Boreo

Very good morning and welcome to Boreos Q3 24 results webcast. My name is Karin Erk, I'm the CEO of the company and today with me is our new CFO Jesse Petäjä and we'll discuss the events of Q3 and the outlook going forward. Starting off with the presentation before we jump into Q3 happenings, I will shortly discuss the overall situation where we are as a firm. Then Q3 highlights as normal and then, yes, I will continue with more detailed business related comments and also some reflections on group financials. Followed up with Q&A and please use the chat function made available there if you have any questions and we will address those then at the end of the presentation. So starting off with our strategic targets and now let's an update where we are. So as the headline says, the overall situation of the firm remains as a challenging one as it has been the last couple of quarters. So mainly driven by the significant decline in sales we've experienced throughout the portfolio. We are currently far away from our strategic targets. Profits have declined from the peak of roughly 10 million euro a year ago to a level of roughly 7 million euro at the moment. Returns from up from 13, 12% to 8% driven by the profit. decrease and then leverage, on the other hand, elevated now above 3x, which is our max target range for indebtedness and clearly work to do in order to get the company back on the track where we would like it to be. The main reasons behind miscommunication today in our release are especially the pre-poreo era portfolio having struggle on the customer side, so sales challenges, lack of demand in the industrial side, and also mainly because of the reason that many of those businesses are quite capex related in terms of their demand. So that clearly hits us in terms of our performance today. Also, the fact that the Finnish economy is not doing well, and the majority of our portfolio being focused on the Finnish market is a clear reason behind the challenging performance and current trading, as you can see from the figures. Here's a slide I brought to bring you a bit of additional detail from the portfolio. The ones who have followed us have seen this. before as well, basically here categorizing our companies acquired since Q3 2020 and the pre-2020 portfolio. We do see that both of the parts of the portfolio have experienced declines in their profitability. However, the decline has been much more rapid or dramatic in our old portfolio, so especially challenges in machinery, Tornokone, our Finnish putsmeister business, as well as the former YI International Yleis Electronica portfolio. So a clear drop from up from roughly 6 million euro down to 3 million euro in rolling 12-month profits, as opposed to for the new portfolio, from roughly 6 million euro to 5 million euro. So the new portfolio has performed better, even not as we have expected, but anyways, showed more resiliency during the tough times in the market we have experienced. Finally, then on the group cost side now, we can see that there's roughly a half a million euro decrease in our rolling 12-month group cost level but we expect going forward the group cost also to reduce by roughly 0.8 million euro on an annual basis as the actions related to group related functions have been taken now during this year. Even though The company is in a challenging situation at the moment. We continue to be confident on our ability to create long-term value. The business model as such works. We do believe in our ability both to develop and own our businesses and also showcasing, if you look at the roughly 60 million euro we've invested in the last four years to acquisitions, we still continue to be at around a 15% return number for those acquisitions, which is partly supported by also the decrease in our deferred purchase price payments, which declined significantly during this year and the following. However, a good indication that even though the overall picture looks challenging under the Inside the firm, there is a good and sizable share of the portfolio that continues to perform rather well. So overall, if we look at what we expect going forward, we continue to be confident that when the market conditions start to gradually improve, there is a clear improvement potential in the portfolio. Finally, then on the big picture, we have updated our strategy last spring, not only focused on acquisitions, which are an integral part of the long-term value creation plan and the business model, then also the investments that we continue to make to support the organic growth of our companies. But as we see, due to still the portfolio not fully reflecting what we would like to see the portfolio to be. We continue to, and we have already implemented a number of reorganizations in our businesses, mainly in the pre-Boreo era businesses, which have already improved the cost competitiveness of those companies. and also then support profit generation once market conditions improve. So even though we're not at the moment fully focused or as heavily focused on searching for new acquisition targets, we do work with a number of M&A cases at the moment and if we have a chance to complete acquisitions in a manner which which support and are enabled, considering the overall situation of the firm and the financial standing, we are open for those type of actions as well. However, primary focus, as we've discussed the last couple of quarters, is in the existing portfolio, making sure costs are in control, and also making sure that working capital is on a level that continues to still secure sufficient and reasonable returns on an operational basis. So those were a couple of reflections on the big picture and then continuing with Q3 24 highlights. So even though we experienced a heavy decline and a significant decline in sales, roughly 30% compared to last year, we were still able to secure a decent or a moderate profitability of around about 6%. So a significant decline compared to Q3 2023. However, if we look at The development throughout 24, we've been able to bring the profitability back from a poor level of Q1, now in Q2 and Q3, still on a reasonable basis and expect this also to continue in the coming quarters. One of the most positive messages now out of the report and our performance is that the cost actions we've taken continue to kick in better than we initially anticipated. So we communicated six, nine months ago that we target roughly one million euro annual fixed cost savings. Now we are going above a two million euro mark. So in this specific Q3, The costs were roughly a million euro below compared to a year ago, which would indicate even a much more sizeable cost reduction, but we expect that there will be some pickup in the coming quarters versus this quarter. So safely a number of 2 million and hopefully somewhat more to come on the cost saving side. The trading outlook continues to be decent, so our order books throughout the quarter, they improved compared to the Q2-24 situation, and they're roughly at the level of Q1-24. As a minor negative happening was that our sizable single orders in our PM Nordic putsmeister business in Sweden, they were postponed now to 2025 due to postponement of chassis deliveries for those concrete mounted pumps. However, they continue to be in our order books and we expect a strong 2024 then for our Swedish Putschmeister operations. Priorities as before, profit generation, deleveraging. Leverage is clearly elevated at 3.3x. Considering that we have the hybrid instruments on our balance sheet, this is clearly too much. However, at the same time, we continue to have a good level of comfort in our ability to steer the firm through these challenging times and have enough liquidity to support the operational performance of the group as a whole and our companies. Then running briefly through the more detailed slide. So here I think is the, here clearly is the main reason for our poor performance. Sales on a rolling 12 month basis now have declined from over 170 million euro down to 130 million euro. So a heavy 40 million euro decline. If we look at where that mainly comes from, as also in the previous quarter, still the goods pastor business continues to account for a significant part of that decline. At the same time, the positive news from that business is that we clearly continue to dominate the marketplace in all of our three markets, so we haven't lost any market share during the challenging times. And as a result, once the market returns, we do expect to be in a good position to generate profits in line with the recent history as well. Machinery has had a tough year, primarily in our construction-related business, also the metal machining part and partially our power business. Now we completed in the beginning of Q4 a demerger of machinery to the separate parts and expect that then also strategically support the development of those companies going forward. On the positive side, on the margins, we talked about the fixed cost side of it supporting our profitability. The gross margin profile continues to be as good and positive as it was already in Q2 and partially already in Q1. So even though sales declined, the sales mix and the good work that our people have done in the companies, we still continue to generate or we generate on a relative basis better gross margins. So clearly over 5% was better than a year ago. We do expect that once our sales start to go up again, the gross margin profile will come down closer to where we've been before, but definitely not back to the 25% levels where we have been, because we've closed quite a lot of small businesses inside our portfolio, which do not do not continue to be in the future there anymore. Also, the acquisitions we've done in 23, especially at the end of 22, they have also clearly improved the gross margin profile of the portfolio. But the positive development as such. Cash flow now, we didn't quite meet our objectives in Q3 with regards to working capital. So we've continued to communicate in the last last quarters that we target to bring the trade working capital down to roughly 25 million euros. Now we are at 28.5, a half a million euro increase versus Q2. We have succeeded well in lowering the inventory levels in our businesses, so roughly a 10 million euro reduction since summer 2023, so where the inventories were at their peak. However, the development on accounts receivable, accounts payable have not been favorable so that it would be reflected as heavily in the overall and total trade working gap numbers. So we do continue to see that with these levels of sales we experience at the moment, We have a chance to bring working gap down to roughly the level of 25, but it will take some time. So we do expect positive development in the coming quarters, but in a bit more slower pace than we initially anticipated. Well, returns are negatively impacted by the profit decline we have experienced, so both on the group side, but also then the return on trade working gap metric that we follow in all of our companies, a bit more stable development in our electronics portfolio compared to the technical trade portfolio. But anyways, on a group level, significantly down and not where we believe these portfolio companies can be. Final slide from my side. So as we communicated in the report, we do see that there is a decent performance outlook there in the coming quarters. So supported by the increase of order books, as explained, the construction logistics. Sweden deliveries are now delayed to 25, a part of which we expected to materialize in Q4 2020. four but then i think now expecting first deliveries to happen in in q1 uh 25. um a very good and pleasing development of order books especially in our signal solutions business and milcon so two electronics companies um signal signal solutions had a tough 23 but now clearly uplift has happened and we expect that also to continue in Q4, especially in our Finnish and our Polish single solutions businesses. Costs decline as planned or more than we communicated before. So, cost action have been taken both at the HQ level, but then particularly in our old portfolio companies, Yleis Electronica here in Finland, YEE International, Estonia especially, where we've gone through a reorganization and we'll continue to, as a result of that, to pursue a sales process of our real estate also in Tallinn, and then machinery also, which has gone through a reorg throughout the year. The most positive outlooks going forward continue to be Milkon on the defense industry side, Delphin Technologies is stable, stable trajectory in our health technology business filter it our process filtration water treatment business even though some some challenges throughout the year with regards to industrial demand but anyways a quite stable outlook as is the case with with our career logistics business eskb here in here in finland so we do see i mean we we don't In the big picture, we don't see that the market would have already started to pick up dramatically so that there would have been a significant change of play on the demand side. But we do have more orders and a stronger order book. The costs are lower. So even at quite moderate level of sales, the company is able to generate profits, which is positive and it creates confidence towards the future. So that's it from my side and then I hand over to Jesse for further more detailed review.

Yes, thank you. So looking at the financials in more detail for the third quarter. We reached sales of 28.4 million euros in a quite challenging market. reflecting a 31% decline from the previous year when we had 41 million euros in sales.

As Kari mentioned previously, a large part of this decrease was due to three components.