Boreo

A very good morning from Vanta, from the Boreo headquarter, and a warm welcome to Boreo's Q1 2024 earnings call. Myself, Karin Erk, the CEO of the company, and Akku Rumpunen, our CFO, we will discuss the highlights of 2024, the first quarter, and followed up with the presentation, then we'll take any questions you may have, so please use the Q&A function that is there and made available for you. So I will start with highlights as usual, and I will then discuss and go deeper into the business performance then afterwards. Well, the start of the year was challenging for us. So performance wise, we recorded a weak result, mainly due to decline of sales. So continued weak demand throughout our portfolio led to a negative organic growth of 9 million euro and an operational EBIT of 2%, so 0.6 million euro. On the positive side during the quarter, as in the previous quarter as well, we've been successfully managing our balance sheet and working capital, a strong operational cash flow of over 6 million euro, which is partially impacted by some timings of working capital items at the end of the quarter, but nevertheless continue to release capital out to the balance sheet and to adjust the working cap levels at the lower level of activity we've experienced, especially in the last six months. Also on the positive side, the outlook is improving both as a result of increase of our order books that we've seen in the first quarter of 24, as well as the cost optimization actions we've taken during the last six months. One of the highlights of the quarter was also the completed refinancing of our 20 million euro hybrid. So successful completion of that transaction in March 24. Good to note, looking at the figures, we redeemed basically 16 million of the old hybrid. In connection with this process, 4 million euro of the old hybrid is still on our balance sheet and impacting both the cash position and leverage that was at the end of the quarter at 2.4x. And finally, if we look at the short term now, clearly focus is working as we've communicated in the last six months. Well, the focus is on improving the performance of our existing portfolio, also kicked off processes to work with our companies to reach the 50% return on trade working capital KPI that we have communicated as part of our strategy update in February 24. So I will discuss these points in the next slide a bit more in detail. Before going there, a bit of an outlook or an update to longer-term performance. Now, after three years of significant earnings growth, also improvement of financial profile of the firm, clearly due to the low profitability in the first quarter, a slowdown or negative numbers we post now on profitability-wise, both then also impacting returns, so minus 18% of operational EBIT growth during the last 12 months, leading then to soft performance or the weak performance in Q1 to return on capital employed decreasing below 10%. So clearly, work to do to reach our targets, however, This is not a short-term game, but it's a long-term game. We remain confident in our ability to bring the company back on track and work towards our strategic targets. Now then going and diving a bit more deeper into the water performance. First of all, looking at sales, I think all these figures are all in 12-month numbers. The minus 20% decline in sales versus last quarter or the previous year is mainly a result of pressure and demand challenges that we've had throughout the portfolio. So it's not only about the performance of one or two single companies, but challenging times with regards to demand overall throughout the portfolio. Also, if we look at it more geographically, more challenges in our Finnish businesses at the moment compared to, for example, the outlook that our businesses in Sweden have at the moment. There were some one-off impacts, one could say, during the quarter as well. So due to the strikes which took place in Finland in March, around about 2 million euros of sales was shifted towards Q2 this year. Also, the exit we made last year of our Sunny Excavator business in Finland and Sweden contributed by a bit less than a million euro to the decline of sales. If you look at, I mean, on the acquisition side, we were still active. The latest transactions have been completed in Q1 2020. and then the acquisition of Delphin Technologies in Q3, 23, a slight impact, a positive impact of the acquisition to the quarters of 0.5 million euro in the figures we're posting now. With regards to margins, so first of all, with regards to gross margins, the same story continues what we presented a couple of months ago in our Q4 call. So our company successfully continued to defend and improve margins as well. Two impacts, I would say overall a better management of margins, but also impact of sales mix, so less machine deliveries of higher volume, looking at our sales mix at the moment. higher share, for example, of our aftermarket businesses, so contributing positively to gross margins. With regards to profitability, now a downward trend in both of our two business areas. And good to note that from the cost optimization actions we've taken, there's very limited impact seen in the Q1 figures. from those actions and we expect from Q2 onwards a more visible or basically the numbers and actions starting to kick in to our results as well. As I said in the very beginning, a continued strong cash generation on the positive side, looking at the way we performed in the beginning of the year. Of course, as a result of adapting the business to a lower level of sales and activity overall. I would say also a great share of this track with regards to cash generation is a result of the actions and the focus we put on capital efficiency and cash flow generation in 22, 23 and now in 24 as well. So the absolute trade working capital levels at the moment are at around 25 million euro, round about the target we've communicated the target in the short run during the last quarters. now in the next or the start of Q2, we expect this level to somewhat increase temporarily, but to return back to these existing levels toward the end of the year. But overall, a good performance from our businesses and showcases that we are getting better and have gotten better in managing our balance sheet. The returns look temporarily to be of negative nature. I mean, this is the return on trade working gap metric that we track and steer in all of our businesses. So you can see that now after an increase and improvement in the figures until the age two pretty much or age one of 23 decline, decline of returns, the positive impact of reducing working gap is not enough to offset basically the decrease of operational EBIT that we've seen. Overall, if we describe the situation with regards to working gap levels, now of course we've come from way more downwards with regards to delivery times. Our businesses are able to operate at low levels of working capital, given that delivery times from our suppliers are way shorter than they were a year ago, also giving us the opportunity to flexibly adapt and react to changing market environments. Going a bit more on the positive side and taking a view towards the remaining of this year, we expect that the improved order books and the implemented cost actions we've already taken, we support the profit generation of the company now in 2024 and going forward. So we saw that the order books reached their bottom at the end of 2023 as a result. We also took significant amount of actions to adjust the cost base accordingly. Now in Q1, as said, a positive trend that we are seeing, that we saw in our order books, especially in some of our largest businesses, like machinery in the power business, a good development in the order book in Q1-24. Also at PM Nordic, our Budsmeister business in Sweden, a sizeable single order that we received deliveries expected in Q3, Q4. Also then next year, pretty much securing revenues for this year, in line with recent practices. Also at Floorby New York B-Werkstad, F&B, our timber truck mounting business, a strong start in the year. Good development of order books followed up a challenging 2023. Cost actions, as we've already noted beforehand, we've taken significant amount of action in the various companies where the outlook was deteriorating more significantly. So both actions taken on the HQ business areas, but also then in the businesses, these actions pretty much have been now completed and we expect to expect the positive impact of the result to be visible from Q2 onwards. Then even though Q1 overall in our companies was a tough one, there is a number of companies in the portfolio which continue to have a positive outlook towards the future, Milkon supported by the defense industry developments, Delphin technologies, filtered and process industry, and also ESKB in our logistics business. So overall, a part of the portfolio that perform stably, expect to also do so and improving going forward. Then the last two slides, which regards to a bit of a more longer-term perspective. So even though, I mean, we live now a tough time in the company with regards to short profit generation. However, if we look at what our vision is, how we operate today, what our strategic targets are, we continue to be confident in the value creation potential that the firm has. The businesses are managed from a leadership point of view better than they have been managed before. The rules and the framework that we created as an owner is better understood than before. And I think we are on the right track in developing a successful business going forward. Now times are tough. We are taking action to secure short-term profitability to be there for the longer term. And finally, if we look at kind of short-term priority, I will summarize that clearly our number one priority is to bring the company back to growth track. When we get the update, the strategy that we communicated in Q1 2024, three pillars, acquiring the types of companies we pretty much acquired in 2023, investing to the companies where there's significant room for growth at attractive return profiles, And number three, then, in the short run, completing reorganizations in those businesses which are not performing in accordance with the criteria that we set for our businesses. Now, today, we are in a situation due to short-term performance challenges. The balance sheet, pretty much, we're not able to fully capitalize on number one, so acting on the acquisition side. and clearly the priority is in the coming quarters to continue to work with our companies to ensure profit and cash flow generation and then working with the companies to implement the actions in order to make the companies more more competitive in the longer run. So all resources pretty much focused to do this work and confident that both results in the short and then on a more medium term will be there. And then we are able to fully utilize the playbook that we use to generate value in the longer run. So I end up with that and head over to Aku for more review of all the businesses.

Thank you. Let's move on when the slide changes. Just a second.

Oh, it's there.