million total sales increased 23%. If you including those more spot market purchases, we see double digits even above 20% year-on-year increases basically in all customer segments, even NX and Cleantech pretty close to 20%.
As said, we had a very high amount of spot market purchases during the period of almost EUR 30 million to be exact. This EUR 30 million is like reflecting so-called purchase price variance, what is basically calculated. This is actually the variance between spot market purchases and so-called normal cost purchases. We could say that we had like almost EUR 30 million like additional cost, the money we spent to get the components in and customers were compensating that EUR 30 million but without margin. Here you can see a customer segment by customers, by customer segment. Especially we had high spot market purchases in Advanced Consumer Applications segment.
You see that basically we had some amount of spot market purchases everywhere. Even if cleaning our sales numbers, saw that those purchase price variances or spot market purchases are not impacting, we were growing like 11.1% year-on-year. This is of course a very strong organic growth. Especially we see that, or we could say that basically all customer segments, except Advanced Consumer Applications where we saw a bit lower organic growth without PPV, only 1.1%. All rest of the customer segments were growing really, really robustly.
Walking through some H1 related numbers, sales during the first half of the year EUR 410 million, growth 22%, operating profit EUR 20.5 million, pretty much same level like one year ago. Then when going to EPS and net profit, we see that EPS was 0.2 euros lower, 2.3 euros this year and last year 2.5. Even our operating profit was pretty much same level this year like last year. Our net profit was this year EUR 1 million lower, and that was impacted by two things that our income tax this year was like EUR 500K higher about than our financial cost or net like EUR 500K higher.
The key driver under financial cost was that we had a bit high amount of debts this year, but also expense rates were impacting a bit more our financial net this year. What comes to tax, we don't see even our tax during the first half of the year was higher. We don't see any bigger changes or drama there. We think that our first half tax was basically impacted by kind of accruals or periodization, and we believe that towards year-end, we will end up with quite similar tax rate like last year. Return on equity for 14.6%. Equity ratio 14.5%. Net gearing 44.4%. Net cash flow from operations during the first half -EUR 11.7 million.
As said, during Q2, our net cash flow from operations was EUR 1.2 million positive. Our Q1 net cash flow from operations was minus EUR 13.6 million, and now we have turned to be positive. Employees in average, 3,339 persons, with 2.2% increase to last year. Going to balance sheet, the total value EUR 535 million. We still see, let's start with the one year development. That actually big increase in inventory, EUR 90.3 million year on year increase in inventory. It's partly of course also positive because it's related to strong customer demand and strong sales increase.
Of course, that part is not so positive that our inventory rotation went down very heavily. Key reason there is that the bad material availability that our suppliers OTD their delivery performance is about 80%. We are about able to get in average 80% of suppliers' products on time, but 20% not. That's automatically lowering our inventory rotation and rising our inventory levels. That's of course going to improve as soon as the material availability is improving. Of course we are taking a lot of other measures and basically we were able to slow down already the inventory growth that even we had the record sales in Q2, our inventories were growing in Q2 like EUR 20 million.
You can see that it's already lower level than where we were before. Of course, we are not happy with that, and I'm looking forward to stop the whole inventory growth and start to reduce our inventories and get cash out of that. Still our financial position very stable. We are definitely able to make all investments what we need to ensure our good customer demand realization and organic growth. Net debt situation end of Q2, interest-bearing bank loans like EUR 19 million and the lease commitments like EUR 23 million. Together EUR 112 million interest-bearing liabilities including lease liabilities.
We have seen or faced a great sales growth since beginning of 2021. We see a gradual and a steady growth since Q1 and 2021 and driven by great customer demand, first of all, during that period. Secondly, also quite high spot market purchases. Even those spot market purchases of course they're not good solution for the long term, but. That has eaten a lot of our cash and capital and caused some issues. Of course, the key reason why those spot purchases are used is basically the purpose is good. That is like ensure that our customers, end customers are getting their products on time.
By making those spot market purchases, we have helped a lot the situation and improved a lot our delivery performance and that's the reason that customers are also motivated to pay that extra price. Of course, that has meant that Scanfil as well as our customers, they have used a lot of their resources, their balance sheet, their cash for that and time and resources to buy these materials. Of course, Scanfil was in position to do that. With our strong balance sheet, we have able to do that and believe that we also have won some markets here.
At that point of view, yeah, looking forward that that's like seen positively also by our customers and will help us to maintain and keep our position with our customers in long term. If then really separating those spot market purchases away, first of all, you can easily see how quickly they really those spot market purchases started like Q2 last year, and we can see steady and even big jump now in Q2 this year, almost EUR 30 million. Now we see clear signs that what we believe that now the peak has been seen. Our spot market purchases already in Q3 this year are lower level, definitely lower level.
We should see further lowering in Q4. Key reason is that we have seen some signs that material availability will improve and in some extent already started to improve. I said first signs, we still have issues with some components, some semiconductors. We have issues, most likely the issues continue Q3, maybe even Q4, but we see more and more also positive signs and that point of view, that will help our inventory situation during the second half of the year. Anyway, even without PPV, our year-on-year growth about 11.1%.
Of course the question is that how much of that 11% has been impacted by cost inflation and our price increases to our customers. Our understanding is that we are talking about maybe about 3% year-on-year. Even if taking that consideration, we are talking about about 8% organic growth. It is robust. It's on good healthy level. Yes. We just said that sales has been developed nicely since beginning of last year. Now when moving to operating profit, we see that our operating profit has been rather stable since basically 2019, about EUR 10 million per quarter.
This is of course not what we aim and it's not what we believe that that we are like somehow forced to be. Our target is really we believe that this realistic target is our target is to be in long term like a 7% EBIT level. This 7% EBIT level, for instance, if taking our Q2 this year, sales cleaned from spot market purchases, meaning if sales was one hundred and eighty-three million euro, 7% out of that was that our EBIT basically should be like EUR 12.8 million. Then if EBIT analyzing where we were, we reported EUR 10.1 million EBIT. On top of that, we faced like EUR 1.8 million exchange rate related issues.
What we have done with the exchange rate, we have really like implemented and improved our hedging during Q2 and beginning of Q3. We have, for instance, added China as part of our hedging. We have also improved quite remarkably our hedging in Europe. For instance, we clearly saw very positive impacts from that improved hedging already, May and especially June. We are not saying that we are able to hedge all changes, but we see that we are able to hedge and protect our EBIT from exchange rate related changes much better from now on than what we saw in especially what we saw in Q2, especially in April. EUR 1.8 million exchange rate changes.
Then on top of that, we had the China lockdown impacted our Chinese result quite heavily in April, early May. We have seen situation to change already improved and we are back to track in China, being there basically from beginning of May. Of course, we don't know if there will be additional lockdowns in China. Of course, then we face challenges again. But assuming that no so heavy lockdowns, especially in Shanghai area, what we faced in April, that's clearly positively improving our profit making capability in the future. In addition, we, as said, we see materials availability gradually to improve. We also see, as we wrote also in our report, that we see our customer demand further improve during second half comparison to first half.
We are very confident to maintain our OP guidance as we maintain that our EBIT will land somewhere between EUR 43 million and EUR 48 million this year. That means that we are confident that our EBIT start to improve from now. That we can. We don't need to wait long time. We already see a great improvement in Q3. That's our expectations. We upgraded our turnover guidance for this year now in July. It was pretty much driven by further improving customer demand and also very high spot market purchases, especially Q2. The spot market purchases of course continue still some level in Q3, maybe even Q4. We believe that the level will be lower anyway.
New sales guidance is that this year sales will be between EUR 800 million-EUR 880 million. We maintained our operating profit guidance EUR 43 million-EUR 48 million. Of course, uncertainties are the same like earlier. Material availability is not fixed yet. We will face some challenges the whole year, but we believe that gradually situation is now improving. There are still war in Ukraine. There will be likely some energy availability issues in coming winter. COVID-19 may cause some additional lockdowns and other issues. Basically could say that there are no lack of risks at the moment. Our focus is very clear, and I'm basically repeating everything what we said three months ago. Our focus will be to realize our organic growth opportunity.
I mean on great customer demand. We are pretty much focused on securing materials. We definitely see good chance to improve our profitability. Also we need to continue to improve our net working capital and reduce our inventories. Long-term targets, annual organic growth 5%-7%. We are quite well there. Even about operating profit level at 7%, we are not there yet, but we are going towards during the second half. Dividend approximately one third annual earnings per share. Also wanted to update a bit about what we have done this year what comes to our production space to ensure growing customer demand. We already published beginning of this year that we have added the production space in Atlanta and Wuhan.
In Atlanta, we made, like, a 6,000 sq m addition. Wuhan, 2,000 sq m. Now the latest extensions in Malmö about 1,500 sq m. Suzhou 1,500 sq m. In total, we have added our production space this year by 11,000 sq m, and we believe that that's enough for next 12-24 months customer needs. So far we see customer demand build up. In the long term, we see still North America and APAC besides China markets interesting expansion areas, most likely acquisitions. Acquisitions are attractive option there.
Yeah, as I said earlier, Central Europe definitely still a very attractive growth driver for Scanfil. Now I think that it's time for questions.
Thank you, Petteri. Pasi from Nordea has actually a question regarding our guidance. Full year guidance midpoint points indicates even 5.8% average EBIT margin for second half of 2022. Do you feel EBIT guidance could be challenging?
I think that I already explained why we believe that this EBIT guidance is doable. There are a lot of positive drivers now. Of course, there are also risks in the world, and if those risks will realize, then will be challenging to meet our EBIT guidance. We are confident that we are able to go there driven by those positive factors what I mentioned.
Okay. Pasi continues: Could it be possible for revenue to decline by 5% year-on-year in 2023 if the availability of the components improves and prices are at the normal level?
Of course, this PPV. We do not have any guidance for next year, and I'm not planning to give it right now. Yeah, that's clear that this PPV what is like a purchase price variance. This is like somehow additional sales that has to be taken into consideration when thinking scenarios for next year. That the PPV will disappear as soon as material components availability has normalized. Of course, no one knows exactly if it has totally normalized until the next year. Expectation is that this has improved a lot so that the amount of PPV hopefully and likely will be much lower level next year. I think that we cannot.
We are not in the position yet to give any numbers what come to our next year guidance.
Okay. Thank you, Petteri. Pasi continues about our customer segments and has a question regarding Advanced Consumer Applications and increase of EUR 15 million year-on-year revenue in that segment. Should we specify what product or products or customers are behind the increase?
Yeah. I think that we have mentioned especially Q1, those elevator products that were mentioned as well. Also those lockers, those parcel lockers. These are the kind of products we have mentioned after Q1.
Thank you. Jonas has a question regarding, are there any other factors besides the exclusion of the FX losses, stabilizing spot market component purchases, and the fading of lockdowns in China, which will help your profitability improve somewhat in the second half of the year?
I think that these are quite important. Okay, the exchange rate, the lockdown is somehow maybe like a one-timer. Of course this material situation starts to improve as we believe, that will definitely improve generally our productivity and use of resources, and that's great thing. There are, like, no remarkable changes coming to our product portfolio. Not that kind of changes are expected during the second half.
Okay. Thank you. Antti has a question from Inderes regarding our estimates coming from customers. How have customers' six to 12 months rolling estimates progressed during the last few months? Are these still trending upwards? How much of the new floor space? Okay. Well, let's take it separately. Is the customer demand still trending upwards? Is the question.
Yeah. Let's focus on pretty much this year because next year of course is a bit more unclear still. This year we have seen a growing customer forecast and as said. We do not see any dramatic changes in that trend also what come the next year.
Thank you. Also, actually regarding the new floor space of 11,000 sq m, Antti has a question regarding how much of the new floor space has increased Scanfil's costs in the first half of the year? The cost of floor space.
Yes. Actually, those are like mostly these are rented space. No remarkable cost. Maybe we'll see some improvement in our lease liabilities instead.
Okay. Thank you. Continuing with the same subject, how much of the new floor space is filled in with the production machinery currently? How much could it be utilized within the year?
This is good question, good point. As said, we believe that with that, of course, floor space is not utilized yet, and yet very highly. We believe that with that improvement, we are able to handle even our growth scenario our customer needs during the next 12-24 months.
Okay. Thank you. Daniel Häglund has a question regarding our demand. You say that customers indicate further strengthening demand for-
Yeah
for the second half of the year. Could you elaborate a bit, on which segments or types of customers this generally is?
It's quite as we saw a great improvement basically in all customer segments in Q2. We see quite similar demand development during the second half of the year.
Thank you. Also, a question from Pasi regarding actually our increasing inventories and the risk of write-downs. Is there a risk for a write-down in inventory value if spot prices come down?
There shouldn't be. This is, of course, a good, very good question. We are discussing that with customers and see that basically how we are handling that. That we are, before making long-term commitments to suppliers, we need a fixed commitment from our customer side. That's the way to handle that risk.
Okay.
No doubt that the commitment means the quantity and cost price.
Okay. Thank you. Seems that there are no further questions. At this point, I would like to remind everybody about our factory visit to Åtvidaberg in Sweden. It will be arranged on the 7th to 8th of September. Åtvidaberg is a close to customer R&D factory with complex system integration capabilities, and it is specialized in medical technology and startup industrialization processes. In addition to visit to our factory, we will visit our long-term customer factory, Toyota Material Handling. It is quite close by, and we will be arranging that lift there. It will take two days. We will start on the 7th, and we will be returning on the 8th. If you are interested in this factory visit, please approach me. Thank you.
Thank you very much, everyone. Thank you for attending. Have a good day. Bye.
All right. Thank you. Bye-bye.