Boreo (Helsinki:BOREO) Q1 2026 Earnings Call

0:01 So good morning my name is Tuomas Kahri and I'm the CEO of Borea since beginning of April this year. Welcome and thank you for joining us today. Today we will walk you through Borea's first quarter results of 2026 and we will put the performance into the context of a serial acquirer business model. Q1 marks a strong start for the year, continuing the positive trajectory we've seen over the past six quarters. We delivered strong, solid growth. We improved our profitability. We had a strong cash generation and we strengthened our balance sheet.

0:47 So with that, maybe it's a good time to introduce the rest of the team. We are three persons from Boreo in this call this morning. I'm joined today by Rafael Osmanov, who is our Head of M&A and Financing, and our VP of Finance Sami Hanerva. Rafael will dive deeper into our financing situation and our M&A activities, and Sami will cover the business areas. Sami also is the man with the historical background on Boreo, so since Rafael and myself still have a fairly short experience of Boreo.

1:33 But before we jump into the numbers, just a few words about my background and maybe some first observations from Boreo. I have worked for over 30 years in various businesses with the focus on growth, strategy development, M&A and achieving high operational results. During the past 10 years, I've spent time as a CEO, as a partner at McKinsey & Company, and as an operating partner with the Finnish private equity bailout fund called Interra Partners. The first weeks with Boreo have given me a confidence that Boreo's business model is sound.

2:22 The company is in a very good shape to continue both organic and inorganic growth, and that is enabled by the efficient capital allocation practices that the company has in place. So a very nice place to start the leadership of the company. Then if we go and look at the quarter one, quarter one, 2026 was very strong quarter operationally. Our net sales increased by 16% versus the comparison period in 25. And they amounted to 39.5 million euros. The organic growth was 9%.

3:11 This was the sixth consecutive quarter of organic growth. Operational EBIT increased by 28% and was 1.7 million euros, which corresponds to 4.3% margin. The EBIT for the quarter was 0.9 million euros, which was a little bit below 25 comparison period. But it is worth mentioning that in the 25 period, we had a positive non-recurring items of 0.6 million euros. Our cash flow was 2.1 million euros, and the cash conversion was very strong at 116%.

4:05 Also, our balance sheet strengthened further. The net debt to operational EBTA was 2.2x, which compares to 3.1 in the first quarter of 2025. Our return on capital employed was net 9.1% and the return on trade working capital was 28%, which also increased from the previous year. Then maybe finally a little bit more on the order books. The order books still grew compared to quarter one 2025 and to quarter four compared to quarter four last year. The order growth was driven by improving demand that we saw, especially in our industrial and defense related businesses.

5:09 We still see that the construction business remains quite subdued, but also there we see some cautious improvement happening. Then if we look at how to continue the positive development this year, there are three key focus areas for the management. The first one being accelerating M&A activities, and those will be now focusing 2026 into our existing businesses. We are continuing to strengthen our cluster thinking, meaning that companies operating in a similar industries would be kind of handled a little bit more like a cluster. And then we invest into the operating companies within those clusters that we feel have the best opportunities to meet our financial targets.

6:13 The second focus area is to review the role and the status of each operating company. And there we really want to make sure that we understand clearly where do we have the largest potential for both organic and inorganic growth. And how do we then drive the capital allocation decisions that we make as a management. And thirdly, We continue to strengthen our balance sheet to make sure that we can support the M&A and growth activities going forward. So a little bit more in a kind of concrete level, we see that in 26, the earnings improvement potential is supported by kind of a systematic development of organic growth, as well as our development of the operating models.

7:09 In order to accelerate the organic growth, we will drive the cooperation within the kind of the clusters, where the companies operating with a similar industry will be sharing more and more best practices, especially in the customer interface. Also for the operating model, the big item of course is the five ERP system renewal projects we have ongoing. Out of those, the first one is now completed and the four still ongoing projects are progressing according to the plan. These projects will improve our efficiency and reduce fixed costs in the coming years.

7:57 And the implementation costs for these ongoing ERP projects have been adjusted in our operational EBIT. Then if we look at our performance against the long-term strategic targets or target setting, the Q1 represents again a clear step forward or to the right direction to meet our strategic targets. Operational EBIT growth was 10%, and that was largely driven by the organic growth. So once the M&A activity grows, this should impact also the growth further.

8:49 Also, capital efficiency is developing well. However, there we still are behind our strategic target. And finally, deleveraging continues with the senior debt reduced roughly by five million euros year on year. And I will let Rafael in a few minutes to talk more about the financing and our balance sheet. So to continue with some of the key KPIs. So the first one being sales growth. The sales grew by 5.5 million euros or 16% compared to Q1 2025.

9:38 9% of that came from organic growth reflecting the improved market demand and 7% is the impact of acquisitions completed in 2025. The two acquisitions that were completed were the SpetsElectrody and Elfa Distrelect operations. And together these two contributed roughly 2.5 million euros to our sales. On the business areas, electronics overall level was stable. milkcon that serves defense related related businesses and also in technical trade we had a strong strong growth and that was especially supported by machinery and putschmeister businesses Then if we go forward to the cross margins, the cross margin level remains stable at 29%.

10:46 And that is a good achievement taking into account that the sales mix changed quite a lot as you saw from the sales. So the lower margins of the heavy equipment sales were offset by other businesses, both in the technical trade as well as in the electronic spaces. Overall, we see that the sales margin development was healthy during the period. Then on cash flow, cash flow generation, of course, is a core pillar of the serial acquirer model. And we will continue to focus very much on the working capital, as well as, of course, on the return to drive the capital efficiency.

11:41 Our working capital decreased slightly at the end of quarter one, so roughly by 0.1 million euros, and the cash conversion on the roll building base was 103%. On the main measurement on the capital efficiency, so return on trade working capital, it was at 28%, so roughly stable compared to year on year. And again, as said, we will continue to focus on the working capital, but really we see that the big improvement in this KPI will come from the improved profitability going forward.

12:32 I will now turn it over to Rafael to review our financing status and then over to Sami for the business area updates.

12:47 Okay, thank you Tuomas and hello from my part as well. So at the end of Q1 26 the company stood at a solid financial position uh we had a good level of liquidity available to us at 19 million euros which was roughly 5 million more than year before our total financial facilities were roughly 74 million of which we had used 57 million uh breakdown of this is uh terminal facility is is uh is roughly 18, 19 million euros and acquisition loan facility, 12 million euros of which we still have 4 million euros unused.

13:36 Then we have our hybrid instruments and RCF facility, which is at the moment currently unused. So we have a good capacity for example, small M&A. Going to debt maturity structure, we amortize our senior loan at 5 million euros annually, and we still have 2.5 million euros to amortize during the rest of the year. In 27, we have a reset date for our hybrid bond. And in 28, our senior debt package expires. So keeping that in mind, we have been mapping different financing alternatives with our priority to strengthen the balance sheet in order to support our M&A and organic growth activities.

14:53 Our criteria for long-term ownership are unchanged. We want to own asset-light industrial businesses with strong cash flow profiles. So currently we're analyzing the current portfolio to identify organic and inorganic growth opportunities to drive our future capital allocation priorities. One of the focus areas for this year is accelerating M&A activities, and we take a highly disciplined approach, currently focusing on target companies that expand our existing businesses. Currently, we see that the M&A market is favorable for us.

15:39 We have a good deal flow of potential targets, and we see that there are more sellers than buyers. And because of that, the valuation levels are reasonable. Thank you.

15:53 Okay and over to Sami then.

15:59 Yes, then we jump into the business area highlights. So first for the electronics business area. So in overall first quarter of the year improved margins and growth. Milkon especially driving the performance in the electronics for the Q1. Sales increased by 10%. It was mainly driven by the inorganic growth of YERS and the ELPA district acquisition we made last year. Operational EBIT increased to 1.3 million compared to 1.0 million Q125. EBIT margin increased to 7.7 compared to 6.4 at the comparison period.

16:46 rolling return on trade working capital on a rolling 12-month basis was on 48 percent level decreased compared to comparison period mainly due to decrease in profits so as mentioned we measure it on a rolling 12-month basis and in the q1 25 we had a really strong q4 24 when their electronics made 1.7 million operational ebit so that's impacting there on a company level we would like to highlight milkcon with continuing solid performance and with a strong earnings capability for the future. And related to Milkom, we would like to highlight that the company received so-called AQAP Allied Quality Assurance Publication Certificate during the quarter, which is a NATO certificate. So the certificate opened doors for Milkon to participate in the NATO tenders. So we see that as an interesting opportunity for the future growth.

17:50 The short-term outlook for the business area is in overall stable. We still see some uncertainties in the operating environment. So that hasn't changed compared to previous quarters. At the end of Q1, the order book decreased slightly compared to previous quarter end, so the Q4-24, but the order books are on a higher level compared to the situation a year ago. And the order intake for the Q1 for electronics was on a reasonable level, so the reason for the decrease is mainly the deliveries made during the quarter. Then we jump to the technical trade. Strong quarter also for technical trade, strong growth and improved EBIT. However, the margins were impacted by the sales mix. So in technical trade for Q1, the sales growth was 21%, from which roughly 15 was organic and six inorganic.

18:51 Operational EBIT increased to 1.0 million compared to 0.9 at Q1, 25. and the EBIT margin decreased slightly and it was mainly due to the sales mix, as mentioned. Return on trade working capital increased to 30% and the increase was driven by the better profitability. On a company level, we would like to highlight for the Q1 the performance of machinery and the putschmeister businesses when comparing Q1 26 to Q1 25. and also the companies serving the process mining and the manufacturing industries performed well in the first quarter of the year. In technical trade, order books grew compared to Q1 2025 and also compared to the year-end situation.

19:44 And here we still would like to highlight or mention that some large deliveries are expected to be delivered in the latter part of 26, so in Q3 and in Q4. The short-term outlook remains overall solid for the business area with some gradual improvements supported with a stronger outlook. Yes, and hi.

20:11 Tuomas. Yes, thank you Sami. And to conclude our story from today, the Q1 demonstrates that Boreo delivers profitable growth, strong cash flow and improving capital efficiency. With the disciplined ownership model and long term perspective, Boreo is well positioned to grow and prosper. So we'd like to thank you for your attention and happy to take any questions at this point.

20:53 Okay, we have received certain questions from the listeners. Okay, let's start with... Technical trade question. So technical trade saw impressive growth of 21% in Q1, yet you state that order books are being more weighted towards the latter part of 26. Should we view this as a strong outlook for the rest of the year or were the comparables especially easy in Q1? I think this is maybe Sami's question.

21:31 Thank you. I think that the Q1 quote reflects the improved execution, as well as some support from the comparables. The order book, particularly towards the later part of the year, supports the continued development, but still, I would say that the market remains somewhat mixed, and we expect gradual rather than linear improvement for the technical trade business.

22:06 Okay, going to the next question. You had a two and a half million contribution from acquisitions in the quarter. It was lower than I expected. Can you give some more details on that, especially regarding contribution from Elfa Distrilec as your original PM stated yearly sales of your 15 million for that business? Again, I give this to Sami.

22:34 Thank you. I would say that this contribution reflects maybe the timing and the ramp-up phase, which is still ongoing for DELFA, Distrelec and the YERS business. For the Q1, the YERS as a whole was a bit below our expectations, but we expect that the contribution will increase gradually over the time.

23:01 Okay. Thank you, Sami. Then there's a question. How do you view the financial stability, especially as you have some hybrid debt that are not classified as debt in your reporting? Okay, so this is something I could take. So what we see is that the company has had a good cash flow. and we expect to decrease our leverage during this year. We have new liquidity position. So in that sense, we view that we have a solid position, we have options, and we have full support from our financial partners.

23:52 Then there are questions regarding Delphin, how it has developed. I give this to Tuomas.

24:05 Okay, so Delphin has gone through the development of the new platform, which has been more or less completed at this point. Of course, that still impacts the future outlook of the business, where we see the scientific business growing nicely and developing nicely. And at the same time, we are still looking at the medical business opportunities, especially in the US. So all in all that business still is developing nicely, however the investment that needs to be made for continued growth is somewhat impacting the result.

24:58 Thank you Tuomas. More company specific questions. Has the YERS business developed according to management's expectations? I give this to Tuomas again.

25:13 The YERS business has developed a little bit slower than what was expected. This is due to some, let's say, kind of uptake by the customers who have transferred to the new business. However, we still have a very positive feeling that these customers will return and the business will continue to grow as expected.

25:44 Thank you, Tuomas. One more operating company question. Had the SSN weaker than expected Q1? or can we assume that this development will continue? Tuomas, please.

26:10 SSN is more of a question of a delay of some of the deals that the company has made, so we don't see this being a change in the trend of that business.

26:27 Okay, thank you Tuomas. And then there's still one question. You talk about both accelerating M&A activities and strengthening the balance sheet as main focus area. Can you describe that dynamic a bit more? Yes, I'm going to take this one. So as mentioned earlier, we are paying down our debt during this year and we're exploring different financing alternatives by the reset date of hybrid bond. How we see is that we have opportunity to make small add-on acquisitions at this stage. And when our balance sheet is a bit more stronger with, with, with delivering continuing, we can take on bigger and bigger targets. And also what we mean by accelerating M&A activities is that we see that we want to be disciplined and gather a deep enough pipeline of potential targets to be very selective. So there is obviously a certain lead time between accelerating and execution. So I hope this opened this item a bit.

27:58 And these were all the questions that we received so far.

28:06 So at this point, we'd like to thank you and Vanta is logging out. Thank you very much and looking forward to continuing the discussion.

28:19 Thank you. Thank you.