Boreo (Helsinki:BOREO) Q3 2026 Earnings Call

0:00 Good morning everybody and welcome to Boreos. quarter three, 2026 webcast. I'm Tuomas Kahri. I'm the CEO of Boreo and I have Rafael Osman over here who is our head of financing and M&A. Rafael is here to help me facilitate the questions and see that everything goes smoothly and answer questions in the case I need a little bit of support. But let's get started. Today in our report we are showing the eighth consecutive quarter of organic growth and this quarter actually led to a doubled operational EBIT, so all in all a very very good quarter.

0:52 What we will go through today is that we'll talk about the highlights and the strategic focus to start with. Then we'll dive a little bit deeper into the quarter three and also the first nine months performance. both for the group and the business areas. And then we will finish up the webcast with the questions and answers session. And then finally, at the very end, I'd like to just remind everybody that we have a Capital Markets Day scheduled on 19th of November this year. So I want to extend an invitation to all of you to join also that. So going through the highlights of quarter three, our sales went up to 41.5 million euros which was 26% up from the comparison period and most of that was organic so 25% of the That also led through to do to the operational efficiencies and the operational leverage that we have to a very high operational EBIT at 3.5 million euros, which was 111% increase from the

2:22 previous year. That led also to a margin improvement to 8.5%, which was compared to 5.1%. Maybe I'll just stop here or pause here and just highlight the fact that actually the quarter three 2025 was fairly low quarter for Boreo. So in that sense, especially the percentage changes are a bit maybe exaggerated and quarter four 2025 was exceptionally high. So that's just just good for everybody to know this.

3:09 Then if we continue with the numbers more, the return on capital employed was up to 11.6%. So we were on double digit numbers there, which was also a substantial increase from the 8.2 in 25. Return on capital employed, so the trade working capital was 34.7%. And that was also substantially going up from the comparison period. However, our trade working capital increased during the quarter three, due to the fact that since our business is growing quite substantially, we have some inventories that have been going up and those inventories are needed to make sure that we can also make the deliveries for quarter four, because what we see currently are some supply chain related risks with the delivery times, especially on the kind of heavier products that we sell. So the concrete pumps, some of the machinery, MTs, products that are fairly large and fairly sizeable. So we're trying to balance the potential supply chain challenges in order to make sure that we meet the quota for

4:43 and deliver a good quarter for also. The increase in inventories led to a negative operating cash flow of 1.1 million and that took down Maybe then a few words about leverage. As you see, leverage went up from 2.4 to 2.6 and this is very much to do with completing our refinancing during the quarter. What happened there is that the financing structure changed as we bought back the 20 million euro hybrid loan and replaced that with a 13 million euro new hybrid loan and of course then increased somewhat the bank debt leading to a situation where the leverage overall increases as you all remember we have not or we don't calculate the hybrid All in all, the refinancing was successful.

6:07 Our cost of financing went substantially down. And this has to be also put into the relation of the fact that the interest rates have gone up at the same period as we negotiated with our new financing. So we are very happy with that. And maybe finally here, a few words about the market demand. We see there is a good level of market demand, especially with our industrial customers, and somewhat the supply chain risks have increased over the past months due to that. We all are aware of the situation in the Middle East, et cetera.

7:04 are a little bit going up and also global demand for some of the products we sell are quite high. However, no major impact to be expected or neither in this area. Then if we reflect the result against our long-term strategic financial targets, the operational EBIT and the operational EBIT percentage with a rolling 12-month number went up to 45%, which is, as you can see, a very big jump from the you that the quarter three 2025 was a fairly low comparison point.

7:58 What happened this year is actually that the sales for example started extremely well after the summer holidays so we haven't seen any kind of a normal slow fall start with our sales and that led to a very positive quarter. Return on capital employed, we are keeping that in yellow due to the fact that we're still behind the 15% target. And the net debt to operational EBITDA, we're also keeping that yellow, even we are within our targeted range between 2 to 3x, but still have a loan of 30 million euros, so keeping that yellow.

8:48 However, we see the new financing giving us a very good base for the future activities that we are driving for. Then if we look at the strategic areas that we are working against for this year, We have communicated earlier three main topics. Disciplining the M&A, clarifying the company roles and strengthening our balance sheet. As mentioned, the refinancing has now been completed. the focus moves a little bit from number three towards number one, where we are continuing with the increased activity in the M&A.

9:41 And as communicated in the report, we are pushing negotiations with the several parties and have a capability or ability to close those if everything goes well still during this year. And of course, after the report period here, 1st of October, we announced the first M&A this year, a company called was acquired 1st of October and the integration has started extremely well. So we are looking very much forward to welcoming Dexpro team to our Boreo family.

10:30 And then the third item, so number two here in the middle, is the item where we've talked about the clusters. And for example, TexPro is a good example of an addition to a cluster where we have similar businesses with a similar type of customers and products within our portfolio. So we see between the companies in our clusters are going to be helping them to grow and improve their profitability over time also. Also the ERP projects as we've communicated have now been completed for this year and we are working towards extracting the cost benefits coming from the new ERP systems.

11:27 So maybe that's the summary from the strategic topics and quarter three highlights. Let's then review the numbers in a little bit more details. So here we have the sales numbers in the group and in the business areas. And as we can see, we are now at 172 million euros in the rolling 12-month number. And we had growth both in electronics business area and in the technical trade area. So both business areas growing which of course kind of tells you that the market conditions are positive and we've been able to get the deliveries done fairly successfully.

12:25 In the electronics business area there has been mentioning Milkon continues to grow very nicely and SSN group had a strong quarter there. In the technical trade business area, also very strong performance The two areas worth mentioning here are the welding businesses, so Spezia Electronica and Pronius, who have had a very good quarter. And also both Machinery and Machinery MD have been delivering strongly in that quarter three and showing very good growth.

13:15 Then if we look at the cross margin picture, here we are showing or seeing a very slight decline in the group level cross margin. And when we've analyzed this, it is, let's say, very much to do with the changes in the product mix. So if we look at it from the group level, the impact of two business areas are impacting the group level. within the business areas that the volume changes between companies within the business area are impacting the gross margin and finally within kind of companies we even see with the largest companies some impact of changes within the products mix in the companies an example for example machinery that has grown very well The growth comes a lot from businesses within machinery that have higher unit prices and therefore slightly lower sales margins and that impacts the product mix overall.

14:33 The operational EBIT then rolling 12-month numbers is showing a good growth in both business areas. cash uh as mentioned earlier uh we had a uh some uh increased working capital so uh so the uh both coming from from uh the the uh inventories growing through due to the fact that we growth in the sales and therefore need to increase somewhat the inventories and also same time we are seeing some impact coming also from the delivery times in the sense that we have the kind of the end up paying some of the products before getting them delivered to the customers and therefore we've been a little bit cash tight this quarter.

15:40 All in all, I think this is an area where we need to continue with our focus going forward. So the trade working capital development, the return on trade working capital has improved. The biggest driver in this is very much the improvement of the profitability, and therefore we need to make sure that we have a very strong focus on the inventories and see that this positive trend continues also going forward. Then finally, if we look at the business areas, in the electronics business area, we saw a 14% increase in sales. And this was mainly driven by Milkon, Delfin and SSM group.

16:37 And there was a slight inorganic growth from YERS. Maybe worth mentioning that YERS is continuing to develop well. It's still below the expected level that was expected when the acquisition was done. However, we see a good development also in this business. Operational EBIT up to 1.6 million euros compared to 1.1 million euros in the comparison quarter and the EBIT margin increasing to 9.5 percent. ROT we see in a constant level in the electronic spaces and we see that the overall trend in the business remains good.

17:31 And we have companies focusing on capitalizing the growth opportunities going forward in this business. In technical trade, we had a very strong growth, so 36% growth compared to the comparison period. And as mentioned, the kind of the Finnish industrial base is now in a fairly good demand situation for us and that of course then brings growth in the welding businesses and also the businesses delivering machines for the industrial buyers in Finland. Operationally EBIT increased to 2.5 million, so that over doubled from the comparison period and coming to a EBIT margin of 10.0%.

18:25 So very, very good development here in the technical trade. And this, I think very much shows that the operational leverage on the operation gearing that we have works extremely well. So when the sales go up and we can manage the cost structure, we haven't been needing to hire new people or so, or the OPEX hasn't increased substantially, we can see that the increased sale actually rose down to a result quite nicely. The order books are remaining at the stable level and overall in the company we have the order books now roughly on the same level as at the end of June, but then compared to last year's comparison period they are substantially up.

19:21 And also in the technical trade we have the short-term kind of a market outlook remaining good. So that concludes the run through of the numbers for quarter three. Now we're ready to open it up for questions coming from the audience.

19:43 Thank you Tuomas. We have a couple of questions so far and at least the first one is for you. Can you break down the organic growth a bit more and explain if there were any extraordinary sales recorded in the quarter?

20:04 Now, the organic EBIT growth is purely organic and we have very much impact coming from part of the growth. And I don't see we have any extraordinary sales items. But as mentioned earlier, there is a clear kind of a comparative very strong growth compared to the quarter because the last year's comparison quarter was lower than the quarters before.

20:49 And therefore we show very, very high growth numbers compared to the comparison quarter. On an overall trend, however, I think the trend continues to be positive. So we are growing both top line and also the results.

21:05 Yeah, I think that we could summarize that it was kind of a perfect storm for us where we got everything delivered with good demand for our products. Yes, absolutely. Another question for you Tuomas. The profitability was also impressively high, even when looking at historical levels. Were there any one offs or how do you view this level going forward?

21:38 We have some items impacting comparison that were due to the structural changes, so ERP projects. And then in terms of numbers, what is fairly large is the correction or kind of impact of the bonuses. recorded in IAC because at the end of quarter two, those were made on the group level and during quarter three, we have now just moved them to the company levels. So no actual change during quarter three, but in the books, it looks like we have increased the cost and corrected in IACs.

22:30 Right. Thank you. All right, another question. Inventory growth, does it relate to all businesses or is it concentrated to some specific companies? Should the inventories reduce already in Q4 or should we expect higher networking capital in the future as well?

22:49 There are two trends now on top of each other. The first one is that when you have a very large growth, basically across all businesses, then the inventories are bound to grow somewhat. And of course, we as a management need to be extremely carefully looking through the inventory levels. Then on the other hand, we have several kind of larger deliveries. Let's take an example in the Putschmeister related businesses or the machinery empty business, where we expect the deliveries to happen still this year. And of course, those then we'll be out of the inventories by the end of the year provided that we don't have a disturbance in the supply chain and the products get delivered to us in time and therefore we can get them out of our system also by the end of the year. These are not anything which are now kind of a specific in that sense that in those businesses drive to get the deliveries done. So nothing kind of extraordinary out of that expected right now. However, the supply chain or the transportation situation being what it is, there

24:19 is maybe a slightly higher risk than before.

24:24 Thank you, Tuomas. more detailed comments regarding businesses. First about Delfin, meaningful profit improvement, drivers here and outlook of the business going forward.

24:40 In case of Delfin, what's coming through now is the fact that we've now done the platform upgrading in Delfin and the sales on their products are going well. And therefore, again, as the volume increases. It's a similar operational leverage or efficiency item as we have in most of our companies.

25:11 Okay, thank you. Next one, the estimates for residential construction for the next year are still very low. So what's the outlook of construction related businesses and do we see some improvement?

25:30 The message that I get is that there is a slight improvement also in the construction related businesses. However, we are also aware of these similar statistics and that of course then becomes a potential upside for Boreo going forward if we can get the construction building, our business also growing in Finland. that to happen. This quarter still the business is pretty much done without the help of the construction business.

26:07 Thank you. Then tell us a bit more about the new acquisition and how you view the M&A landscape currently. Are you comfortable with starting acquiring more consistent now given current debt level? so a very good question thank you so uh the dexpro acquisition how how we view it was a spot on for us uh because of the size because of the valuation levels and most importantly because that we what they do, and we feel that as a part of the company has more potential. So we know the customers, we know how they behave.

26:57 and as Tuomas mentioned that the onboarding has gone really well for the past month so we're really happy with this acquisition and this is something that you may expect from us in the short term also and regarding the debt level and acquisition base. So we are very mindful of our leverage, also including the hybrid. And we see that we're able to execute reasonably priced M&A while reducing the leverage. So the leverage decrease is the main focus, but we see so many good opportunities in the market. We have a very good deal flow.

27:48 So we might want to take on these opportunities also within the next 12 months.

27:58 Thank you.

27:59 Thank you.

28:00 I think we are more or less coming to the end of the webcast. Thank you very much for your participation. And one more time, welcome to our Capital Markets Day on November 19th. Thank you very much.