Good morning. Welcome to Scanfil's 2022 results webcast. My name is Pasi Hiedanpää. I am the Director of Investor Relations and Communications at Scanfil. Here with me is our CEO, Petteri Jokitalo, who will be presenting our results. Questions can be asked via chat box. All the questions will be answered at the end of the presentation. Petteri.
Yes. Thank you, Pasi. Thank you, Pasi. Good morning, everyone. Also welcome from my side to Scanfil's 2022 and Q4 22 result call. Let's go straight away to Q4. Year ended very positively. We had record sales, driven by very strong customer demand and also improving components availability. Availability improve somewhere early autumn, and then development continued and even strengthened through the second half. Also meant that our spot market purchases were much lower level than first half of the year. In numbers, EUR 222.3 million sales Q4. About 16% growth year-on-year. Operating profit, EUR 13.4 million .
Operating margin, 6%. Operating profit improved by 40% year-on-year. Main drivers, higher sales volumes and improved efficiency, what was impacted positively, for instance, by better component situation, components availability. Net profit EUR 10.5 million. Earning per share EUR 16 and 24% increase year-on-year. Customer segments. All customer segments were growing year-on-year, especially we saw high or robust growth in Medtech, Energy & Cleant ech and Automation and Safety segment. All these segments were growing double digit. If looking at the right-hand side of the table, you can see our spot market purchases. We had EUR 14.6 million spot market purchases together in Q4.
If cleaning out those spot market purchases, Automation, Safety, Energy & Cleant ech, and Medtech and Life Science segments, all of these were growing about 20% year-on-year. In total, without spot market purchases were growing 17.1%. Then going the whole year 2022, record sales and operating profit again. Same drivers. Strong customer demand. We already had strong customer demand at the beginning of the year, but that was even strengthened during the year. Also, we were able to improve our efficiency, as said, improved material situation impacted positively that. We had some issues, especially in China with COVID, especially Q2, where those Chinese lockdowns were a bit giving some headwind to our business there.
We were able to run our factories all the time. We didn't need to. We didn't face any shutdowns in our premises, but we had some issues with some suppliers. Also, some of our customers were, like, facing situations that they were not able to run their factories without interruptions. In numbers, EUR 843.8 million 21% growth year- on- year. EUR 45.4 million operating profit. 5.4% operating margin. About 15% year- on- year growth. Net profit EUR 35 million and EPS EUR 0. 54 . Also would like to highlight that our cash flow from operations during the second half of the year was EUR 21.9 million positive. As discussed, many times earlier, the
We faced some issues with inventory growth during the past, two years, like to say so. We were able to stop the inventory growth middle of the last year. Since that, we have made very healthy positive cash flow from operations driven by bit higher profitability and stable inventory situation. We made major investments in production space and equipment in Atlanta, U.S., Wutha, Germany, Malmö, Sweden, and Suzhou, China. Dividend proposal now is year 2022 is EUR 0.21, what means that is 10th, 10 years in line we are raising our dividend.
We, if you are cleaning out spot purchases, our 2022 annual sales, you can see that all our customer segments were growing double-digit. Especially we need very strong growth in customer segments, Automation and Safety, Energy & Cleant ech, and Medtech and Life Science. Investments, Atlanta, Wutha, Malmö, Suzhou, new floor space, production floor space, almost 11,000 sqm . New electronics production lines, Suzhou. Also we decided to add and widen our service portfolio in Atlanta and invest their first electronics manufacturing line will be up and running Q3 this year. Most of these investments are mainly to improve our capacity. Atlanta invest also have kind of strategic angle to widen our service portfolio in United States and.
If focusing here a bit more on our balance sheet. The balance sheet is healthy. We were slightly improving or keeping situation stable. Return on Equity 16.1%. Equity ratio 45.3%. Net gearing 37.8. I said net cash flow the whole year EUR 10.2 million, but second half almost EUR 22 million. Employees average 3,400, including all rented workforce, we are above 4,000 people. Turn our quarter- by- quarter past two years, see continuous improvement somewhere in Q4 2020. Spot market purchases are in these numbers. Here you can see Spot market purchases separated. We see similar trends since Q4 2020, growing continuously growing sales without spot purchases.
Here we can also clearly see that spot purchases really peaked Q2 2022. Now we have continuous lowered and Q4 2022 we were pretty much same level than we were Q4 2021. If cleaning spot market purchases away, we were growing Q4 +17% year-on-year. 2022 we were growing 15% year-on-year to 2021. Other message from this picture could be that you can see how our sales is normally allocated between different quarters. That normally Q2 and Q4 are the strongest quarter sales wise, and Q1, I mean, and Q3 bit weaker. There are quite clear drivers like Chinese New Year in January, February time and then summer holidays during Q3.
An operating profit, last two years, actually very happy to show this and discuss it. This been some frustration. The same time our sales has continuously improved somewhere mid of 2020, early 2021, already late 2020. We have seen that our operating profit has been quite stable, about EUR 10 million. There are certain reasons we have faced COVID during that time. We closed our Hamburg operations, Hamburg factory, moved the manufacturing to other factories and quite time-consuming also cost-consuming exercise. We have faced components issues and so on. Anyway, the profit has been quite stable, like EUR 10 million even sales has improved, and we can see that in our lowering OP margin trend.
Now we can see that finally, We see a profit improvement what we have aimed and believed all the time that will come and now even operating margin without spot is 6% level. If you are cleaning spot out, we are about 6.5% level Q4. Development has been good also in long term. That 10 years compounding average growth rate turnover 16.7%, operating profit 18.8%, and earning per share 18.4%. Finally, dividend increased dividend again and this time Payout Ratio about 39%. Policy is to distribute about one third of net profit. Going to long-term targets, unchanged.
Long-term, we are aiming to have organic growth somewhere between 5%-7%. Operating profit at 7% level. We are getting closer to that 7% level and believe that we are pretty much there in normal circumstances. No COVID, normal material availability, factories operating normally. I'm very confident that we should see that kind of profit levels soon in the future. What come to organic growth, we have seen much higher numbers and still feeling that market is good for our customers and we have a good chance to keep that space even inflation corrected. Long-term growth drivers, still Central Europe. Our market share there is still relatively low and a lot of kind of needs. Our factory network is very well-positioned.
Our service portfolio is very suitable. In the long term, it's quite clear that we need wider factory network in North America and Asia, markets outside of China. I said one very important long-term growth driver, of course, is our customer portfolio. Very strong customer portfolio who has very attractive end market. Especially right now it's a great market for all kind of energy-saving, green energy applications and solutions. Also we see excellent demand from Clean Tech customers, automation, safety. Even Life Science looks like they have very good demand right now. Our guidance for 2022-2023, and we estimate that our sales is between EUR 820 million and EUR 890 million, an adjusted operating profit between EUR 49 million and EUR 55 million.
We are really focusing on securing organic growth potential what we obviously have. Securing steel components and capacity. Component situation has improved a lot. It's not totally solved yet, and we believe that there will be some issues until year-end. We will focus on profitability improvement towards our 7% level. We need to continue to work with our inventories and improve our net working capital. Major production investment we have published, Atlanta electronics manufacturing line, we already discussed. It's on-ongoing in production Q3 this year. This year January, we published that we have made an investment decision, to add one more electronics manufacturing line in Sieradz, Poland, will be in production Q3 2023. We published in January that we start to plan a new manufacturing building to Sieradz.
We are talking about 8,000 square meter building. It will be major expansion to Sieradz. I see this investment be not only to increase capacity, but also, they have strategic importance to widen our service portfolio in United States. Also that 8,000 square meter investment done in Sieradz definitely will be our main electronics manufacturing site in Europe after that. Let's move to questions. Pasi, is there?
Thank you, Petteri. Seems that winter holidays in Finland and Sweden has an effect actually on the activity level. Currently we have only one question actually coming from Uncle Scrooge. Why don't you pay off debt? Gearing is higher compared to the last year, and you need to pay more to cover the interest rates?
We believe that, first of all, we have quite good financial agreements with the banks. We are not feeling that, the interest what we are paying are still quite well under control and moderate. Secondly, we would like to have some reserves, for instance, in order to be active in acquisition market if interesting opportunities will occur.
Okay. Thank you. One from Jyrki Hilli. Operating profit guidance for 2023 is strongly taking into account potential cooling of global economy. Is your confidence based on good demand for high-margin customers, or is it more related to the client, recent challenges, component shortages, COVID, and so on fading away?
Expansion in Asia seems to mean growth and production locations outside of China, but does this aim include even acquisitions?
Maybe first starting from the profit guidance.
Our profit guidance is always based on our customer outlook and customer forecasts. Our customer bases, they are indicating strong demand, and our guidance is in line with that.
Okay.
The second question that, if we want to expand our factory network in ASEAN, also same matter in North America. Most likely that means that we need to study and look acquisition.
Thank you. Thank you, Petteri. Joonas Ilvonen. Do you expect to see any meaningful changes in product mix this year? Should we expect somewhat similar top-line development to continue this year for all segments like the one seen in 2022?
We are not expecting any remarkable portfolio change in 2023.
Yeah. Thank you. Antti Viljakainen from Inderes. Are component prices still trending up today, or are there signs that we could see buyers market in the component markets this year or next year?
Even availability is improving. It bit variates between different components, even electronics components and even different semiconductors. Even semiconductor market is quite different depending what kind of chips you are buying. I said there are still some availability issues with some chips and most likely will last until end of the year. We will see some even some price increases this year. We are not expecting any double-digit or something like that, but the low and single-digit price increases are possible.
Antti continues regarding the salary expectations. What kind of salary inflation do you expect on the group level for the next few years? Is salary inflation more difficult to price in than the sales prices than component prices?
Starting with I don't see any big difference. All inflation, end of the day, we need to be able to push the customer prices. It doesn't matter if these components or salaries. Salary inflation varies a lot between countries. In China, salary inflation is rather low right now. East Europe, rather high. We are talking about even 15% level in East Europe, something like that this year. Difficult to say. Well, most likely it's not going to last very many years. In Finland, we see Sweden situation. Germany, we all know that we are talking about, in average about 4% level per annum this year, maybe next year a bit lower, something like that.
Thank you. If anybody has further questions, so please hit the chat window and post questions if you have any. Let's wait for a second or two. Seems that there is no further questions coming in. You can, Petteri, proceed from here.
Yes. Maybe we go to key takeaways then that record customer demand and also customer sales 2022 and record profit. We also say that profit improved as expected. Now we are getting closer to level what we are heading to and believe that we continue improving our profit. Material availability started to improve and so spot market purchases were declining. We believe that this year our spot market purchases will be definitely much lower level than last year. Net cash flow from operations improved. We made EUR 22 million positive H2 2022. We are looking forward to improve that by managing our inventories better this year.
We have made quite strong investments 2022 and also 2023 to support our sales growth and efficiency and also improve our strategic position. Strong customer outlook for 2023 as discussed. This is based on customer forecasts, what we are receiving from our customers. I think that we have good reasons to end this session positively. 2023 looks positive and we have good chance to take this company even higher and improve our financials and customer satisfaction, employee satisfaction through the year. Thank you very much. Have a good day.