Boreo (Helsinki:BOREO) Q2 2026 Earnings Call

0:01 So, good morning and welcome to Boreos quarter two, 2026 results webcast. We're sitting here in Vantaa at Boreos headquarters, and I have here with me our head of financing and M&A, Rafael Osmano. Rafael is here to support me with the questions and facilitate the answering of those in a little bit. As an agenda today, we are covering three main items. So first we start with the highlights and I'll go through a little bit of our strategic focus areas for the year. Then we'll look at the second quarter and the first half of 26, both from the group perspective and from the business areas.

0:52 And then we'll have a Q&A session at the end of the session today. As maybe kind of highlighting where we are today, it's the seventh consecutive growth. Our operational EBIT grew by 19% from comparing to the last year same quarter. We had a strong cash flow. Cash flow actually increased quite significantly and at the same time we've been able to decrease our leverage so i.e. to get some of our to go down. That allows us to focus on the business and to, in the future, focus more and more on M&A activities and developing our balance sheet to become even stronger than what we are today.

1:47 So maybe that's kind of the highlights of the presentation today, but let's go through it in a little bit more detail. Sales grew by 12% to 45.1 million euros. Out of that, 7% was organic. Our operational EBIT increased by 19% comparing to quarter two, 2025, and it was 2.6 million euros. And that takes the margin up to 5.7%. 5.4%. I'll talk about return on capital in the next slide a little bit more and also the leverage bit. So then let's look at the operative net cash flow, which was 1.6 million euros.

2:46 And that's a significant change from last year's same quarter when it was minus 0.5 million euros. The rolling 12-month cash flow is 11.4 million, and that compares to 7.6 million in 2025. So a significant improvement on the cash flow. And then if we look at the order books, the order books are growing well, I would say. If we compare it to the second quarter of 2020, in the order books overall. We see that the demand is somewhat improving in the industrial businesses and of course in the defense sector, which has been the case already for some time.

3:40 And the construction industry is still the one where we haven't, let's say more subdued production situation, but it's also there showing some slight kind of a signs of improvement. So then if we look at this from the perspective of the strategic financial targets, let's start with the minimum annual average of operating EBIT 15%, resulting that today is 18%, meaning that we have turned this into a green indicator at this point.

4:32 On the return of capital employed, that grew to 9.6%, where the target is to be minimum 15%, and therefore they're not getting to the target level. And even the number grew fairly nicely compared to the last year's situation. And then the third strategic target that we have is the net debt to operational EBTA. And there our score is now well within the kind of the targeted range, which is between two and three. However, we kept this as we are at 2.1 today and we kept that number still yellow.

5:27 alone that we have in that calculation. So in reality we are a bit higher in the measurement. But how it's being calculated or how it's been reported So then if we look at how do we as a management spend our time and how do we plan to increase the result of the company going forward, we have three main areas that we are spending a lot of time at this point. The first one being disciplined M&A. Second one being making sure that we have very clear roles for strengthening our balance sheet. Those are the three items where we spend a lot of our focus as the group management.

6:29 If we go through these one by one, the first one, the discipline M&A, we have done some updates in our process. So just to quarter one, quarter two. And while that was done, we've also substantially increased the level of activity of meeting potential acquisition targets, et cetera. And that activity increase is now bringing some results.

7:15 We have several processes that are kind of going forward and we are soon. Where we are focusing our M&A activities at this point is very much looking into the businesses or industries where we are already active at this point. So once we've done that clustering work, we have also defined several of these clusters to be ready for add-on acquiring and add on M&A. And that's where we're mostly focusing at this point. And the reason for that being is that we understand those businesses. We understand, or we would be able to get some kind of operational synergies out of those companies.

8:19 And also thirdly, we understand the price level and the pricing of those assets. The second area is the clarifying the company roles, where, as mentioned, we have clustered all the operating companies into the clusters and made sure that each and every one of the companies knows what is their role in the borrower business. And what we're doing there as an example is what we published in Sweden, which was a fairly small business.

9:05 And we felt that it is in better home with the entrepreneur who is close to the business and who can personally run it, whereas we couldn't offer that as a part of Boreo. So that's just one example how the roles are being clarified within the operating companies. We're also sharing all the best practices among the clusters and the operating companies. Some examples in that area is of course when you have clustered your company around, let's say, customers or products or business model, then of course it's easy to very much focusing on now and also the ERP projects we've been running this year and which are now basically all live.

10:09 So those are of course also bringing kind of a best practice sharing among companies. All in all, Both technical trade and electronics have strong order books, and since the ERP projects are bringing the results towards the end of the year, we feel that we have a very strong base from the first half to continue our growth towards the end of the year. Then the third area is the strengthening of our balance sheet. And of course, the strong earnings and the strong cash flow have been enabling us to continue the deleveraging of the company as was planned.

11:00 Also, the cash flow will allow us that we are currently looking into. And we have 4 million euros in our M&A facilities still available for us. So we see that the ability to complete the M&As that we have planned for this year is good, unless something, of course, happens in the projects or so on. At the same time, the declining or lowering leverage also enables us to look into the alternatives in a little bit longer term to decrease the cost of our financing, and we are looking into different solutions.

12:06 Then if we continue with the two highlights, some notes on that. Let's start with the sales growth. As mentioned, we had a 7% organic growth. in 25. This brings us up to 164 million euros in terms of sales. The non-organic growth, inorganic growth was coming from the two acquisitions we made in 25. So acquisition of SpetsElektrodi in Estonia and Alpha District Operations, the business that we call YERS, in the first half.

13:17 Both businesses continue or both business areas continue with a strong growth this year. And if we look at the gross margin and this picture is a little bit more kind of a mixed in a on the cross margin, but it's really about actually mixes. It's about the mix between the two business areas. It's about the mix within the business areas and it's about the mix within the operating companies. So therefore, kind of the total picture here highlights a little bit of the increase of certain businesses and we continue to focus on cross-margin also as a tool of making sure that we can continue the profitability of the business.

14:29 EBIT, as we mentioned here, showing some improvement in the group level. Regarding cash flow, we have a strong cash flow or we are getting the cash out of the business. And that, of course, then strongly supports us in deleveraging and also enabling us to continue to look at the M&A opportunities.

15:21 All in all, maybe worth saying that the good sales development and the margin development has shown overall that works extremely well. So once the sales go up, we have been able to increase the profitability. And if we then come to the return on trade working capital, which is at 29% currently at the end of quarter two, it's we are able to, despite the fact that we have businesses that are growing, we've been able to manage the trade working capital quite well during this year.

16:17 Then if we move on to the business areas, so a quick update on both of them. Let's start with the electronics business area where we saw sales increase by 15% and organically that's mostly driven by Milkkon. And maybe worth mentioning the large order that Milkkon received roughly 1 million euros from a defense sector partner which is 2030s.

17:03 So the defense sector and Milcon's role in the sector is showing good signs of continued growth. On inorganic side, the YER's business is bringing its contribution to the growth in electronics business area. Operational EBIT grew to 1.2 million euros from 0.10 million euros during the comparison period. And the EBIT margin is currently at 6.8%. The return on trade working capital is a little bit down from the last year's comparison period.

17:51 And within electronics, that's a that ties a little bit more working capital. And also during the ERP project that we have in YEE companies, we temporarily increased or had an increase of trade working capital, which should then decline quite soon now once the new ERP system is in place. Order books.

18:39 well and they are notably higher than than during the last year so they were roughly 20 a little bit over 20 percent above last year's level so also their good development then at the technical trade business area where the sales grew by by 10 percent and that is made experiencing good growth and the businesses they are serving are kind of turning into a positive growth even in Finland.

19:30 The return on trade working capital increased at 32% and that's mainly driven by the As already mentioned earlier, the process and manufacturing industries are driving our growth in the technical trade area and let's keep our fingers crossed that the construction industry also starts to grow that would support even further the technical trade business overall. Auto books and we discussed year, our quarter one, but still holding on a very high level and continuing to grow compared to the comparison period.

20:37 And the delivery times, as we mentioned already in the quarter one, are still fairly much kind of weighted towards the end of traction on the second half also. That wraps up my prepared presentation. So maybe as a kind of reminder. So seventh quarter of continued organic growth, 19% operational EBIT growth, the company. I'll turn it over to Rafa for the facilitation of the questions, please. All right.

21:33 Thank you, Tuomas. We have some questions come in through the platform and let me read out those. All right. First one. Have you identified what will be needed to close in on your ROSE target? higher EBIT margins versus lower working capital. Is it structurally possible to reach 15% with current set of companies or will you need to do selective disposals, acquire new companies with higher return profile? Maybe I will take that. So how we see is that our current company portfolio has in reality meaningful potential for improvement.

22:23 mainly we see that the operational leverage is now working for us, so we see that the ROSE target will be achieved primarily through improved profitability, but also we are aiming to maintain very disciplined working capital management. Nevertheless, when we look at new M&A targets, we look more to companies on companies which have sustainable pricing edge with profitability. So although with the current portfolio, there is no need for bigger reshuffle, what we will acquire in the future is likely to be on average more profitable than what we are holding right now.

23:22 I hope this answers very good question. So let's go to the next one. This was already a bit touched by Tuomas, but let's recap through this question. Can you talk a bit more about the declining gross margins in technical trade and effects of rising input costs that has not fully been offset by price increases or other factors behind the decline? Any planned initiative in H2? Tuomas. I would say that there is no kind of trend happening in the technical trade regarding the cross margins. It's more about the fact that when we have large deliveries, large deals, they tend to have a little bit slower, a lower cross margin. So we don't see in the micro level any kind of changes where more of a mix within companies and especially between the companies. So different companies have a little bit of a different cross-margin levels. Yes, then also we need to, as a management, continue to look into our pricing and make sure that the input prices are also reflected in the prices of the goods and the services

25:01 making sure that we actually get the input prices to our pricing or changing the input price pricing.

25:14 Okay, thank you, Tuomas. Then another comment. Given the stronger cash generation and deleveraging, how do you currently prioritize capital allocation between acquisitions, debt reduction and dividend growth? I'm going to take this. So what we are trying to achieve here is to balance between acquisitions and debt reduction. a strong cash flow allows us to do both but in terms of acquisitions we are being very selective and also going for targets where we see that we have advantage compared to other buyers and we strive to be very disciplined in terms of pricing of acquisitions.

26:13 So in that sense, we right now feel that we're in a position where we can slowly but surely pick up the pace with acquisitions, while at the same time we see our debt levels to go lower. At this point, we do not prioritize dividends. where the balance sheet, we look into the different forms of how we structure our balance sheet on the pricing of different kind of instruments and also the amount of the instruments.

26:58 So we are actively working on developing our balance sheet still this year. So that's very much in our focus.

27:06 Right. Then we have some company-specific comments. Let me... All right. Could you comment on the performance and outlook in Machinery and Delphin? Let's start quickly with Machinery. Machinery has done well this year. They are very much in... uptick from the recovering Finnish economy so there is a good opportunity for machinery to grow. One of the areas for example is a reserve power where the data centers are pushing up the demand and overall the total market is one of the drivers for machinery.

28:10 Delfin is continuing to look for the product upgrade or the platform upgrade that they were doing has been done. So the next item there is to understand how do we improve our distribution in other markets and in the medical device business. still not in the terms of capex investment, but in terms of operating cost investment, doing some investments in Delphin.

28:46 All right. Thank you, Tuomas. Then continue with companies. Can you elaborate more on Milkon's growth plans? How sizable is the growth opportunity and what are the upcoming milestones you are expecting? We're still we are making sure that we don't have bottlenecks in the in the growth path so where for example looking into new uh or they are moving into new new space etc so we are making sure that we are we have the ability and capability of continuing to grow with our our customers we believe that there are there are large programs like the one Now that we have closed 1 million euro deal with a strategic customer, so these type of programs will continue and likely are going to grow. However, I'm not in a position to give you an exact guidance on the growth path of the company.

29:57 Okay, thank you, Thomas. Right, then a question for me. How many M&A deals are you looking at the moment on a monthly, yearly basis, for example? So, yes, we have picked up our M&A activities and how we... or where we look for the deals to streams of potential targets. We have a fairly active stream of broker deals coming from brokers, investment banks, and we're looking at those. The second stream is proprietary deals. And we have picked up the activity also there.

30:43 We have been meeting with potential targets, with management, with owners. And as you may understand, that these type of processes might take longer to materialize. But nevertheless, we have been now, I would say, quite active in that sense. In terms of numbers, our team has reviewed since the beginning of the year actively tens of potential targets. We have met with many of the companies and we have had in deeper conversations with a handful of companies, but also you must understand that we are trying to get the volume very high and be very selective But now we can already see that the very interesting ones are now going through the funnel towards completion. So we see that the amount of activity in the market or the activity in the market isn't a bottleneck for us.

32:06 It's just picking up our pace, our processes, getting our balance sheet in order and getting selective acquisitions executed. Okay, so far these were the comments and well, thank you for very good comments to the audience. And thank you very much for coming and listening to Boro's Q2 webcast. reminding us what we were telling in this webcast. So strong performance during the first half of the year and that should give us a very good starting position to address the second half of the year and the full year of 2026. We have a Very strong order book, which means that we should be able to continue with the sales growth.

33:09 And we are seeing that our operational gearing works. So once we get the sales up, we should be able to get the result also coming through. We've generated strong cash flow. decrease our leverage during this year, which then all in all should give us a good base to continue with the M&A and developing our balance sheet going forward. So thank you very much for your time and for your attention and looking forward to continuing the discussion with you. Thank you. Thank you.