Boreo

Good morning and welcome to listen to the Q2 2022 webcast of Boreo PLC. My name is Karin Erk, the CEO of the company, and together with me here is Mr. Akku Rumpunen, our CFO, going through the key highlights and results of Q2 2022. Agenda looks like follows. I'll be starting recapping the both strategic and financial highlights of Q2 as well as events after the period. Aku will then give a further and a more detailed look on financials on the group level, but also with regards to our businesses and financial standing of the company. as of end of Q2 2022. We have made available a chat function in this webcast, so in case you have any questions, please shoot them out through the Q&A function that is there in the link, and we'll be addressing those then at the end of the webcast. So starting on with some highlights on the quarter. First of all, I would like to note that we have completed late yesterday evening the exit from our Russian operations. So we have sold our electronics component distribution businesses to management of management of YI Russia yesterday evening. So pretty much all the figures you will see throughout the presentation concern the continued operations without Russian operations, which are classified in the Q2 report only as discontinued operations. So we have adjusted, we're showing the quarter figures for Q2 without Russia and also the comparison periods that are shown in the slides in the next minutes or without those. So this is for clarification purposes in the beginning. If you look at the financial performance during the quarter, we successfully grew our net sales and operational EBITSO profitability both by 34% compared to last year. This is a good result in an uncertain uncertain and inflammatory environment. The sales growth and also the profitability growth was both a result of organic growth 5.7 million euros as well as growth via acquisitions. So acquisitions we have completed during the last quarters. The financial position of the company continues to be stable and good. Our leverage ratio, where we target the level between 2 to 3x, looked at from the perspective of net debt to operational EBITDA, rose from 1.6x at the end of Q1 2022 to 2.5x because of the classification of Russia as discontinued operations. Our net sales operational EBIT and leverage. You can see from this slide that the growth on net sales level was roughly 10 million euros, as said, both organic growth as well as growth via acquisitions. Operational EBIT was at 2.4 million euro, 5.8% margin compared to 1.9 million euros in the comparison period. If we would have compared these figures to our report, so figures including Russia also a year ago, you would have seen that we grew net sales by roughly 4 million euros and profitability of the company was at the same level in absolute euro terms a year ago. As I said, leverage increased from 1.6x to 2.5x as a result of the classification of Russian operations to discontinued operations. This figure doesn't include the 2.5x, the impact, for example, on our completed personal share issue after the quarter and hence Hence, in the short term, we'll improve the financial standing of the company. All of our business areas continued to operate well in the last quarter. So growth in all business areas in terms of net sales, but also in terms of profitability. The organic growth was at most significant levels at the electronics BA companies, as well as heavy machines companies, whereas on the technical trade side, the underlying growth for machinery and multicholmio, which were part of the group already a year ago, was somewhat negative, whereas the acquisition of Pronius improved and contributed to the net sales growth seen versus a year ago. Overall, we could say when we look at the short-term future, that the outlook for our a bit less than 20 independent companies looks rather stable. Of course, the operating environment is shadowed by a lot of uncertainty at the moment, but up to this date and also going forward, we have been able to defend well our margins in the companies, and we expect this trend to be continuing in the next quarters as well. Then a few words on the deal completed late last evening. So for the Russian, as a result of the Ukrainian crisis, we have already communicated before during the last month that we were evaluating options to exit. exit the operations out of Russia. I believe through the transaction that was done yesterday evening, we have found a good solution both for our shareholders and also for the business locally in Russia and its personnel. So we sold the company in a Finnish transaction to the general director of the electronic component distribution business in Russia, Mr. Yrjö Pönni, and the company is controlled by him. Yrjö was already a 10% shareholder in those companies, so we have sold the entire shareholding of Boreo, so 90% in those companies, to Mr. Pönni. The value of the deal is not fully disclosed, is not disclosed as agreed between the parties. But however, as part of the transaction, we've also made that, published that and made that available yesterday to the stock market that we have bought 8,000 shares in Boreo from the buyer to the company. We have also made, this will result in, so first of all, the transaction itself does not have an impact to our continued operations. So other companies, part of the group, one of the strengths you could see in the serial acquirer model and operating model as you as we operate the company, so intact to our rest of the businesses. We made an impairment loss out of that that is booked in Q2 results, and Aku will be talking a bit more on that, and Rasheis has already said, reported in discontinued operations in our report already. But we are happy to have completed this transaction and are looking towards the future and developing the company in the countries where we are present at the moment. So then going a bit further, looking at what happened on the strategic side during Q2, I'll be recapping these four items in the next slide. So first of all, we continue to successfully execute our acquisition program. So three acquisitions completed during the quarter. On the development side of our companies, we are continuously taking gradual steps in improving the individual businesses and taking improvement initiatives in those companies. More significantly, I would note that we are pursuing and working with mainly on the electronics BA side and also on the technical trade side with the strategies and the strategic plans for the companies that will pave the way and look and pave the way for the operations of those companies in the mid to long term time. As a very important item, we will look at the broader development of the company and our ambition, how we want to steer the ship. We completed a sizeable personal share issue during the quarter. but finally completed in July 2022. So 1.5 million euro invested by the personnel to the company. And last but not least, we are coming out, as I have said in the publication yesterday, that we will come out with the revision of our strategy and organize a capital market stage in the fall 2022. On the M&A, on the deals completed during the quarter, we completed three acquisitions. The most sizable transaction was the acquisition of Signal Solutions, an add-on to the electronics business area. This deal was signed in early May, closed in early June. An important and a very good entrepreneurial company where I believe which is already operating in four different countries so Finland, Sweden, USA and Poland. We expect this company to have a great outlook also for continued growth in those countries but also outside of those countries. So an important step in internationalizing the business, but also a company where we expect to see a promising organic growth potential in the future. Then in addition to the Singla Solutions deal, we completed the acquisitions of LED systems and GT motor. As you see from those figures, these are quite small transactions, so add-on deals directly to Yleis Electronica in Finland and Machinery in Finland. So different by nature, not operating as independent companies as part of the group, but directly integrated into the companies mentioned there. The positive side, or let's say I think the important side of this is as noted on green in the slide is that the deal sourcing, so the activity which has led to completing these transactions was solely driven by the companies, so YE and machinery. This is something that we systematically want to see in our companies, that the deal flow generation on the M&A side is more and more pushed and downwards in the organization in order to have, let's say, good quality proprietary M&A deals to be done in the future. So important deals from that perspective as well. Then the personal share issue, I wanted to bring the highlights here up, as I already said, 40,000. So an oversubscribed personal share issue, 40,000 shares subscribed by the personnel of the company, so to broader all. This was an opportunity for all of our personnel to buy shares in Boreo. This resulted in investment of a total of 1.5 million euro, own money invested by the people into the firm. A very significant amount of the individuals involved also belong to the Boreo leadership program, which is a good sign of key employees being committed into the Boreo journey. And overall, I believe, of course, from a general point of view, an important step in aligning the interests of our shareholders and personnel, but also, very importantly, a step or initiative that drives towards our ultimate goal of operating the company in a decentralized operating structure and a key cornerstone of incentivization kind of logic overall behind how we want to incentivize our people and to have significant amount of skin in the game in working together with us. So if we look at the shareholder ownership structure, After this completed share issue, we have Preato Capital as the main owner, over 70% of the stock owned by Preato, and also a significant over an 8% stake owned by the management and key employees in the firm. Then I'll be finalizing my part of the presentation just to note, to say that we have already started to work with an update of our strategy. So we are now in the middle of our strategy period 21-23. So we will be coming out later during the fall with an update to our strategy, which intends to crystallize the business idea and also capture the learnings that we have done or gathered during the last one and a half to two years. And we will be organizing a capital markets day, which we will release further details in the coming weeks or a month about where that will be and what is the agenda for that. But something we are actively working with and look forward to be presenting shortly the updated and revised views on how we intend to create value also in the future. So I would like to with that said I would like to hand over to Aku and Aku will be taking over on financial side.

Thank you, Kari. And good day also from my behalf. Let's start with the key figures table. This is the same table as you can find from our Q2 bulletin. As mentioned, This focus is now heavily on the continued operations and all the figures are reflecting continued operations performance, if there is not mentioned that the discontinued operations is included in the figure. And maybe to pick from this slide, as mentioned, good growth, quarter on quarter, 34% from last year. Same goes with operational EBIT. then profit for the period of discontinued operations is heavily negative, minus 6.6 million euro, and that is impacted by the write-down from the Russian operations. Then components of net sales development during the quarter, as in the previous quarters, quite stable development between inorganic growth and organic growth. Organic coming mainly from electronic business, but also from the heavy machine business driven by good performance, especially in Estonian business. M&A then on the other hand, is impacted by Q321 acquisition of F&B in heavy machines business area, as well as in electronics now in the second quarter with LED systems and SSN, and also in technical trade via Pronius acquisition. So all business areas contributed on the inorganic growth during the quarter. Then if we look at a bit more on the business areas performance and also some comments from the business side, again, this is continued operations excluding the Russian figures totally. So if we start from the Finnish operations first, very stable and good performance in all our companies. And that is driven by the good demand and which is also also still driving our order books up. Still challenging market environment and we are not seeing basically any kind of easing up of the supply chain challenges that has been present now during the previous quarters. And mentioned also in one bullet that now during the quarter, operational EBIT was negatively impacted by one write-off on credit loss due to one customer. Baltic operations, same there, better than expected performance in Q1. There was more dark clouds seen because of the uncertainty due to Ukrainian crisis. And now the Q2 was better than we expected in the end of Q1. And as mentioned now, also M&A activities executed during the first quarter then contributing especially to the coming quarters as SSN was only consolidated one month in the figures. And to mention there that our police operations within SSN are operating as associate or joint venture and that figures are not seen in the net sales development. So we consolidate 50% of the net profit of Polish company to our figures going forward. Then technical trade side, as Kari mentioned, solid, good performance, profitability pretty well in line with the last year's very strong quarter in 2021. And especially now from machinery side, power business, was still doing good performance during the second quarter, although there are some, of course, uncertainties in the customer side and some postponements of investment decisions, which are impacting on the businesses throughout the business area. Construction business on the other hand, Multicolmio and machineries construction equipment, strong development and also there the inventory levels were now during the Q2 driven up because of the seasonality impact or effect. Then on the other hand, as disclosed in Q1, metal machines business in machinery has suffered mostly of the uncertain market environment. And there we executed reorganization actions and measures now during the Q2 in order to meet the new normal level or the new demand level going forward. and some add-on acquisitions in machinery, GT motor, and also, of course, Pronius, well impacting on the growth of the business during the second quarter. Then on the heavy machines side, strong growth, 70% growth compared to Q2 2021. And that is very much impacted by the inorganic growth via F&B, but also, as mentioned, impacted by good organic performance in existing business, especially in Estonia, where both the Budsmeister business as well as the Sunny business performed well. Finland pretty much in line with our expectation during the quarter, whereas in Sweden some shifting of deliveries from quarter to the next quarter impacted now on the short-term figures. But in the longer-term outlook, still very decent and good view going forward. Last but not least, other operations are logistics and courier business, ESKP and Westerbakka. Very stable performance, 20% growth from the last year level and with very good EBIT margin level of 12% still. So that is wrap-up of our businesses. And then looking still a bit more on the financials, on the group level, net debt and equity ratio. Already mentioned that this reclassification of Russian operations impacted a lot on our net debt to EBITDA figure as well as to equity ratio. But as we can see here, we are back on 2.5 level in net debt to EBITDA, where we have been in the previous quarters, except for the Q1, which was contributed by the hybrid bond issue. An equity ratio slightly declined from roughly 36% level to roughly 33% level, mainly because of of the classification. EPS on the left, earnings per share, 44 euro cents, operative earnings per share during the quarter, which is pretty much in line with the previous year's quarter, and also here applies that this is only for the continued operations. In the reported EPS 1028 euro cents compared to 35 last year, there we have an impact of hybrid bond interest, which is booked or shown in the reported EPS. That was 12 euro cents during the quarter. So without that, we are and we're a bit above last year level. Then cash flow during the quarter here. heavily impacted again by the by the inorganic actions acquisitions but also to operational cash flow now during the quarter changes of working capital especially increases in inventory levels basically in in all of our business but especially in the electronic side driven by by the good demand in order to secure the deliveries in the coming months and in the beginning of next year even. But also in technical trade now, partly due to the seasonal effects, the inventory levels were temporarily increased. And then finally, some more trend picture from our cost development on the left, direct cost ratio to reflect the cross margin development over time. And as we can see here, in relatively challenging market environment, in inflatory environment, we have been able to to keep the cross margin level and even to a bit decrease the direct cost ratio during the previous quarters. And same with indirect cost ratio reflecting our scalability in the business model. So that has been also quite stable during the past months and quarters. So that was all from my side also. And now we go to Q&A.

Yeah, thank you. Thank you, Aku. And so before going there, maybe I just conclude by saying that overall a good continued performance. And thanks to that goes to our personnel. Very good continued. performance during challenging times. The Russian exit, as you see from the figures, can be seen as a sort of a one-year hole in the development story overall, but due to the operating model and the way we are structured, the impacts of that are minimized or minimal to the rest of the businesses. So I think we look towards the future quite confidently and are eager to continue developing the firm and creating value. We have a few questions here. These are presented in Finnish, but if I may, I will try and translate these so that potential international listeners can also follow. So starting with the first question to Aku. This regards the treatment of SSN Poland as part of our result. So maybe you could just clarify once more on how is the result of the 50% owned Polish company, how is that considered in our financials?