Hi everyone, and welcome to InderesTV. Today I'm in the studio with Antti Viljakainen. Hi.

Hello, Isa.

We were going to talk about Scanfil.

Yes, we do.

Yes. And the Q1’26. And in your latest report you noted that the additional awards acceleration was not quite as sharp as expected in Q1. What were the main factors that held back growth and profitability compared to your forecasts?

Oh well, it was somewhat difficult to estimate Scanfil's growth because they had two relatively large acquisitions consolidated into numbers, and we obviously don't know the seasonality of these acquired businesses.

That's true, yeah.

So organic growth was plus 7%, more or less in line with our expectations, and there was also a small headwind coming from FX rates still in Q1, so most likely the contribution of these acquired businesses wasn't as high as expected, but I wouldn't say that the deviation was that significant. When it comes to profitability, Scanfil had still relatively many new projects in the ramp-up phase that limited their profitability a bit more than we expected and had estimated. So

That's okay.

why the profit line fell below estimates. Well, something like 10%, but overall The figures went to the right direction.

Yes, so you mentioned that already, but how much of the growth was organic and how much was inorganic?

It was split so that 14 percentage points were inorganic growth coming from the MV and ADCO acquisitions, plus 7% organic growth, and some 2%, if I remember correctly, on the minus side coming from currencies.

Okay. So in what ways and how much do Scanfil's latest acquisitions, these two acquisitions, affect the balance sheet?

Yeah, Scanfil exceeds slightly its net debt/EBITDA target of 1.5 at the end of Q1. But this is a bit of an asymmetric comparison because Q1 net debt/EBITDA takes into account the whole net debt coming from these acquisitions, but not the EBITDA contribution

Uh-huh, okay.

from these acquisitions. So the company is slightly above its comfort zone right now, but as EBITDA is expected to roll higher this year, I would say that Scanfil's balance sheet is still very, very healthy and it will improve quickly back to the comfort zone.

So very healthy.

Yeah, no, definitely.

Yeah. There has been some discussion in the forum regarding insider selling by the management. How much weight do you give ownership dynamics when evaluating the company's stability?

Well, of course that's something that investors and analysts always pay attention to, and of course everybody would like to see management buying the share rather than selling, but we have to take into account that Scanfil has also these option-style incentive schemes given to the management, and they might have some kind of consequences to personal finances of

Mm-hmm.

of people. So as these sales of the shares have been relatively limited in the big picture, I would say that the whole management is not selling the shares and so on, and they have happened constantly over time, so I don't give that much weight to insider selling at this point in time. But it's obviously something that analysts and investors are following, and as I said, hopefully see More money spent on the buying side.

Buying side, yeah. But you're not too worried.

Not yet.

Yes,

Not now.

okay. So you mentioned in the research that there have been some minor challenges in the German market. Does this mean internal challenges or more of a macroeconomical-picture kind of challenge?

Yeah, this topic was discussed in the earnings call,

Mm.

and the company put the challenges on the macro headwinds coming from low GDP growth in Germany. Weakness in the automotive industry, resulting also in overcapacity in the EMS sector and so on. Germany is actually a relatively small market to Scanfil, and it really, even if it's a big economy, and the German economy reflects all the way to Europe. Europe, but Scanfil hadn't seen any consequences or headwinds in other factories, so this factory in Wutai is not the biggest factory of the company, so it has a limited weight on the group figures, even if business has definitely not progressed as planned in Germany.

Mm-hmm.

But, yeah, there are much stronger drivers supporting other bigger factories, in Poland for instance, so

Okay.

and so at this point relatively limited impact to Scanfil, but of course it might have an impact on the steepness of revenue and profit growth going forward

Growth

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revenue,

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yeah. Okay. So what about valuation and recommendation?

I would say it's pretty much the same case compared to the last time we talked. The stock has had a really good run and estimates have remained more or less flat for this year and for the next year. So valuation multiples have increased to some extent still in the recent weeks, and I would say that it's still more or less in the neutral zone. Not really too expensive, but on the other hand it has usually been smart to be cautious on these valuation levels when it comes to the stock. So I like the story in the long run, but I would like to buy a bit cheaper.

Okay.

Now let's see if I will have a chance or I miss the train.

Yeah, so you like the story.

Yes, I do. It's kind of a very good story of profitable growth, a strong track record looking backwards in history, and still good drivers for the next five to ten years as well. But even if the story is compelling, one must always pay attention to the valuation.

Yeah. Sounds like a smart advice. Thank you, Antti Viljakainen, for all these answers. And if you want to know more about Scanfil, go to Inderes, and if you have more questions for Antti, you can log in to our forum. Welcome.