Boreo Oyj (BOREO) Earnings Call Transcript

Good morning, everybody, and welcome to Boreo's Quarter 3 2026 webcast. I'm Tuomas Kahri, I'm the CEO of Boreo, and I have Rafael Osmanov 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, we are -- in our report, we are showing the 8th consecutive quarter of organic growth. And this quarter actually led to a doubled operational EBIT. So all in all, a very, very good quarter. 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 3 and also the first 9 months performance, both for the group and the business areas. And then we will finish up the webcast with the questions-and-answer 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 3, we went -- our sales went up to EUR 41.5 million, which was 26% up from the comparison period. And most of that was organic, so 25% of the growth was through organic means. That also led -- due to the operational efficiencies and the operational leverage that we have -- to a very high operational EBIT at EUR 3.5 million, which was 111% increase from the previous year. That led also to margin improvement to 8.5%, which was compared to 5.1% in Quarter 3 2025. Maybe I'll just stop here or pause here and just highlight the fact that actually the Quarter 3 2025 was fairly low quarter for Boreo. So in that sense, the -- especially the percentage changes are a bit maybe exaggerated. And Quarter 4 2025 was exceptionally high. So that's just good for everybody to notice. 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 -- sorry, 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 3 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 4 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 MT's products that are fairly large and fairly sizable. So we are trying to balance the potential supply chain challenges for -- in order to make sure that we meet that Quarter 4 or deliver a good Quarter 4 also. The increase in inventories led to a negative operating cash flow of EUR 1.1 million, and that took us -- took down also our rolling 12-month number to EUR 8.2 million. Maybe then a few words about leverage. And 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 EUR 20 million hybrid loan and replaced that with a EUR 13 million 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 loan into the leverage in this calculation. All in all, the refinancing was successful. Our cost of financing went substantially down. And this has to be also put into 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 the new financing structure that we have in place. 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. So the transport times 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 either 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 previous quarter. However, again, I'd like to just remind you that the Quarter 3 2025 was a fairly low comparison point. 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 of between 2 to 3x, but still have a hybrid loan of EUR 13 million. So keeping that yellow. 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 3 main topics. So disciplined M&A, clarifying the company roles and strengthening our balance sheet. As mentioned, the refinancing has now been completed. So the focus moves a little bit from #3 towards #1, where we have -- we are continuing with an increased activity in the M&A. And as communicated in the report, we are pushing forward negotiations with 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 TEXpro in Rauma was acquired 1st of October and the integration has started extremely well. So we are looking very much forward to welcoming TEXpro team to our Boreo family. And then the third item, so #2 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 that the kind of a collaboration 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. So maybe that's the summary from the strategic topics and Quarter 3 highlights. Let's then review the numbers in a little bit more details. So here, we have the sales numbers in the -- both in the group and in the business areas. And as we can see, we are now at EUR 172 million in the rolling 12-month number, and we had growth both in the Electronics Business Area and in the Technical Trade Area. So -- 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. In the Electronics Business Area, there has been 2 companies maybe worth mentioning, Milcon continues to grow very nicely and SSN Group had a strong quarter there. In the Technical Trade Business Area, also very strong performance. The 2 areas worth mentioning here are the welding businesses, so Spetselektroodi and Pronius, who have had a very good quarter. And also both Machinery and Machinery MT have been delivering strongly in Quarter 3 and showing a very good growth overall. Then if we look at the gross margin picture, here, we are showing or seeing a very slight decline in the group level gross 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 2 business areas are impacting the group level. Within the business areas, 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 product mix in the company. 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 mix -- product mix overall. The operational EBIT, then the rolling 12-month numbers is showing a good growth in both business areas. Cash, as mentioned earlier, we had some increased working capital. So the -- both coming from the inventories growing due to the fact that we have a quick and large growth in the sales and therefore, need to increase somewhat the inventories. And also at the same time, we are seeing some impact coming also from the delivery times in the sense that we have to kind of 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. 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 as you -- the return on trade working capital has improved. But there's -- 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 Milcon, Delfin and SSN Group. And there was a slight inorganic growth from YE RS. Maybe worth mentioning that YE RS 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 EUR 1.6 million compared to EUR 1.1 million in the comparison quarter and the EBIT margin increasing to 9.5%. ROTWC seen in a constant level in the electronics business. And we see that the overall, let's say, trend in the business remains good, 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 fairly -- 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. Operational EBIT increased to EUR 2.5 million, so that over doubled from the comparison period and coming to an EBIT margin of 10.0%. So very, very good development here in the Technical Trade. And this, I think, very much shows that the operational leverage and the operational 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 sales actually rolls down to a result quite nicely. The order books are remaining at a 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. 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 3. Now we're ready to open it up for questions coming from the audience.

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?

Now we are -- the organic EBIT growth is purely organic. So we -- and we have very much impact coming from the inorganic 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 compared to the Quarter 3 '25, we had a very strong growth compared to the quarter because the last year's comparison quarter was lower than the quarters before. 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.

Yes. 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?

One-offs, no, there hasn't been any clear one-offs. 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 that we have now for this quarter recorded in IAC because at the end of Quarter 2, those were made on the group level. And during Quarter 3, we have now just moved them to the company level. So no actual change during Quarter 3. But in the books, it looks like we have increased the cost and then corrected in IACs.

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 net working capital in the future as well?

There are 2 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 in -- let's take an example in the Putzmeister-related businesses or the Machinery MT business where we expect the deliveries to happen still this year. And of course, those then will 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, we there's always kind of the year-end 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 is maybe a slightly higher risk than before.

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