Boreo

Good morning from Vanta from the Boreo headquarter and welcome to this webcast in which we will go through the Q4 2022 highlights, financial performance and also discuss the financial performance of Boreo in the last couple of years. My name is Karin Erkki. I'm the CEO of the company and Akko Rumpunen, our CFO, is here together with me to discuss the recent happenings in the company. Agenda looks like follows. So I'll be starting the webcast with the elaborations on 2020-2022. Developments in the company continue thereafter to 22 and Q4 2022 highlights and thereafter Aku will go through the business performance at group level and business areas in more detail and after the presentation we're happy to take questions that you can pose by using the chat function that is there available in the webcast link as well. So welcome on board. First of all I wanted to bring a couple of reflections to what has happened in the firm in the last three years. Those of you who have followed us in the last months and quarters are familiar with these slides, but nevertheless, laying out the context to our 2022 performance and beyond to Q4 2022 as well. So, a few key points I wanted to note out. First of all, we are, of course, happy on the development that we have seen financially and strategically in the firm since 2020, which can be seen as the start of the Boreo era, followed by the acquisition of majority shares in Yleis Electronica by Priato Capital in 2019. Thereafter, we have done a significant amount of work to build up what Moreo today is, a diversified serial acquirer, set up the decentralized organization, launched a new strategy, revised it once in 2022 as well, and taken on, let's say, the lessons from the last couple of years of operations as a serial acquirer to the way we develop the company today and the way we intend to continue developing the business going forward as well. Acquisitions have been an integral part of our value creation journey in the last three years and will also continue to be in the years to come. We have now executed close to 20 transactions in in the last three years, the latest one which we announced today. Today is a small add-on acquisition to support what we call a business within our technical trade business area. And I think that now overall, if you look at the performance, we start to see the first signs of our ability to create shareholder value in the long run. the earnings have developed and sales positively, whereas we have room to improve with regards to our capital efficiency and returns on capital. Also, it's important to note that when looking at the three years back, it has not been only, though we have not proceeded only as they say in movies, we have had some difficulties challenges that has been posed in 22 because of the exit from our electronics distribution business in Russia. Also, we spent close to a year in 21 with the contemplated merger with CME Capital that ended up not going through at the end of 21. So reflecting, I mean, all that what has happened, very pleased all the way that we've been able to bring the company from where we started in 2019 and 2020 to where we are today. So as we have reflected in our strategy update in September 22, going forward to focus will be on simply from a financial point of view in growing steadily the earnings earnings that we generate and also doing that in a way that it creates shareholder values of focusing more and more on return on capital. And importantly, of course, last but not least, developing the way we operate as a decentralized diversified serial acquirer. Two slides which I wanted to bring out here from 2020-2022 performance. I believe you will find interesting is the first in this slide. Focusing on the graph that is on the bottom of this slide that is presented, so the earnings growth that we have generated from 2020 to 2022, from the 3.3 million euro operational EBIT to 8.7 million in 2022. The green bars there reflect that we've both been a good owner for our businesses during this time, for those businesses which were part of the group in 2020. So the total amount of, let's say, organic growth that we have created in this business amounts to 2.4 million euros, mainly driven by the performance of the old Yle Electronics in Finland, as well as the Baltic operations, as well as machinery that has developed well during the last couple of years. Acquisitions have comprised a larger share of the earnings growth that we've seen, so €4.8 million, as you see from the slide. And already today, the profit contribution from those acquired businesses starts to be at the levels or even above the earnings that are generated by the portfolio. So overall, what we want to stress out with this slide is that we are meant to be an acquisition machine, an acquisition machine that will deploy a lot of the capital and cash flow that we generate into acquisitions. But at the same time, very importantly, we want and need to be a good owner for the business that we have and expect in our ability to be able to do so as well. Then I think a very important slide also kind of breaking down a bit the performance you've seen by business areas in the last couple of years. So in this slide, you see the... net sales growth, operational EBIT growth, and operational EBIT margin growth by business areas from 2020 to 2022. The couple of boxes which are reflected there in green color indicate, in my opinion, quite well the strong and positive developments that we have been able to generate in the last couple of years So, within the electronics BA, operational EBIT has grown from €1.8 million to €4.2 million in 2022. Also, the margin has been developing positively, close to 2% margin expansion or improvement in the electronics business area. In a similar way, you see a similar sort of a development in the technical trade business area from €1.3 million operational EBIT to €5.3 million and margin developing to double-digit numbers in 2022. Then on the less or positive side, we have not been successful in operating our heavy machines business area well during the last couple of years, partly due to a couple of reasons. One, the operating environment has been the more challenging. for our businesses within the heavy machines business area. So a lot of disruptions in the supply chain, but also we clearly have had issues in the ramp up of our sunny excavator business of which we made a decision to exit from Finland and Sweden now in the course of 2023. So something where we clearly are focused on in bringing that business area back on track. And I believe that we have the toolbox also to get where we have been measured by, let's say, a relative profitability of the Budsmeister operations, as well as for the Wielberg study in Sweden in the years to come. Then importantly, looking at the last blue, the box with blue color there in the bottom. We have also systematically invested into the group side of things of creating the organization that is driving the business, the business area organization, the group capability that are required to run the show. So 1.8 million euro more of cost attached to the group compared to 2020. We expect this development, the cost development, to face down in the years to come. So the more new businesses we acquire with less of an headcount and less of an overhead, those will come to the firm. So I believe an important source of scalability and also supporting our margin development going forward. I hope that this, I think these are important slides to reflect that we've done really good. We've succeeded well in certain parts of our area, certain parts of our business at the same time. We have difficulties on the heavy machine side and believe in that, that we have the ability to bring that business area also to reasonable figures in the years to come. Then going towards 22, Overall, and then continuing with Q4, first of all, in Q4, we discussed in more depth, but we recorded a 2.2 million euro operational EBIT that would have been without the communicated right of related to the sunny operations, 2.5 million euros or 5.6% EBIT margin. a steady and stable development in line with the expectations we roughly had when we approached the quarter and 15% EBIT growth, that 2.2 versus the quarter before. So we continue on the growth track. For the full year 2022 without the exit in Russian operations, we've generated 21% EBIT growth compared to last year, six percentage points above our 15% strategic target. So well on our way in executing and reaching the targets on that in 2022. With regards to operational or return profile capital efficiency, we clearly have room to improve. So landing with regards to return of capital employed to 10.4% at the end of 2022. And Aku will then explain in more detail what is impacting that and how we intend to also gear that number upwards in the coming quarters and years to come. Our leverage, so net debt to operational EBITDA developed positively during the last quarter. So we deleveraged the business from 2.5 to 2.2 as a result of the operational result, strong cash flows, release of the working capital, and also partly due to the same proceeds received from the Russian exit communicated in Q3 2022. So that leaves I mean, overall, a leveraged position with which we feel to be comfortable, leaving also room to continue on the acquisition track, as we have done in Q1. So the filtered acquisition was done in Q1, 23, and now we said before, communicated today, it was more, I don't know what to call me as well. Then very briefly on 22 strategic highlights. We took significant steps in relation to all our three strategic areas. So first of all, acquired nine companies throughout the years, completed nine acquisitions, a set field trip was completed now then in a couple of days on the side of 23. The key notions with regards to acquisitions are, in my opinion, the ones noted in the slide. So first of all, the companies we acquired clearly contribute to our objective of gearing up the margins, as well as capital efficiency of the whole group. So in average, those companies we acquired have recorded a 15% EBITDA margin in the years before the transactions. So, a steady development or a steady level of profitability that we also want to see from our companies. Also, we have continued on the path of acquiring companies at decent valuations. So, in average, 3.9x EBITDA, excluding earnouts and with earnouts at 4.6x. tells, in my opinion, in our ability to maintain the discipline required in creating value through acquisitions. 2022, I think we took very significant steps both in the way we operate and run the firm. We established a lot of, let's say, new structures based on which the operations of our independent and rather autonomous companies are based on. The Boreo game plan concept could be framed also as a strategy concept. The Boreo clock that is shown in the picture in the slide, which lays out the board work of our companies, the monthly reporting work for our companies and so forth. These items together with, for example, the launch of Boreo Academy have been such which are important in running the firm and also making sure that once the company grows, we have a standardized ways of operating and developing the company as well. And then importantly, I think when it comes to incentivization and when it comes to the question of aligning interest between our shareholders and and personnel, the 1.5 million euro invested in summer 2022 by personnel of the company as part of the direct share issue program that we made. Very important step overall also in our journey. So good development overall that we expect to continue also in the course of 2023. Then briefly on acquisitions, I already noted basically the highlights of new companies with strong margins and returns on capital. One additional point I would like to note out here is also that especially when it comes to the filtering and the gematic transactions, we see both of these acquisitions important also from a point of view of of broadening our capital allocation universe. So basically meaning that if we look at the end customer, if we look at the nature of those businesses, as well as the end exposure from a customer point of view for those companies, those are clearly areas which we see as important for Boreos further development. So rather non-cyclical, areas of process industry, for example, here in Finland, is something that we see to form a good basis for continuing growth by filtering organically, but also to acquisitions going forward. A second point I would like to note on this is related to the add-on of Busty to SKP as well as the LAMOX acquisition. These are also good signs that our companies and the key people in those companies have also started to capture better the thinking related to M&A and how M&A can be used as part of the strategic plans of those companies. Rather small acquisition, as you see from the numbers, but important, I think, from the point of view of development of those two companies. So good experiences that we continue to make in scaling our M&A capabilities and acquisition capabilities throughout the company. Then, finally, last slide on my side. A dividend proposal for 2022, so our board proposes for the AGM to continue on the path of paying and increasing dividend per share. However, so that reflecting or copying the same approach that we already took in the year before. So first of all, that the board proposes to the AGM that a 0.22 dividend per share would be distributed and thereafter the board would have a authorization to at their discretion then thereafter to dividend out a second of 2022 which I believe also reflects the update that we made to our dividend policy in September 2022 so target to annually increasing dividend per share, but taking into account our capital allocation priorities. So that's a recap from my side, and then I would leave the floor to Akku to go through Q4 2022. Mori, please. Thank you, Karri.

So recapping the last quarter of 2022, first starting from the quarterly net sales and operational EBIT that we certainly already reviewed. But as a recap, 15% increase in net sales from 39 million euro, 45 million euro year on year. Operational EBIT also 15% growth quarter on quarter, comparing to the last quarter of 2021. Profitability very much in line, stable against last year on a 5% level. However, noted here that now in Q4, as mentioned, we had one one-timer write-off of €0.3 million regarding the sunny businesses in Sweden and Finland. So excluding that, profitability in the fourth quarter would have been 5.6%, so a bit above 21 level. Then rolling 12-month figures more showing the trend, how the business and the company has developed. 160 million net sales compared to 122. Increase of a bit over 30% there. On absolute terms, 38 million growth from where the companies that we have acquired during 21 and 22 impacted roughly 27 million. So inorganic growth was roughly 27 million now in 22 against 21. And the rest, roughly 11 million was inorganic, sorry, organic growth. And then on the right hand side, rolling 12 month operational EBIT 8.7 million compared to 7.2 in the end of 2021. 21% increase, so a bit over our new strategic target. And the profitability also in the role in 12-month term, very flat now during the year on a 5.4% level. Then components of growth, net sales growth now in Q4. In the previous quarters, we have seen maybe more stability in the growth between organic and inorganic growth. However, now in Q4, basically all from the growth came from the acquisitions during the 20, 22 SSN and InfraDex as well as Pronius. Organic growth on the other hand was slightly negative because of the heavy machines development. Also, the comparison period of Q4 2021 was very, very high. But coming back more on that one in the next slides. Then looking into the business area shortly, electronics continued operations. So acquisition of SSN asset and InfraDex during the last year grew net sales very much now in the previous quarters, and operational EBIT also clearly above 21 level on 8.3% level. So very good performance in the Finnish operations a bit. Of course, differing between the companies, but overall performance as seen here in the figures, very good throughout the year and also in the last quarter. Also good performance continued in in Baltic countries. And overall, from the outlook side, order books intake is still on a good level, despite of still, of course, continuing uncertainty in the overall economic environment. Then technical trade, there the growth of roughly 18% quarter on quarter came mainly from Ronius acquisition, from inorganic side profitability, also on a good level, a bit above Q4 2021 level. And also in this business area, of course, the year has been different from the performance point of view in different units, especially in machinery where still the power business division performed very strongly in Q4. On the other hand, the metal machine side in machinery has been suffering most from the Ukrainian crisis throughout the year, and still Q4 was challenged. Construction businesses, both from Motti Kolmio and machineries construction equipment side performed according to our expectations, despite of the fact that the overall construction market is softening and the outlook is also there a bit, or contain uncertainties. And as Kari mentioned, two acquisitions now in the end of the year and in the very beginning of this year will provide us and support us with the new business opportunities now in the new industries. Then heavy machines, a bit different story here, as mentioned, negative sales now in Q4 against comparison quarter in 21, which was extraordinary strong, but what impacted mainly the Q4 performance here was still the continuing delays in the deliveries, especially in the Budsmeister business, which significantly impacted our performance and numbers in Q4. From profitability side also, the Sunny business did not perform according to our expectations. And once again, to that business unit in Finland and Sweden. And F&B supported with the Lakmestan acquisition that we did in the end of last year. Good performance, despite of also delivery challenges in that business. So positive is still that we have good order books levels, and when this delivery delay topic slightly goes away, we definitely believe that we are able to bring the performance and the business to the levels that we have seen in the previous quarters.

Let's take a short technical to go out of presentation. Apologies for this.