Boreo

Good morning from Vantaa, from the Boreo headquarter, and welcome to this webcast. Webcast where myself, Karin Ertö, CEO of the company, or CFO Aku, will discuss the Q1 23 highlights of the firm. Agenda, briefly. First, I'll recap the key strategic and financial highlights of Q1. then Aku will discuss the group level financial performance, as well as the business area performance in more detail, and then we will take questions that the audience has presented during the webcast. So please use the webcast function that is there in the platform, made available if you have any questions. Starting off with the highlights, so looking at briefly the quarter. So summarized, it was a strong and expected, the performance was expected as we went into the quarter. So I'm pleased to see that our operational performance measured by operational EBIT grew by 81% during the quarter. So 2.1 million operational EBIT. Also the margin improved from the previous year from 3.6% to 5.1%. Mainly the performance was supported both by the rather good organic growth in the businesses, but also the acquisitions that we have done during the year, which were not the companies, which were not part of the group, in Q1 2022. We have put a lot of focus on improving our capital efficiency, educating, training our companies, rooting the mindset in the firm in order to ensure not only positive earnings development, but also improved characteristics when it comes to returns on capital. So we have been Now in the quarter compared to end of Q4 22, our return on capital employed improved from 10.4% to 11.3%. So a significant uplift, mainly due to the positive earnings growth that we experienced during the quarter. If we look at cash conversions or operative cash conversion in the quarter, one of the new KPIs and metrics that we are we have started to report it was at the level of 35%, rolling 12-month basis 44%. Basically indicates that we tied up a bit of working capital mainly due to seasonality reasons in Q1. But also, as mentioned there in the slide, we did not yet experience the positive cash flow impact from the sunny exit that we have communicated during Q1. So expect to see some positive cash flow one time natured in Q2 2023 then. Leverage continues to be stable in the middle of our strategic target range. And we also proceeded quite actively when it comes to more on the strategic execution side. So welcome to two new companies to the group and also the Sunny exit was a significant milestone for our heavy machines business area. If we look at then a bit of more the trend performance with regards to our key financial metrics, so you see on the left hand side in the slide the operational EBIT development since Q1 2021, so on a rolling 12-month basis. There we have significantly improved the earnings profile of the firm from, I mean, absolute terms from 3.9 million euro to 9.6 million euro now at the end of the quarter. We have slightly improved the margins on the group level when it comes to profitability. However, if you look at this 5.7 percent level where we are this is far away from where we want to be in the longer run and if you look at the last two to three years basically this result is the result of our underlying operations performing better than before so experiencing organic growth in the companies that we have owned and then the let's say investments into the group side close to 2 million euro that we have put in are deteriorating the margins roughly by 1 to 1.5 percent on a group level. So once the company grows we expect also the growth to come in with better rates. Return on capital employed as mentioned improved now from the year end. We are working hard with the team and the companies to improve this profile. This portfolio of companies which we own today has the ability to generate better returns on capital. And we expect to see in the course of this year and the years to come a gradually improving performance on that front. And then when it comes to our net debt to leverage position, financial standing in a way, we have been, as you see from the graph, we've been running the firm at pretty much in the middle of the strategic target range measured by net debt to operationally be evident and intend to do so in the future as well. So we have enough liquidity available to run the, let's say, running operations of the firm. and then also supported by the acquisition facilities we have still unused and available. We have the ability to continue acquiring new companies as well. Then I think quite an interesting slide, I believe, for listeners. This time, so we have started now from Q1 23 to report let's say a couple of new metrics so the cash conversion which I mentioned also a return on trade working capital at business area level so in this graph you see the both the operational EBIT trending performance in the last 15 months but also the return on trade working capital KPI development and this is of course I mean this Given that we have a firm that can be called to be an asset like Nature, so majority of the balance sheet that we have is pretty much comprises of working capital, so when driving the performance of this metric also, the returns on the group level, let's say, move in accordance with that metric as well. So if we look at this, we have been on the group level on the left-hand side rather stable in the last 15 months. However, now seeing a trend-wise positive development there. The electronics and technical trade businesses have been operating at rather stable levels in the last year, whereas the heavy machines business area has had difficulties and we expect in particular the exit of Sunny to contribute positively to this, to the development of the return profile of the business area as well. Then continuing a bit more on the strategic side. So first of all, we continue to do what we are supposed to do and what our strategy and long-term strategic targets say. So we acquired and welcome two new companies to the group in Q1. So in January acquired a company called Filterit to our technical trade business area. A great entrepreneurial business that is mainly exposed to the process industry in Finland. High levels of profitability, long-term steady track of profitable growth and high returns on capital. pretty much a type of the companies that we want to be continuing to acquire in the future as well. Then, Motikolmia, one of our companies as part of the technical trade business area, also made an add-on acquisition during the quarter, so acquired a company called Lamox. Very similar type of a profile, a strong business with product ownership, strong high gross margins, profitability and returns on capital as well. So overall, in line with the transactions that we completed in year 22, we look to and we continue to acquire companies which positively contribute to the financial profile of the firm and makes the group as a whole more resilient. Secondly, with regards to development side of things, overall in the group, we're still in very early days of the whole journey of the firm, so we continue to have work to do in order to develop the ways of working, to rooting the mindset of how we want our companies to operate, what are the key metrics with regards to financial and other operative KPIs that are important in the long run, And because of that, we continue to work with concepts like the Borea book and also driving the game plan concepts that we have put in place in order to make sure that once the company grows, it has sufficient level of governance in place and sufficient amount of similar type of mindset throughout the firm that we continue to move to a common direction in the long run as well. So important topics with which we need to be of course continuing to work continuously in the future, but especially in these first years of the development journey. Then we have put a lot of focus or increased the amount of focus and resources into sustainability themes. So during the quarter, we have spent time in discussing, brainstorming, and also training our key employees with regards to sustainability topics, also trying to do our best to identify the possibilities on how we can continue to, or how we can improve the long-term prospects for our businesses to perform well in the future by taking sustainability more into focus in developing the companies. And in the roadmap that we have put in place in 2022, we look we continue to work towards being ready to report for the first time on sustainability topics in year 24. So these are more the strategic side of developments. Then my last slide, and then I will turn on to Aku for financial review. We have already talked about the exit of the Sunny operations in Finland and Sweden during Q1 and in the Q4 release as well, so I won't be spending too much time on this, but nevertheless, I think it's an important topic, A, from the point of view of its positive contribution, to the group financial metrics. B, also because of the resource allocation mindset that we have, we continue to develop and try to get better in. So basically meaning that the great resources we have in the heavy machines area available, I strongly believe that we are able to perform better and generate better long-term business elsewhere than in these two businesses. And thirdly, it also sends a certain message of our ability to look into mistakes and challenges that we have and take action when we feel that we're not the best long-term owners for this type of businesses. So ZANI, I believe, will have a very bright future in these countries, a strong a strong supplier, one of the leading brands in the world, and we continue to do our best to support the transition to new dealership structures in these markets as well. Thirdly, I think, let's say a point to bring up is that Putschmeister is the bulk of our heavy machines business area. Putschmeister is a traditional long-term a long-standing European brand in the concrete pumping world that is owned by the Sunny Group as well. So the Sunny relationship overall and Putschmeister are really important for the Group in the long run. We've had our difficulties mainly due to market conditions in the last couple of years, but I believe we are nicely on track to bring the Putschmeister business back on track again. So basically, I think this overall is a topic that shows that we are able and capable of doing things and looking at the portfolio in a manner that it serves the interest of our shareholders in the long run. Summarizing the impact of this exercise, we took a €0.3 million write-off to our books in Q4 result already. Now you see in the Q1 report a €0.2 million positive impact because of this exercise. Basically a compensation that was agreed with Sani in connection with this. The cash flow impact is not yet visible in Q1 numbers, but will be there in Q2 then as well. So contributing then to improved capital efficiency as well. So with that said, I will turn the floor and give the floor to Akku to continue.

Yes. Good morning also from my behalf. Thank you, Kari. Let's walk through the financials from Q1 and the group level and also on the business areas. So a bit repetition here, but good to mention rolling 12-month sales growth continued with a bit over 30% growth compared to the year ago. and just to mention that now the rolling 12-month sales hit 170 million for the first time and of course we have quite recent acquisitions there supporting this figure already in Q1 but this is of course expected to continue still as kind of pro forma basis when the new companies are fully on board on a yearly basis. Operational EBIT also improved nicely to 9.6 million euro from 7.1 a year ago, 36% increase there, which clearly exceeds our strategic target of over 15% growth per annum. Then once again, quarterly figures, sales grew by 29% and operational EBIT by 81%, meaning that our profitability also improved, as shown here on the right-hand side line. Then components of the net sales growth now in Q1. Again, it was a good mix of both inorganic growth and organic growth, especially now acquisitions from the previous year, Pronius, SSN and InfraDex acquisitions, but also the Filterit and J-Matic acquisitions now in Q1 supported the inorganic growth. And inorganic side then, especially, electronics and also heavy machines contributed on growth. And same bridge graph from EBIT side, so almost same structure here as in the previous slide, a bit higher share of inorganic EBIT growth as compared to the organic one. Moving on to business areas. First, electronics. Solid and good performance overall. Over 20% growth in sales. Operational EBIT margin a bit decreased. from the Q1-22 mainly because of two subsidiaries, SSN and Milkkons, and there we have a timing of deliveries in Q1, which impacted on the performance. However, in other subsidiaries in Finland, Norretron, YE, very good and solid performance as well as in Infradex and also in Baltic operations, better performance than expected in the first quarter. And now we have also in these business area slides a new component on the right-hand side bottom graph, rolling 12-month operational EBIT and return on trade working capital, as Kari mentioned, very important metric for us to drive and follow operatively the capital efficiency. So here we can see that in electronics, rolling 12-month operational EBIT also nicely grew, and return on working trade working capital quite solid on a 44% level. Then technical trade side, as mentioned, We made several acquisitions during the year, and these acquisitions, Pronius, Gematic and Filterit, nicely supported the performance of the business area. 8.8% EBIT margin, clearly, above the last year's, and there especially the acquisitions was the supporting factor or the driver. Then looking to businesses in machinery, power business still had very good and solid Q1, although a bit below the very high and good performance in Q1 2022. In construction businesses, Monticolmio and in machineries construction equipment also performance according to expectations, but we know that the construction market overall is soft at the moment, so of course that a bit also impacts our performance there. And in metal machine side, in machinery, still investment uncertainty impacts on the performance. However, in Pronius, very good performance in Q1. And as mentioned, J-Matic and Filterit, good start in Q1 as part of the group. Then moving on to heavy machines. Here also, good numbers on a quarterly basis, growth of roughly 30%, yes, and a bit improved EBIT margin also, but as Kari mentioned, there is a one-off compensation, which positively now impacted on the quarterly EBIT margin. The highlight of the quarter definitely is the sunny exit operations and actions which are proceeding according to plan. Still in the Budsmeister business, quarterly timing of deliveries impacted on the figures. And same comment as we had in Q4 last year regarding F&B, there are still issues in supply chain and material availability, which limit our capability for delivering the products to customers. And then return on trade working capital, as mentioned, a bit improvement there from the end of last year, but definitely we are not there. where we expect the business to be in the mid and long run. And then finally, other operations. So here we have our logistic operations together with our group costs. And the graph here on the right, that shows now the operative company's performance. Again, 1.2 million net sales in the quarter, as seen here, very stable. compared to the previous quarters, and also profitability, quite stable, clearly ahead of Q4 22, and quite in the same level than in the previous quarters, despite of the fact that we have very inflammatory environment still in the business. Then moving back to group level figures, Very important two graphs here. KPIs written on capital employed on the left-hand side. Clear and good improvement from the end of last year, which is definitely one of the highlights of this Q1. Also two components there. improved rolling 12-month EBIT, improved earnings, together with stabilized capital employed development. As we stated throughout the last year, our capital employed has been increasing very fast during the previous year, mainly because of the 20 million euro hybrid bond that was issued in the beginning of 22, and now in rolling 12-month terms, of course, we have we have the full impact of that included in the capital employed side. Which also partly supports the return on capital employed percent. And return on equity also slight improvement from the end of last year. Then leverage, as mentioned. I will mention this one once again. Again, on a good level, stable level, slight increase from the end of last year, two factors, acquisitions, but also depth service actions that we did in the first quarter. And new graph, new metrics, cash conversion, here on the right-hand side. So, the blue bar is rolling 12-month operative cash flow, and cash conversion also calculated on a rolling 12-month basis. So, how much operational cash flow is from the EBITDA. And we landed on 44% level here. Also, that is not there where we aim it to be somewhere 70 to 80 percent level on a longer run is the target level. And then finally earnings per share 23 percent growth compared to Q1 22. One thing should be mentioned here is still that this hybrid bond related interests are affecting on the comparability as mentioned in the bottom asterisks there but going forward towards Q2 and behind that hybrid does not have any impact anymore but 23% improvement in EPS without that impact the growth would have been a bit over 30%. And quarterly cash flow on the right-hand side, €0.8 million net operative cash flow in the quarter, periodic impact from the working capital increase as the season is starting in, for example, in our construction businesses. So that a bit impacted on the quarterly numbers. In Q2, as Kari mentioned, we expect positive impact from the sunny exit as the working capital impact is fully fully positively expected to impact on the cash flow. And 3.9 million euro cash flow from investments in the quarter, because of the two acquisitions that we made. And now we can proceed to Q&A. Thank you.

Thanks, Aku. And thank you for the questions that have been. have been posted. I would have wanted to publish them here, but I don't have the technical capability now to make them available for everyone. So I'll try to sum them up in a couple of themes. So first of all, starting with the capital efficiency related questions. So there is one question that asks, what is the working capital levels relative to sales we are aiming for with these portfolio companies that we own today. I mean, I will comment that two ways. I think the more important metric that we're looking at is the return on trade working capital KPI that now we are published now for the business areas for the first time. This is also the metric that um that is is the core kpi in in in driving the portfolio um and also which is tied to all of our um incentives uh as well uh so that level come i mean considering where we are close to third roughly 30 at this point of time uh we look to to to bring this uh let's say at least to the levels of 50 in the in the mid-term. So that is more relevant. When it comes to trade working capital in relation to net sales, I believe we are running at the moment somewhere around 18 to 20%. And I believe this portfolio of companies that we own today, we, let's say, on a sustainable basis, it should be around about 50% the number that we were looking at rather than closer to 20%. Then also, I would say cash flow or cash flow related questions on this. sunny related topic uh i think i clarified this already in the presentation uh but i'll restate restate that so um how large is the positive cash flow impact we expect from sunny that was roughly the two million number um that that we expect to see in q1 um then there is another question on sami uh that was there a sales impact from during the quarter of 2 million as well. No, this was not the case. There was around about a half a million euro sales impact through Sani in Finland and Sweden in Q1 numbers, but then the compensation to 200,000 euro we're talking about that is booked as a cost reversal into our books in Q1. and no sales impact from that. And do we expect any costs or impacts of this exercise still going forward? Yes, well, we have sorted out pretty much everything we have in the stocks. Now some sales are due to still uh happen uh through auctions uh auctions which are there so uh not a hundred percent clear visibility on what it would be what it will be but nevertheless on the profit and loss statement side uh we don't expect this to be anything material in in in q2 or or beyond so q2 that you will see some small things we will comment that and in the next quarter, but from Q3 onwards, we expect as of today to be in a way clear from those topics. Then if we move more to earnings side, there was a question on organic growth. Could you open up a bit the background from where that organic growth in the quarter, where did that come from?