Boreo

Good morning from the Boreo headquarter. Welcome to the Q4-25 results presentation. I will start the session here shortly briefing on the announcements that we made earlier this week. Following the press releases and communication from Q4 25, our new CEO Tuomas Kahri has been announced to start in his position now in the beginning of April 26, so basically in one and a half months time. In addition to Tuomas joining the firm as a CEO, He will also lead one of our two business areas, which is the technical trade business area. And following the changes in communication, the management team from 1st of April 26 onwards will consist of four individuals, Tuomas as the CEO and head of technical trade business area, Mari Katara as before as the responsible people and sustainability topics, Tommy Sundberg of the electronics business area and Richard Carlson as a SVP of the technical trade business. So just to clarify briefly, there's been a few discussions in investor forums on this, basically with regards to the company related responsibilities from the group side, the changes Tuomas will head in the future in addition to being responsible of the entire technical trade business area a few businesses in the portfolio so he will be chairing those companies on the electronics business area side it is Tomi Sundberg and also Joni Sollo our vice president in the electronics business area who both together chair the electronics businesses And then on the technical trade side, in addition to Tuomas and Richard covering roughly half of our companies within the business area, it is the two gentlemen, one called Joonas Korkiakoski, the existing or the current managing director of filter it has been promoted as the vice president of technical trade and michael tasa in estonia the managing director of our asian nordic business who are the chairman of our businesses so this just as a clarification of the responsibilities um following the the changes announced in addition to the the changes on the uh on related Tuomas and the management team. The company has decided not to recruit the CFO for the time being, following the coming departure of Jesse from the firm. And we've appointed a gentleman called Rafael Osmanov as an interim head of M&A and financing, in head of M&A and financing position. and Sami Hanerva who's been with us since year 2020, responsible for our, among other things, our external financial reporting to date. There are additional, let's say, responsibilities for Sami covering also internal reporting and other items in the future. So these are pretty much the changes related to the organization on the group side that have been communicated and the organization is eagerly waiting for Tuomas to join and for the new leadership team to take the company forward to the next phase of growth. With that said, we continue to the presentation. I will recap the 25 year as a whole. Briefly, the key highlights there. Yes, I will continue with some specific comments on Q4 25 and also related more in depth related to our business areas and businesses. And then I will end up with a couple of words on the outlook for 26. And as usual, we will finally take questions that you can ask during the session. Moving on, once we get the slides working again. So year 2025, in brief, we're happy to see that we were able to return the bank company back to growth following a challenging year 24. So growth Growth of sales, 14%, increase of operational EBIT by 17% is a strong result in continued challenging operating environment. In addition to improved revenue and profitability developments, um uh we we we continue to to generate strong uh operative cash flow uh so all together if you look at our track record in the last five years of managing our balance sheet and working capital and we continue to successfully manage the balance sheets over the cash conversion of 83 percent um with the support of the leverage with the support of improved earnings and also the financing arrangement we completed together with the norwegian insurance company protector the 10 million euro hyper convertible bond our financial position improved significantly in the last 12 months and now excluding for the two hybrid instruments we have on the balance sheet, the net debt to operational EBITDA stands at 2.1x at the end of 2025. Following a no acquisition year in 24 we're also pleased to return back to uh executing growth via acquisitions and and buying two companies uh first in q2 uh as well um so i was in the middle of uh commenting our long um uh long-term track record on strategic targets. So last five years, if you look at that, we've been growing profits on an average 17% basis. So above our 15% target. However, if we're looking at our capital efficiency targets and leverage, we have financial standing, we have work to do. The drivers and the playbook in improving returns in our situation primarily going forward will be around being able to grow the business, grow profits. The balance sheet, even though it does continue to provide us with opportunities to optimize our balance sheet to a certain extent, I would generally see that that we're managing the balance sheet in a rather good way in the firm today. So definitely going forward, the focus will be primarily around creating growth and growth of sales and through that improvement of earnings as well. With regards to 25 still, if we look at how we managed to improve profits by 17%, that's primarily driven by the 14% sales growth, of which 11% was organic. So looking at the contribution from, we did see a 3% contribution to the sales growth from the acquired to businesses. However, due to mainly the integration process ongoing within the YERS business. There was pretty much no additional profit coming out of these two acquisitions. So going forward as we're getting stuff in order and processes in order within the newly established YRS business in particular, we do expect for 26 a gradually improving performance of that new platform, which I think is nicely set up for long term success. The sales and profit improvement both was driven strongly by our technical trade business area. In particular, there were companies, the largest business machinery, the other span of business from the old machinery, Machinery MT, and the entire Putschmeister business portfolio that improved trading in the course of 26. In addition to having been able to record sales growth, we were able to continue improving our gross margin profile. So extremely pleased to see the long-term development where you see a drastic uplift of the gross margins in the last last years primarily of course related and due to having acquired businesses at higher margins so an improved quality of businesses within Boreo umbrella due to due to the capital allocation and investment criteria we put in place in the last years in addition to that we've done as you might remember from the history quite a lot of stop and accelerate decisions, so to say, within the portfolio and within our companies. We've closed down low margin businesses, done decisions to invest in growth in businesses with with higher quality service, higher quality, higher margins in general. So pleased to see that this trend has been positive in the last years. Now, of course, there's some impact of the sales mix as well. We will hopefully in the coming years see an increasing volume of higher and large volume deliveries of machines in in certain businesses, and if that's the case, then those businesses will dilute the cross-margin somewhat, but definitely not expecting to go back to the historical levels, but continue to operate with this existing portfolio close to the 30% mark there. As I already said in the beginning, I mean, looking at cash generation in the last five years, we're close to the six years here altogether. We've generated operative cash flow close to the total sum of operational EBIT generated during this period. So quite a strong track record there in managing mainly working capital. Now at the end of 2025 trade working capital stood at roughly 29 million euro. We expect to there to be some optimization to be done going forward as well. Of course then depending on our ability to grow the business there's some investment that needs to be carried out to inventories as well, but we do expect us to be able to continue managing balance sheet quite prudently. Two slides with which have a bit of more of a longer term perspective I wanted to note here again that I mean following the return to M&A with the two priorly mentioned acquisitions we've now deployed roughly 50 million euro of capital into acquisitions the last five and a half years Even though we're not quite there where we expect it to be from a return point of view at this stage with regards to these acquisitions, we've generated in tough environment roughly a plus 15% average return for these acquisitions. Going forward, looking at the positive outlooks, for example, for our defense business Milkon, filter it, Delphin Technologies and generally a stable portfolio and good portfolio of companies we've acquired. I think there's a clear potential in the future also to post quite a lot of improved return metrics as well. So the engine, the one of the two value creation engines here, the allocation of capital to buying companies at reasonable valuations with high quality, characteristics. I think this is a good showcase that even with all what has happened here in Finnish and Baltic economies in the last years, we've done a rather good job in creating returns for the capital invested. And finally, before turning over to Jesse, a brief look to the capital allocation track. So you can see from here that the big uses and sources of capital point of view are basically the two big plus 50 million euro from an EV point of view deployed to acquisitions which has been primarily funded by the operating cash flow of the from the businesses so the plus 50 million euro in the last five and a half years. In addition to that mainly due to the losses related to the loss of our Russian business and challenges we tapped into and strengthened the balance sheet through the hybrid instruments and I think going forward definitely the objective is to arrive into a situation by further deleveraging and strengthening the balance sheet to be able to fund more and more of the growth, the acquisitive growth through cash flows of the business. But looking at all that, I'm pleased to see that we've been able to now in the last years to improve or increase the importance of operating cash flow in financing the growth initiatives as well.

With that said, please take over and review the Q4 part. Thank you. A brief look on the Q4 financials. This was our fifth consecutive quarter with organic sales growth. Sales being 46.3 million euros in the quarter, which represents a growth of 18% from the previous year. Of this, 12% was organic growth, which is a very good performance from the portfolio. Gross margins were at 28%, slightly down from last year. This was mainly due to sales mix and some larger deliveries in the technical trade business. Operational EBIT at 2.8 million, very strong 33% growth from last year, with also margins improving. up to 6% on an EBIT level. This also, as Kari mentioned, for the full year on the cash flow basis, we had a very strong cash conversion of 176%, which was supported by a reduction of net working capital of close to 3 million in the last quarter. On top of this, order books also continued growing, both compared to the previous quarter and then last year's Q4. And we are seeing signs of some improvement in the industrial side for the demand there, while the construction sector continues to be on the slow side, at least in our portfolio and distribution businesses. On the return on capital employed, also had an improvement up to 8.8% for the last 12 months and return on trade working capital due to the increased profits and management of working capital has also increased to 27.2%. Leverage as Kari mentioned due to increasing profitability and a strong cash generation is going to a right direction then combined with the convertible hybrid that we did during the summer in 2025. Then if we look at the business areas on a closer level We have a bit of a division here how Q4 went for the business areas. So electronics defended their profitability somewhat despite a decrease in sales. So sales decreased by roughly 13% from last year being at 17.2 million euros. This is mainly driven by lower sales at SSN which had a very strong Q4 in 24. Operational EBIT similarly at 1 million euro with EBIT margin decreasing to 5.8 percent Despite this, the business area had a quite solid working capital management during the quarter and the year return on trade working capital being at a 44% level. And on a business side, Milkon still performing up to expectations and SSN continuing with the solid performance with both of them expecting a positive 26 development as well. short-term outlook in general for the business area is stable although there's uncertainties in the environment and we see that in some of our customers in the broader sense. Order books on the other hand on a positive side continued increasing from both Q3 and last year which will then support us going into 26 and the business area is implementing efficiency measures which we see continuing supporting profitability going into 26 taking into account that we have some investments in H1 coming up in electronics involving ERP projects and such which will somewhat be visible on a short term but improve profitability for the business area in general going forward. Then if we take a look at technical trade on the other hand which had a very strong sales growth, significant increase in profitability. So sales grew by roughly 50% up to 29 million euros. This was driven by a strong performance in the whole business area in general, but especially due to machinery, machinery MT and the Putzmeister businesses having strong deliveries at the end of the year. Operationally, very strong 2.2 million grew by 143 percent from last year and EBIT margin similarly increasing to 7.4 percent. The business area has also due to the increased profits and then well managed working capital increased return on trade working capital to 30 percent by the end of the year and in general the positive performance comes from several of our businesses but especially The companies serving process and mechanical engineering industries performed very well and the profitability improved progressively towards the end of the year. Order book side, similar story to electronics, grew from both Q3 and Q4 from last year. And here we had especially strong growth in order books for both machinery and PM Nordic into 26. with some larger deliveries being weighed towards the end of the year or H2 26. Short-term outlook in general overall reasonable but there's progressive improvements in different clusters and sectors within the business area which are developing very well and then as mentioned the construction sector is coming back a bit slower. and finally for our Q4 recap a revisit to our financial position this is unchanged from Q3 so we have total facilities of 76 million euros in use or at our hands and 59 million of this is in use excluding some commercial guarantees and credit facilities in some of our subsidiaries. But from these, our senior debt has maturity dates in 28, as discussed in previous quarters. This was rolled over from 27. And then our main focus for the financing in the coming year and year and a half is our 20 million hybrid, which has a reset date in Q1, 27. But overall the liquidity position is solid on a solid basis going into 26 and our financial facilities are in a good place. We have 5 million of debt repayments coming up in 26 supported by a strong cash flow generation and good liquidity position. That's it for Q4.

Before going into the questions which have been posted now and I've published all of them in the portal as well, summing up the outlook which we both sort of commented here. So I mean, we see that the position going into 26 is clearly better than the year 25. The order books, our order books, as Jesse mentioned, in both of the business areas are stronger compared with the situation a year ago, also the same goes comparing that to the last quarters. Generally, the market conditions are still not close to being good, but it depends In general, the challenging environment and modesty, I think, is there for the Finnish economy and the Baltic economies as well. We are positioned in certain niches where the development is really strong, namely the defense industry driving, a strong development at Milkon especially, but also a bunch of other businesses as well. For example, machinery, our metal industry related businesses here in Finland. On the other hand, construction sector, it continues to be tough. And for example, the outlook here in Finland, that doesn't seem too promising for this year. Summing that up, we do see a solid foundation for earnings improvement in 2026. An important comment goes around the weighting of our order books. So it is from looking at the last five to six year history, I think there is a higher than normal weighting of the order books toward the second half of this year. These orders relate to primarily technical trade, business area businesses, the Bootsmeister businesses, machinery, MT and other companies as well. When we couple this with the mentioned ERP renewal projects and the costs attached to those, which we will be quoting roughly a number of half a million euro, related to these projects. The way we see the world from the company side today is that the earnings improvement is expected to be weighted more toward the end of the year. With regards to priorities, clearly the focus here as always is in developing our existing businesses to continue to support and allocate resources also from the group side in the highest potential situations and companies where we can generate earnings growth this is something where we are I think in a good position with regards to the quality of management in our business and the work done in the recent years to sort of improve the quality of the portfolio deleveraging is a priority considering the upcoming refinancing exercise that will be there for therefore in the short run and thereby when looking at new acquisition targets it's always in this situation important to make sure the company is well positioned toward the refinancing as well. But all in all, I think, given this will be the last results update from the both of us, I mean, we're pleased with the situation of the company, having been able to bring the firm back to a a good situation i would say uh the growth prospects are are there and and then i think uh with thomas's uh leadership and the existing team i think the firm is well positioned to to continue creating value for the shareholders in in in the coming uh coming years uh with that said we go to q a um there are some questions that have been posted thank you for For those, if I go one by one, starting from the top, the first question goes, how about technical trade order book versus year before? I think we both commented that already there. So a strong improvement, mainly driven, I mean, I think a general improvement, but the clear uplift there, which we can see, which I would call material relates to the quoted uh puts masterpiece as an example and also uh the machinery and machinery empty uh businesses there's a second question then goes is there any of any one knows behind the good operational result um no there are no no one else we've been communicating um earlier around any adjustments done on earnouts or similar and so forth. But there are no such things now impacting the result. There are then three additional questions. Starting first with the business areas. Number one is on a bit more of a positive side. Technical trade was much better than we expected. Was there any one-offs or do you foresee a better market for your subsidiaries going into 26? Well, the one-off piece we already touched upon, so no. The market conditions On an aggregate basis, the market conditions are better than a year ago. The variation between the units within technical trade business area, that scale is quite vast. On the other hand, I don't foresee and we don't see the market conditions being I would say in any of the businesses worse than a year ago so I think that tells quite a bit on the trend the world is what it is it's a bit of I guess uncertain is the the word of the day, but the information we have today, I think we can be quite confident that the direction for that business area is right. Continuing a bit of a similar question with electronics, was the weakness within electronics due to tough comparables or is the market environment getting worse? It is definitely purely the quarter to quarter comparison was mainly due to a really strong performance of SSN last year in Q4. um and we can also post it strong uh on a reported basis now a stronger result a year year back but but but the milk position has improved quite significantly during the year and we've done a lot of investment in 25 including also the q425 which are push down margins so those are so from a quarter to quarter comparison to two major things impacting the result The third thing is then the YERS business and the integration phase, which we both mentioned that the profit contribution from that operation now in the result in the entire H225 was quite limited. But we do see that in the course of 26 we're on a positive track with being able to gradually go toward the expectations we had going into the transaction as well. The market is not getting worse or we don't see the size of market getting worse in the electronics trade business area either. there's a in our opinion quite significant operating leverage there when the component trading businesses start to pick up hopefully with some support from the market so that's I think something to keep in mind now the growth initiatives we've been generating those are sort of as a result of investments done into businesses such like Milkon, Delphin Technologies or YERS as well And then finally, a forward-looking question. As your financial position strengthens and you become more active in acquisitions again, have you observed any changes in the competitive landscape for acquisition targets in recent years, particularly regarding the activity of serial acquirers in Finland? Well, I would... I would frame it this way. The competition has increased in Finland as well in the recent years. It continues to be rather The amount of parties operating in the space continues to be somewhat limited. We do see in transactions the Swedes being there. Also some increasing activity from Finnish actors, but there's definitely a room to play there and an interesting market to continue working with. But in general, I think it is getting into a direction a bit and there's more interest toward towards this space as well, in my opinion. Provides for Boreogut, however, a good market to continue to be active and searching for acquisition targets, which might be totally new platforms or specifically as we're working in the business with proprietary sourcing, looking at potential acquisitions to existing companies.