Q2 2026 Boreo Oyj Earnings Call
Speaker #1: So, good morning and welcome to Boreo's Q2, 2026 results webcast. We're sitting here in Vantaa at Boreo's headquarters, and I have here with me our Head of Financing and M&A, Rafael Osmanov.
Tuomas Kahri: Good morning and welcome to Boreo's Q2 2026 results webcast. We're sitting here in Vantaa at Boreo's headquarters, and I have here with me our Head of Financing and M&A, Rafael Osmanov. Rafael is here to support me with the questions and facilitate the answering of those in a little bit. As an agenda today, we are covering three main items. First we start with the highlights, and I'll go through a little bit of our strategic focus areas for the year. We'll look at the Q2 and the H1 2026, both from the group perspective and from the business areas. We'll have a Q&A session at the end of the session today. As maybe kind of highlighting where we are today, it's the seventh consecutive quarter that we have organic growth.
Tuomas Kahri: Good morning and welcome to Boreo's Q2 2026 results webcast. We're sitting here in Vantaa at Boreo's headquarters, and I have here with me our Head of Financing and M&A, Rafael Osmanov. Rafael is here to support me with the questions and facilitate the answering of those in a little bit. As an agenda today, we are covering three main items. First we start with the highlights, and I'll go through a little bit of our strategic focus areas for the year. We'll look at the Q2 and the H1 2026, both from the group perspective and from the business areas. We'll have a Q&A session at the end of the session today. As maybe kind of highlighting where we are today, it's the seventh consecutive quarter that we have organic growth.
Speaker #1: Rafael is here to support me with questions and facilitate the answering of those in a little bit. As an agenda, today we are covering three main items.
Speaker #1: So first, we start with the highlights, and I'll go through a little bit of our strategic focus areas for the year. Then we'll look at the second quarter and the first half of 2026, both from the group perspective and from the business areas.
Speaker #1: And then we'll have a Q&A session at the end of the session today. As maybe kind of a highlight of where we are today, it's the seventh consecutive quarter that we have organic growth.
Speaker #1: Our operational EBIT grew by 19% during the from comparing to the last year's same quarter. We had a strong cash flow. Cash flow actually increased quite significantly.
Tuomas Kahri: Our operational EBIT grew by 19% comparing to the last year's same quarter. We had a strong cash flow. Cash flow actually increased quite significantly. At the same time, we've been able to decrease our leverage, i.e., to get some of our debt levels to go down. That allows us to focus on the business and to, in the future, focus more and more on M&A activities and developing our balance sheet to become even stronger than what we are today. Maybe that's kind of the highlights of the presentation today, but let's go through it in a little bit more detail. Sales grew by 12% to EUR 45.1 million. Out of that, 7% was organic. Our operational EBIT increased by 19% comparing to Q2 2025, and it was EUR 2.6 million.
Tuomas Kahri: Our operational EBIT grew by 19% comparing to the last year's same quarter. We had a strong cash flow. Cash flow actually increased quite significantly. At the same time, we've been able to decrease our leverage, i.e., to get some of our debt levels to go down. That allows us to focus on the business and to, in the future, focus more and more on M&A activities and developing our balance sheet to become even stronger than what we are today. Maybe that's kind of the highlights of the presentation today, but let's go through it in a little bit more detail. Sales grew by 12% to EUR 45.1 million. Out of that, 7% was organic. Our operational EBIT increased by 19% comparing to Q2 2025, and it was EUR 2.6 million.
Speaker #1: And at the same time, we've been able to decrease our leverage. So I expect some of our debt levels to go down.
Speaker #1: That allows us to focus on the business and to, in the future, focus more and more on M&A activities and developing our balance sheet to become even stronger than what we are today.
Speaker #1: So maybe that's kind of the highlight of the presentation today. But let's go through it in a little bit more detail. Sales grew by 12% to €45.1 million.
Speaker #1: Out of that, 7% was organic. Our operational EBIT increased by 19% compared to Q2 2025, and it was €2.6 million. That takes the margin up to 5.7%, compared to the comparison period when it was 5.4%.
Tuomas Kahri: That takes the margin up to 5.7% comparing to the comparison period when it was 5.4%. I'll talk about return on capital in the next slide a little bit more and also the leverage bit. Let's look at the operative net cash flow, which was EUR 1.6 million. That's a significant change from last year's same quarter when it was EUR -0.5 million. The rolling 12-month cash flow is EUR 11.4 million, and that compares to EUR 7.6 million in 2025. A significant improvement on the cash flow. If we look at the order books, the order books are growing well, I would say. If we compare it to the Q2 2025, we are over 25% above those levels in the order books overall.
Tuomas Kahri: That takes the margin up to 5.7% comparing to the comparison period when it was 5.4%. I'll talk about return on capital in the next slide a little bit more and also the leverage bit. Let's look at the operative net cash flow, which was EUR 1.6 million. That's a significant change from last year's same quarter when it was EUR -0.5 million. The rolling 12-month cash flow is EUR 11.4 million, and that compares to EUR 7.6 million in 2025. A significant improvement on the cash flow. If we look at the order books, the order books are growing well, I would say. If we compare it to the Q2 2025, we are over 25% above those levels in the order books overall.
Speaker #1: I'll talk about return on capital in the next slide a little bit more, and also the leverage bit. So, then let's look at the operative net cash flow.
Speaker #1: Which was €1.6 million. And that's a significant change from last year's same quarter, when it was minus €0.5 million. The rolling 12-month cash flow is €11.4 million, and that compares to €7.6 million in 2025.
Speaker #1: So a significant improvement on the cash flow. And then if we look at the order books, the order books are growing well. I would say if we compare it to the second quarter of 2025, we are over 25% above those levels in the order books overall.
Speaker #1: We see that demand is somewhat improving in the industrial businesses. And of course, in the defense sector—which has been the case already for some time—the construction industry is still the one where we have a, let's say, more subdued situation.
Tuomas Kahri: We see that the demand is somewhat improving in the industrial businesses and of course, in the defense sector, which has been the case already for some time. The construction industry is still the one where we have, let's say, more subdued situation. It's also there showing some slight kind of signs of improvement. If we look at this from the perspective of the strategic financial targets, let's start with the minimum annual average of operating EBIT growth, where the target is to go above 15%. The result in that today is 18%, meaning that we have turned this into a green indicator at this point. On the return of capital employed, that grew to 9.6%, where the target is to be minimum 15%. Therefore that's still an area where we are not getting to the target level.
Tuomas Kahri: We see that the demand is somewhat improving in the industrial businesses and of course, in the defense sector, which has been the case already for some time. The construction industry is still the one where we have, let's say, more subdued situation. It's also there showing some slight kind of signs of improvement. If we look at this from the perspective of the strategic financial targets, let's start with the minimum annual average of operating EBIT growth, where the target is to go above 15%. The result in that today is 18%, meaning that we have turned this into a green indicator at this point. On the return of capital employed, that grew to 9.6%, where the target is to be minimum 15%. Therefore that's still an area where we are not getting to the target level.
Speaker #1: But it's also there showing some slight signs of improvement. So then, if we look at this from the perspective of the strategic financial targets, let's start with the minimum annual average of operating EBIT growth.
Speaker #1: Where the target is to go above 15%. The result in that today is 18%, meaning that we have turned this into a green indicator at this point.
Speaker #1: On the return of capital employed, that grew to 6.96%, where the target is to be a minimum of 15%. And therefore, that's still an area where we are not getting to the target level.
Speaker #1: And even then, the number grew fairly nicely compared to last year's situation. And then the third strategic target that we have is the net debt to operational EBITDA.
Tuomas Kahri: Even the number grew very nicely compared to the last year's situation. The third strategic target that we have is the net debt to operational EBITDA. There, our score is now well within the targeted range, which is between two and three. However, we are at 2.1 today. We get that number still yellow because of the fact that it does not include the hybrid loan that we have in that calculation. In reality, we are a bit higher in the measurement. How it has been calculated or how it has been reported, we are at 2.1 today. If we look at how do we, as management, spend our time, and how do we plan to increase the result of the company going forward? We have three main areas that we are spending a lot of time at this point.
Tuomas Kahri: Even the number grew very nicely compared to the last year's situation. The third strategic target that we have is the net debt to operational EBITDA. There, our score is now well within the targeted range, which is between two and three. However, we are at 2.1 today. We get that number still yellow because of the fact that it does not include the hybrid loan that we have in that calculation. In reality, we are a bit higher in the measurement. How it has been calculated or how it has been reported, we are at 2.1 today. If we look at how do we, as management, spend our time, and how do we plan to increase the result of the company going forward? We have three main areas that we are spending a lot of time at this point.
Speaker #1: And there, our score is now well within the targeted range, which is between 2 and 3. However, we kept this as we are at 2.1 today.
Speaker #1: And we kept that number still yellow because of the fact that it doesn't include the hybrid loan that we have in that calculation. So in reality, we are a bit higher in the measurement.
Speaker #1: But how it's being calculated or how it's been reported, we are at 2.1. Now, how do we as a management spend our time, and how do we plan to increase the result of the company going forward? We have three main areas that we are spending a lot of time on at this point.
Speaker #1: The first one being disciplined M&A. The second one being making sure that we have very clear roles for all the companies, for all of the operating companies that we own.
Tuomas Kahri: The first one being disciplined M&A, second one being making sure that we have very clear roles for all of the operating companies that we own, and thirdly, strengthening our balance sheet. Those are the three items where we spend a lot of our focus as group management. If we go through these one by one, the first one, the disciplined M&A, we have done some updates in our process. That just supports us that we have the right information and the right approach to the companies that are potential targets for us. That was done during Q1, Q2. While that was done, we have also substantially increased the level of activity of meeting potential acquisition targets, et cetera. That activity increase is now bringing some results.
Tuomas Kahri: The first one being disciplined M&A, second one being making sure that we have very clear roles for all of the operating companies that we own, and thirdly, strengthening our balance sheet. Those are the three items where we spend a lot of our focus as group management. If we go through these one by one, the first one, the disciplined M&A, we have done some updates in our process. That just supports us that we have the right information and the right approach to the companies that are potential targets for us. That was done during Q1, Q2. While that was done, we have also substantially increased the level of activity of meeting potential acquisition targets, et cetera. That activity increase is now bringing some results.
Speaker #1: And thirdly, strengthening our balance sheet. Those are the three items where we spend a lot of our focus as the group management. If we go through these one by one, the first one the discipline M&A.
Speaker #1: We have done some updates in our process, so that just supports us in making sure we have the right information and the right approach to the companies that are potential targets for us.
Speaker #1: That was done during Q1 and Q2. And while that was done, we've also substantially increased the level of activity in meeting potential acquisition targets, et cetera.
Speaker #1: And that activity increase is now bringing some results. We have several processes that are kind of going forward. And we are looking into closing some deals still this year.
Tuomas Kahri: We have several processes that are kind of going forward, and we are looking into closing some deals still this year. Let's hope everything goes well, and we can report that soon. Where we are focusing our M&A activities at this point is very much looking into the businesses or industries where we are already active at this point. Once we have done the clustering work, we have also defined several of these clusters to be ready for add-on acquiring and add-on M&A, and that's where we are mostly focusing at this point. The reason for that being is that we understand those businesses, we understand or we would be able to get some kind of operational synergies out of those companies. Also, thirdly, we understand the price level and pricing of those assets. That's the area number one.
Tuomas Kahri: We have several processes that are kind of going forward, and we are looking into closing some deals still this year. Let's hope everything goes well, and we can report that soon. Where we are focusing our M&A activities at this point is very much looking into the businesses or industries where we are already active at this point. Once we have done the clustering work, we have also defined several of these clusters to be ready for add-on acquiring and add-on M&A, and that's where we are mostly focusing at this point. The reason for that being is that we understand those businesses, we understand or we would be able to get some kind of operational synergies out of those companies. Also, thirdly, we understand the price level and pricing of those assets. That's the area number one.
Speaker #1: Let's hope everything goes well, and we can report that soon. Where we are focusing our M&A activities at this point is very much looking into the businesses or industries where we are already active at this point.
Speaker #1: So, once we have done the clustering work, we have also defined several of these clusters to be ready for add-on acquiring and add-on M&A.
Speaker #1: And that's where we're mostly focusing at this point. And the reason for that is that we understand those businesses. We understand, or we would be able to get, some kind of operational synergies out of those companies.
Speaker #1: And also, thirdly, we understand the price level and pricing of those assets. So that's area number one. The second area is clarifying the company roles.
Tuomas Kahri: The second area is the clarifying the company roles, where, as mentioned, we have clustered all the operating companies into the clusters and made sure that each and every one of the companies knows what is their role in the Boreo business. What we are doing there, as an example, is what we published 31 July. We actually divested one operating company, Lackmästarn in Sweden, which was a fairly small business, and we felt that it is in better home with the entrepreneur who is close to the business and who can personally run it, whereas we could not offer that as a part of Boreo. That's just one example of how the roles are being clarified within the operating companies. We are also sharing all the best practices among the clusters and the operating companies.
Tuomas Kahri: The second area is the clarifying the company roles, where, as mentioned, we have clustered all the operating companies into the clusters and made sure that each and every one of the companies knows what is their role in the Boreo business. What we are doing there, as an example, is what we published 31 July. We actually divested one operating company, Lackmästarn in Sweden, which was a fairly small business, and we felt that it is in better home with the entrepreneur who is close to the business and who can personally run it, whereas we could not offer that as a part of Boreo. That's just one example of how the roles are being clarified within the operating companies. We are also sharing all the best practices among the clusters and the operating companies.
Speaker #1: Where as mentioned, we have clustered all the operating companies into the clusters. And made sure that each and every one of the companies knows what is their role in the Boreo business.
Speaker #1: And what we're doing there as an example is what we published on the 31st of July. We actually divested one operating company, Lachmeston, in Sweden, which was a fairly small business.
Speaker #1: And we felt that it is in better hands with the entrepreneur who is close to the business and who can personally run it.
Speaker #1: Whereas, we couldn't offer that as a part of Boreo. So that's just one example of how the roles are being clarified within the operating companies.
Speaker #1: We're also sharing all the best practices among the clusters and the operating companies. Some examples in that area are, of course, when you have clustered your company around, let's say, customers or products or business model.
Tuomas Kahri: Some examples on that area is, of course, when you have clustered your company around, let's say, customers or products or business model, then of course, it's easy to share best practices in sales or best practices in customer service, and that's one area which we're very much focusing on now. Also the ERP projects we've been running this year, which are now basically all live. Those are, of course, also bringing kind of a best practice sharing among companies. All in all, both technical trade and electronics have strong order books. Since the ERP projects are bringing the results towards the end of the year, we feel that we have a very strong base from the H1 to continue our growth towards the end of the year. The third area is the strengthening of our balance sheet.
Tuomas Kahri: Some examples on that area is, of course, when you have clustered your company around, let's say, customers or products or business model, then of course, it's easy to share best practices in sales or best practices in customer service, and that's one area which we're very much focusing on now. Also the ERP projects we've been running this year, which are now basically all live. Those are, of course, also bringing kind of a best practice sharing among companies. All in all, both technical trade and electronics have strong order books. Since the ERP projects are bringing the results towards the end of the year, we feel that we have a very strong base from the H1 to continue our growth towards the end of the year. The third area is the strengthening of our balance sheet.
Speaker #1: Then, of course, it's easy to share best practices in sales or best practices in customer service. And that's one area which we're very much focusing on now.
Speaker #1: And also the ERP projects that we've been running this year, which are now basically all live. So those are, of course, also bringing a kind of shared best practice sharing among companies.
Speaker #1: All in all, both Technical Trade and Electronics have strong order books. And since the ERP projects are bringing results towards the end of the year, we feel that we have a very strong base from the first half to continue our growth towards the end of the year.
Speaker #1: Then the third area is the strengthening of our balance sheet. And, of course, the strong earnings and strong cash flow have been enabling us to continue the deleveraging of the company as was planned.
Tuomas Kahri: Of course, the strong earnings and the strong cash flow have been enabling us to continue the deleveraging of the company as was planned. Also, the cash flow will allow us to complete the acquisitions that we are currently looking into. We have EUR 4 million in our M&A facility still available for us. We see that the ability to complete the M&As that we have planned for this year is good unless something, of course, happens in the projects or so. At the same time, the declining or lowering leverage also enables us to look into the alternatives of In the little bit longer term to decrease the cost of our financing, we are looking into different solutions for capital structure development. That's very much in the focus of management for the year.
Tuomas Kahri: Of course, the strong earnings and the strong cash flow have been enabling us to continue the deleveraging of the company as was planned. Also, the cash flow will allow us to complete the acquisitions that we are currently looking into. We have EUR 4 million in our M&A facility still available for us. We see that the ability to complete the M&As that we have planned for this year is good unless something, of course, happens in the projects or so. At the same time, the declining or lowering leverage also enables us to look into the alternatives of In the little bit longer term to decrease the cost of our financing, we are looking into different solutions for capital structure development. That's very much in the focus of management for the year.
Speaker #1: Also, the past cash flow will allow us to complete the acquisitions that we are currently looking into. And we have €4 million in our M&A facility still available for us.
Speaker #1: So we see that the ability to complete the M&As that we have planned for this year is good, unless something, of course, happens in the projects or so.
Speaker #1: At the same time, the declining or lowering leverage also enables us to look into the alternatives of in a little bit longer term to decrease the cost of our financing.
Speaker #1: And we are looking into different solutions for capital structure development. And that's very much in the focus of the management for the year. Then if we continue with the quarter two highlights, some notes on that.
Tuomas Kahri: If we continue with the Q2 highlights, some notes on that. Let's start with the sales growth. As mentioned, we had a 7% organic growth and seventh consecutive quarter with the organic growth. We grew by 12%, and we brought roughly EUR 4 or 5 million more sales compared to Q2 in 2025. This brings us up to EUR 164 million in terms of sales. The non-organic growth, inorganic growth was coming from the two acquisitions we made in 2025. Acquisition of Spetselektroodi in Estonia and Elfa Distrelec operations, the business that we call YE RS, going forward. That brought us about 5% of the total sales increase in the H1. Both business areas continue with a strong growth this year.
Tuomas Kahri: If we continue with the Q2 highlights, some notes on that. Let's start with the sales growth. As mentioned, we had a 7% organic growth and seventh consecutive quarter with the organic growth. We grew by 12%, and we brought roughly EUR 4 or 5 million more sales compared to Q2 in 2025. This brings us up to EUR 164 million in terms of sales. The non-organic growth, inorganic growth was coming from the two acquisitions we made in 2025. Acquisition of Spetselektroodi in Estonia and Elfa Distrelec operations, the business that we call YE RS, going forward. That brought us about 5% of the total sales increase in the H1. Both business areas continue with a strong growth this year.
Speaker #1: Let's start with the sales growth. As mentioned, we had 7% organic growth and this was our seventh consecutive quarter with organic growth. We grew by 12% and brought roughly 5 million euros more in sales compared to the second quarter.
Speaker #1: In '25. This brings us up to 164 million euros in terms of sales. The non-organic growth in organic growth was coming from the two acquisitions we made in '25.
Speaker #1: So, acquisition of Specs Electronic in Estonia, and Alpha District operations—the business that we call YERS going forward—that brought us about 5% of the total sales increase in the first half.
Speaker #1: Both businesses continue or both business areas continue with a strong growth this year. And if we look at the gross margin, and this picture is a little bit more kind of a mixed in a sense that the slide the curves are going up and down here.
Tuomas Kahri: If we look at the gross margin, this picture is a little bit more kind of a mix in a sense that the curves are going up and down here, especially on the gross margin, it's really about actually mixes. It's about the mix between the two business areas. It's about the mix within the business areas, and it's about the mix within the operating companies. Therefore, kind of the total picture here highlights a little bit of the increase of certain businesses and product mix within those businesses. However, we are at the gross margin level of 29% currently, we continue to focus on gross margin also as a tool of making sure that we can continue the profitability of the business. EBIT, as we mentioned here, showing some improvement in the group level.
Tuomas Kahri: If we look at the gross margin, this picture is a little bit more kind of a mix in a sense that the curves are going up and down here, especially on the gross margin, it's really about actually mixes. It's about the mix between the two business areas. It's about the mix within the business areas, and it's about the mix within the operating companies. Therefore, kind of the total picture here highlights a little bit of the increase of certain businesses and product mix within those businesses. However, we are at the gross margin level of 29% currently, we continue to focus on gross margin also as a tool of making sure that we can continue the profitability of the business. EBIT, as we mentioned here, showing some improvement in the group level.
Speaker #1: Especially on the gross margin, but it's really about actual mixes. It's about the mix between the two business areas, and it's about the mix within the business areas.
Speaker #1: And it's about the mix within the operating companies. So therefore, the total picture here highlights a bit of the increase in certain businesses and the product mix within those businesses.
Speaker #1: However, we are at the gross margin level of 29% currently, and we continue to focus on gross margin also as a tool to ensure that we can maintain the profitability of the business.
Speaker #1: EBIT, as we mentioned here, is showing some improvement at the group level. Regarding cash flow, we have strong cash flow generation in the rolling 12-month period here.
Tuomas Kahri: Regarding cash flow, we have a strong cash flow generation in a rolling 12-month picture here. We are up to EUR 10.8 million in cash flow at the end of Q2. That converts into a cash conversion of 124%. Cash flow strongly supporting, or we are getting the cash out of the business. That, of course, then strongly supports us in deleveraging and also enabling us to continue to look at the M&A opportunities. All in all, maybe worth saying that the good sales development, and the margin development has shown overall that the operational leverage or gearing of Boreo works extremely well. Once the sales go up, we have been able to increase the profitability.
Tuomas Kahri: Regarding cash flow, we have a strong cash flow generation in a rolling 12-month picture here. We are up to EUR 10.8 million in cash flow at the end of Q2. That converts into a cash conversion of 124%. Cash flow strongly supporting, or we are getting the cash out of the business. That, of course, then strongly supports us in deleveraging and also enabling us to continue to look at the M&A opportunities. All in all, maybe worth saying that the good sales development, and the margin development has shown overall that the operational leverage or gearing of Boreo works extremely well. Once the sales go up, we have been able to increase the profitability.
Speaker #1: We're up to €10.8 million in cash flow at the end of the second quarter, and that converts into a cash conversion of 124%. So, cash flow is strongly supporting, or we are getting the cash out of the business.
Speaker #1: And that of course then strongly supports us in the delivering and also enabling us to continue to look at the M&A opportunities. All in all, maybe worth saying that the good sales development and the margin development has shown overall that operational leverage or gearing of whatever works extremely well.
Speaker #1: So once the sales go up, we have been able to increase the profitability. And if we then come to the return on trade working capital, which is at 29% currently at the end of quarter two, it's been going up, and it tells that we are able to, despite the fact that we have businesses that are growing, we've been able to manage the trade working capital quite well.
Tuomas Kahri: If we then come to the return on trade working capital, which is at 29% currently at the end of Q2, it has been going up and it tells that we are able to, despite the fact that we have businesses that are growing, we have been able to manage the trade working capital quite well during this year. If we move on to the business areas, so a quick update on both of them. Let us start with the Electronics business area where we saw sales increase by 15%. Organically, that is mostly driven by Milcon. Maybe worth mentioning the large order that Milcon received, roughly EUR 1 million from the defense sector partner, which is a first order in a fairly large program that is expected to continue way until 2030s.
Tuomas Kahri: If we then come to the return on trade working capital, which is at 29% currently at the end of Q2, it has been going up and it tells that we are able to, despite the fact that we have businesses that are growing, we have been able to manage the trade working capital quite well during this year. If we move on to the business areas, so a quick update on both of them. Let us start with the Electronics business area where we saw sales increase by 15%. Organically, that is mostly driven by Milcon. Maybe worth mentioning the large order that Milcon received, roughly EUR 1 million from the defense sector partner, which is a first order in a fairly large program that is expected to continue way until 2030s.
Speaker #1: During this year. Then if we move on to the business areas, so quick update on both of them. Let's start with the electronics business area.
Speaker #1: We're we saw sales increase by 15%. And organically that's mostly driven by Milkcon. And maybe worth mentioning the large order that Milkcon received roughly 1 million euros from a defense sector partner which is a first order in a fairly large program that is expected to continue until way until 2030s.
Speaker #1: So, the defense sector and Milcon's role in the sector are showing good signs of continued growth. On the organic side, the Yers business is contributing to the growth in the electronics business area.
Tuomas Kahri: The defense sector and Milcon's role in the sector is showing good signs of continued growth. On inorganic side, the YE RS business is bringing its contribution to the growth in the Electronics business area. Operational EBIT grew to EUR 1.2 million from EUR 0.10 million during the comparison period, and the EBIT margin is currently at 6.8%. The return on trade working capital is a little bit down from the last year's comparison period. Within electronics, that is driven by the growth of Milcon. Of course, when you are growing a lot in a large program like they are currently doing, that ties a little bit more working capital. Also, during the ERP project that we have in YE companies, we temporarily increased or had an increase of trade working capital, which should then decline quite soon now once the new ERP system is in place.
Tuomas Kahri: The defense sector and Milcon's role in the sector is showing good signs of continued growth. On inorganic side, the YE RS business is bringing its contribution to the growth in the Electronics business area. Operational EBIT grew to EUR 1.2 million from EUR 0.10 million during the comparison period, and the EBIT margin is currently at 6.8%. The return on trade working capital is a little bit down from the last year's comparison period. Within electronics, that is driven by the growth of Milcon. Of course, when you are growing a lot in a large program like they are currently doing, that ties a little bit more working capital. Also, during the ERP project that we have in YE companies, we temporarily increased or had an increase of trade working capital, which should then decline quite soon now once the new ERP system is in place.
Speaker #1: Operationally, EBIT grew to €1.2 million from €0.8 million during the comparison period, and the EBIT margin is currently at 6.8%. The return on trade working capital is a little bit down from last year's comparison period.
Speaker #1: And within Electronics, that's driven by the growth of Milcon. Of course, when you're growing a lot in a large program like they're currently doing, that ties up a little bit more working capital. And also, during the ERP project that we have in YE companies, we temporarily increased or had an increase of trade working capital, which should then decline quite soon now once the new ERP system is in place.
Speaker #1: Order books, in the electronics business area, are developing well. And they are notably higher than during the last year so they were roughly a little bit over 20% above last year's level.
Tuomas Kahri: Order books in the Electronics business area are developing well, they are notably higher than during the last year. They were roughly a little bit over 20% above last year's level. Also there, good development. The Technical Trade business area, where the sales grew by 10%, that is mainly driven by the performance of filters and also the welding equipment companies, Pronius and Spetselektroodi, are experiencing good growth. The businesses they are serving are kind of turning into a positive growth even in Finland. The return on trade working capital increased to 32%, that is mainly driven by the continued profit improvement that we have in the business. As already mentioned earlier, the process and manufacturing industries are driving our growth in the Technical Trade area. Let us keep our fingers crossed that the construction industry also starts to grow.
Tuomas Kahri: Order books in the Electronics business area are developing well, they are notably higher than during the last year. They were roughly a little bit over 20% above last year's level. Also there, good development. The Technical Trade business area, where the sales grew by 10%, that is mainly driven by the performance of filters and also the welding equipment companies, Pronius and Spetselektroodi, are experiencing good growth. The businesses they are serving are kind of turning into a positive growth even in Finland. The return on trade working capital increased to 32%, that is mainly driven by the continued profit improvement that we have in the business. As already mentioned earlier, the process and manufacturing industries are driving our growth in the Technical Trade area. Let us keep our fingers crossed that the construction industry also starts to grow.
Speaker #1: So also, there was good development in the technical trade business area, where sales grew by 10%. And that is mainly driven by the performance of the filters.
Speaker #1: And also the welding equipment companies ProNews and Specs Electronic are experiencing good growth. And the businesses they are serving are kind of turning into a positive growth or even in Finland.
Speaker #1: The return on trade working capital increased at 32%. And that's mainly driven by the continued profit improvement that we have in the business. As already mentioned earlier, the process and manufacturing industries are driving our growth in the technical trade area.
Speaker #1: And let's keep our fingers crossed that the construction industry also starts to grow. That would support technical trade and business overall even further. Order books, and we discussed that during the last quarter also, are developing very nicely.
Tuomas Kahri: That would support even further the Technical Trade business overall. Order books, and we discussed that during the last quarter also, are developing very nicely. They are almost 30% up from last year's level. However, a little bit lower than at the beginning of this year, our Q1, but still holding on a very high level and continuing to grow compared to the comparison period. The delivery times, as we mentioned already in the Q1, are still fairly much kind of weighted towards the end of this year. That should give us a fairly positive traction on the H2 also. That wraps up my prepared presentation. Maybe as a kind of reminder. Seventh quarter of continued organic growth, 19% operational EBIT growth, strong cash flow, and that is enabling us to look into both M&A and really continuing to deleverage the company.
Tuomas Kahri: That would support even further the Technical Trade business overall. Order books, and we discussed that during the last quarter also, are developing very nicely. They are almost 30% up from last year's level. However, a little bit lower than at the beginning of this year, our Q1, but still holding on a very high level and continuing to grow compared to the comparison period. The delivery times, as we mentioned already in the Q1, are still fairly much kind of weighted towards the end of this year. That should give us a fairly positive traction on the H2 also. That wraps up my prepared presentation. Maybe as a kind of reminder. Seventh quarter of continued organic growth, 19% operational EBIT growth, strong cash flow, and that is enabling us to look into both M&A and really continuing to deleverage the company.
Speaker #1: They are almost, or about, 30% up from last year's level. However, they are a little bit lower than at the beginning of this year, our Q1, but still holding at a very high level and continuing to grow compared to the comparison period.
Speaker #1: And the delivery times as we mentioned already in the quarter one are still fairly much kind of weighted towards the end of that end of the this year.
Speaker #1: So that should give us fairly positive traction in the second half as well. That wraps up my prepared presentation. So, maybe as a kind of reminder: seventh quarter of continued organic growth, 19% operational EBIT growth, strong cash flow, and that enables us to look into both M&A and continuing to deleverage the company.
Speaker #1: I'll turn over to Rafa for the facilitation of the questions. Please. All right. Thank you Thomas. We have some questions come in through the platform and let's let me read out those.
Tuomas Kahri: I'll turn over to Rafa for the facilitation of the questions, please.
Tuomas Kahri: I'll turn over to Rafa for the facilitation of the questions, please.
Rafael Osmanov: All right. Thank you, Tuomas. We have some questions come in through the platform, and let me read out those. All right, first one. Have you identified what will be needed to close in on your ROCE target? Higher EBIT margins versus lower working capital. Is it structurally possible to reach 15% with current set of companies, or will you need to do selective disposals, acquire new companies with higher return profile? Maybe I will take that. How we see is that our current company portfolio has, in reality, meaningful potential for improvement. Mainly, we see that the operational leverage is now working for us. We see that ROCE target will be achieved primarily through improved profitability, but also we are aiming to maintain very disciplined working capital management.
Rafael Osmanov: All right. Thank you, Tuomas. We have some questions come in through the platform, and let me read out those. All right, first one. Have you identified what will be needed to close in on your ROCE target? Higher EBIT margins versus lower working capital. Is it structurally possible to reach 15% with current set of companies, or will you need to do selective disposals, acquire new companies with higher return profile? Maybe I will take that. How we see is that our current company portfolio has, in reality, meaningful potential for improvement. Mainly, we see that the operational leverage is now working for us. We see that ROCE target will be achieved primarily through improved profitability, but also we are aiming to maintain very disciplined working capital management.
Speaker #1: All right. First one, have you identified what will be needed to close in on your ROSA target? Higher EBIT margins versus lower working capital?
Speaker #1: Is it structurally possible to reach 15% with the current set of companies, or will you need to do selective disposals or acquire new companies with a higher return profile?
Speaker #1: Maybe I will take that. So how we see is that our current company portfolio has in reality meaningful potential for improvement. Mainly we see that the operational leverage is now working for us.
Speaker #1: So, we see that the ROSA target will be achieved primarily through improved profitability. But we are also aiming to maintain very disciplined working capital management.
Speaker #1: Nevertheless, when we look at new M&A targets, we look more to companies which have a sustainable pricing edge with profitability. So, although with the current portfolio there is no need for a bigger reshuffle, what we will acquire in the future is likely to be, on average, more profitable than what we are holding right now.
Rafael Osmanov: Nevertheless, when we look at new M&A targets, we look more on companies which have sustainable pricing edge with profitability. Although with the current portfolio, there is no need for bigger reshuffle, what we will acquire in the future is likely to be, on average, more profitable than what we are holding right now. I hope this answers. Very good question. Let's go to the next one. This was already a bit touched by Tuomas, but let's recap through this question. Can you talk a bit more about the decline in gross margins in Technical Trade? Any effect of rising input costs that has not fully been offset by price increases or other factors behind the decline. Any planned initiative in H2?
Rafael Osmanov: Nevertheless, when we look at new M&A targets, we look more on companies which have sustainable pricing edge with profitability. Although with the current portfolio, there is no need for bigger reshuffle, what we will acquire in the future is likely to be, on average, more profitable than what we are holding right now. I hope this answers. Very good question. Let's go to the next one. This was already a bit touched by Tuomas, but let's recap through this question. Can you talk a bit more about the decline in gross margins in Technical Trade? Any effect of rising input costs that has not fully been offset by price increases or other factors behind the decline. Any planned initiative in H2?
Speaker #1: I hope this answers a very good question. So let's go to the next one. This was already a bit touched on by Thomas, but let's recap through this question.
Speaker #1: Can you talk a bit more about the declining gross margins in Technical Trade? Is there any effect from rising input costs that hasn't been fully offset by price increases, or are there other factors behind the decline?
Speaker #1: Any planned initiatives in H2? Thomas.
Rafael Osmanov: Tuomas.
Rafael Osmanov: Tuomas.
Speaker #2: I would say that there is no kind of trend or trend happening in the technical trade. Regarding the gross margins, it's more about the fact that when we have large deliveries, large deals, they tend to have a little bit lower gross margin.
Tuomas Kahri: I would say that there is no kind of a trend happening in the Technical Trade regarding the gross margins. It is more about the fact that when we have large deliveries, large deals, they tend to have a little bit lower gross margin. We do not see, in the micro level, any kind of changes where the gross margin levels would have changed. It is more of a mix within companies and especially between the companies. Different companies have a little bit of a different gross margin levels. Yes, also we need cash management, continuously look into our pricing and make sure that the input prices are also reflected in the prices of the goods and the services that we have. That continues.
Tuomas Kahri: I would say that there is no kind of a trend happening in the Technical Trade regarding the gross margins. It is more about the fact that when we have large deliveries, large deals, they tend to have a little bit lower gross margin. We do not see, in the micro level, any kind of changes where the gross margin levels would have changed. It is more of a mix within companies and especially between the companies. Different companies have a little bit of a different gross margin levels. Yes, also we need cash management, continuously look into our pricing and make sure that the input prices are also reflected in the prices of the goods and the services that we have. That continues.
Speaker #2: So, we don't see at a micro level any kind of changes where the gross margin levels would have changed. So, it's more of a mix within companies, and especially between the companies.
Speaker #2: So different companies have a little bit of a different gross margin levels. Yes, and also, we as management need to continue to look into our pricing and make sure that the input prices are also reflected in the prices of the goods and services that we offer.
Speaker #2: So that continues. We've done a lot of work in that area already this year, and we'll continue to work on the pricing, making sure that we actually get the input prices into our pricing.
Tuomas Kahri: We have done a lot of work in that area already this year, we will continue to work on the pricing, making sure that we actually get the input prices to our pricing or changes in the input pricing.
Tuomas Kahri: We have done a lot of work in that area already this year, we will continue to work on the pricing, making sure that we actually get the input prices to our pricing or changes in the input pricing.
Speaker #2: Or changes in input pricing.
Speaker #1: Okay, thank you, Thomas. Then another comment: Given the stronger cash generation and deleveraging, how do you currently prioritize capital allocation between acquisitions, debt reduction, and dividend growth?
Rafael Osmanov: Okay. Thank you, Tuomas. Another comment. Given the stronger cash generation in deleveraging, how do you currently prioritize capital allocation between acquisitions, debt reduction, and dividend growth? I am going to take this. What we are trying to achieve here is to balance between acquisitions and debt reduction. Strong cash flow allows us to do both. In terms of acquisitions, we are being very selective and also going for targets where we see that we have advantage compared to other buyers, we strive to be very disciplined in terms of pricing of these acquisitions. In that sense, we right now feel that we are in a position where we can slowly but surely pick up the pace with acquisitions, while at the same time we see our debt levels to go lower. At this point, we do not prioritize dividends.
Rafael Osmanov: Okay. Thank you, Tuomas. Another comment. Given the stronger cash generation in deleveraging, how do you currently prioritize capital allocation between acquisitions, debt reduction, and dividend growth? I am going to take this. What we are trying to achieve here is to balance between acquisitions and debt reduction. Strong cash flow allows us to do both. In terms of acquisitions, we are being very selective and also going for targets where we see that we have advantage compared to other buyers, we strive to be very disciplined in terms of pricing of these acquisitions. In that sense, we right now feel that we are in a position where we can slowly but surely pick up the pace with acquisitions, while at the same time we see our debt levels to go lower. At this point, we do not prioritize dividends.
Speaker #1: I'm going to take this. So, what we are trying to achieve here is to balance between acquisitions and debt reduction. Strong cash flow allows us to do both.
Speaker #1: But in terms of acquisitions, we are being very selective and also going for targets where we see that we have advantage compared to other buyers.
Speaker #1: And we strive to be very disciplined in terms of pricing of these acquisitions. So in that sense, right now we feel that we're in a position where we can slowly but surely pick up the pace with acquisitions, while at the same time we see our debt levels go lower.
Speaker #1: At this point, we do not prioritize dividends.
Speaker #2: And maybe if I continue a little bit on that, that allows us to look into the alternatives where, on the balance sheet, we look into the different forms of how we structure our balance sheet.
Tuomas Kahri: Maybe if I continue a little bit on that allows us to look into the alternatives where the balance sheet, we look into the different forms of how we structure our balance sheet on the pricing of different kind of instruments, and also the amount of the instruments. We are actively working on developing our balance sheets still this year. That is very much in our focus.
Tuomas Kahri: Maybe if I continue a little bit on that allows us to look into the alternatives where the balance sheet, we look into the different forms of how we structure our balance sheet on the pricing of different kind of instruments, and also the amount of the instruments. We are actively working on developing our balance sheets still this year. That is very much in our focus.
Speaker #2: On the pricing, there are different kinds of instruments, and also the amount of the instruments. So we are actively working on developing our balance sheet still this year.
Speaker #2: So, that's very much in our focus.
Speaker #1: Right. Yes. Then we have some company-specific comments. Let me—alright. Could you comment on the performance and outlook in Machinery and Delphin?
Rafael Osmanov: Right. Okay. We have some company-specific comments. All right. Could you comment on the performance and outlook in Machinery and Delfin?
Rafael Osmanov: Right. Okay. We have some company-specific comments. All right. Could you comment on the performance and outlook in Machinery and Delfin?
Tuomas Kahri: Let's start quickly with Machinery. Machinery has done well this year. They are very much in serving the businesses that are now kind of getting the growth uptick from the recovering Finnish economy. There is a good opportunity for Machinery to grow. One of the areas, for example, is reserve power, where the data centers are pushing up the demand, and overall, the total market is also growing. That's one of the drivers for Machinery. Delfin is continuing to look for the product upgrade or the platform upgrade that they were doing has been done. The next item there is to understand how do we improve our distribution in other markets and in the medical device business that we're doing. That's where we're still, not in terms of CapEx investment, but in terms of operating cost investment, doing some investments in Delfin.
Tuomas Kahri: Let's start quickly with Machinery. Machinery has done well this year. They are very much in serving the businesses that are now kind of getting the growth uptick from the recovering Finnish economy. There is a good opportunity for Machinery to grow. One of the areas, for example, is reserve power, where the data centers are pushing up the demand, and overall, the total market is also growing. That's one of the drivers for Machinery. Delfin is continuing to look for the product upgrade or the platform upgrade that they were doing has been done. The next item there is to understand how do we improve our distribution in other markets and in the medical device business that we're doing. That's where we're still, not in terms of CapEx investment, but in terms of operating cost investment, doing some investments in Delfin.
Speaker #2: Let's start with quickly with machinery. Machinery has done well this year. They are very much in a serving the businesses that are now kind of getting the growth uptick from the recovering Finnish economy.
Speaker #2: So there is a good opportunity for machinery to grow. One of the areas, for example, is a reserve power where the data centers are pushing up the demand and overall the total market is also growing.
Speaker #2: So that's one of the drivers for machinery. Delphin we are is continuing to look for the product upgrade or the platform upgrade that they were doing has been done.
Speaker #2: So the next item there is to understand how do we improve our distribution in other markets and in the medical device business that we're doing.
Speaker #2: So that's where we are still not in terms of CapEx investment, but in terms of operating cost investment, doing some investments in that in Delphin.
Speaker #1: All right. Thank you, Thomas. Let's continue with companies. Can you elaborate more on Milken's growth plans? How sizable is the growth opportunity, and what are the upcoming milestones you are expecting?
Rafael Osmanov: All right. Thank you, Tuomas. Continue with companies. Can you elaborate more on Milcon's growth plans? How sizable is the growth opportunity, and what are the upcoming milestones you are expecting?
Rafael Osmanov: All right. Thank you, Tuomas. Continue with companies. Can you elaborate more on Milcon's growth plans? How sizable is the growth opportunity, and what are the upcoming milestones you are expecting?
Speaker #2: We're still currently looking at Milken's growth so that we are making sure we don't have bottlenecks in the growth path.
Tuomas Kahri: We're still on kind of currently looking at Milcon's growth, so that we are making sure that we don't have bottlenecks in the growth path. They're, for example, moving into new space, et cetera. We are making sure that we have the ability and capability of continuing to grow with our customers. We believe that there are large programs like the one that we disclosed, now that we have closed a EUR 1 million deal with a strategic customer, so these type of programs will continue and likely are going to grow. However, I'm not in a position to give you an exact guidance on that. On the growth side of the company.
Tuomas Kahri: We're still on kind of currently looking at Milcon's growth, so that we are making sure that we don't have bottlenecks in the growth path. They're, for example, moving into new space, et cetera. We are making sure that we have the ability and capability of continuing to grow with our customers. We believe that there are large programs like the one that we disclosed, now that we have closed a EUR 1 million deal with a strategic customer, so these type of programs will continue and likely are going to grow. However, I'm not in a position to give you an exact guidance on that. On the growth side of the company.
Speaker #2: So where, for example, they are looking into new opportunities or moving into new spaces, etc. We are making sure that we have the ability and capability to continue growing with our customers.
Speaker #2: We believe that there are large programs like the one that we have disclosed. Now we have closed a €1 million deal with a strategic customer.
Speaker #2: So, these types of programs will continue and are likely going to grow. However, I'm not in a position to give you exact guidance on that, or on the growth path of the company.
Speaker #1: Okay, thank you, Thomas. All right, then—questions from me. How many M&A deals are you looking at the moment, on a monthly or yearly basis, for example? So yes, we have picked up our M&A activities, and how we—or where we—look for the deals.
Rafael Osmanov: Okay. Thank you, Tuomas. All right. A question from me. How many M&A deals are you looking at the moment on a monthly, yearly basis, for example? Yes, we have picked up our M&A activities and how we, or where we look for the deals, two streams of potential targets. We have a fairly active stream of broker deals coming from brokers, investment banks, and we're looking at those. The second stream is proprietary deals, and we have picked up the activity also there. We have been meeting with potential targets, with management, with owners. As you may understand, these type of processes might take longer to materialize. Nevertheless, we have been now, I would say, quite active in that sense. In terms of numbers, our team has reviewed, since the beginning of the year, actively tens of potential targets.
Rafael Osmanov: Okay. Thank you, Tuomas. All right. A question from me. How many M&A deals are you looking at the moment on a monthly, yearly basis, for example? Yes, we have picked up our M&A activities and how we, or where we look for the deals, two streams of potential targets. We have a fairly active stream of broker deals coming from brokers, investment banks, and we're looking at those. The second stream is proprietary deals, and we have picked up the activity also there. We have been meeting with potential targets, with management, with owners. As you may understand, these type of processes might take longer to materialize. Nevertheless, we have been now, I would say, quite active in that sense. In terms of numbers, our team has reviewed, since the beginning of the year, actively tens of potential targets.
Speaker #1: Two streams of potential targets. We have a fairly active stream of broker deals coming from brokers and investment banks, and we're looking at those. The second stream is proprietary deals, and we have picked up the activity also there.
Speaker #1: We have been meeting with potential targets, with management, with owners, and as you may understand, these types of processes might take longer to materialize. But nevertheless, we have been, I would say, quite active in that sense.
Speaker #1: In terms of numbers, our team has reviewed, since the beginning of the year, actively tens of potential targets. We have met with many of the companies, and we have had deeper conversations with a handful of companies. But also, you must understand that we are trying to get the volume very high and be very selective. But now, we can already see that the very interesting ones are now going through the funnel towards completion.
Rafael Osmanov: We have met with many of the companies, and we have had deeper conversations with a handful of companies. Also, you must understand that we are trying to get the volume very high and be very selective. Now we can already see that the very interesting ones are now going through the funnel towards completion. We see that the amount of activity in the market, or the activity in the market isn't a bottleneck for us. It's just picking up our pace, our processes, getting our balance sheet in order, and getting selective acquisitions executed.
Rafael Osmanov: We have met with many of the companies, and we have had deeper conversations with a handful of companies. Also, you must understand that we are trying to get the volume very high and be very selective. Now we can already see that the very interesting ones are now going through the funnel towards completion. We see that the amount of activity in the market, or the activity in the market isn't a bottleneck for us. It's just picking up our pace, our processes, getting our balance sheet in order, and getting selective acquisitions executed.
Speaker #1: So and yeah. So we see that the amount of activity in the market or the activity in the market isn't a bottleneck for us.
Speaker #1: It's just picking up our pace, our processes, getting our balance sheet in order and getting selective acquisitions executed. Thanks. Okay. So far these were the comments.
Tuomas Kahri: Thanks.
Tuomas Kahri: Thanks.
Rafael Osmanov: Okay. Far, these were the comments. Well, thank you for very good comments to the audience.
Rafael Osmanov: Okay. Far, these were the comments. Well, thank you for very good comments to the audience.
Speaker #1: And, well, thank you for your very good comments to the audience.
Speaker #2: And thank you very much for coming and listening to Boreo's Q2 webcast. Maybe I'll finish the discussion by reminding us what we were telling in this webcast.
Tuomas Kahri: Thank you very much for coming and listening to Boreo's Q2 webcast. Maybe I'll finish the discussion by reminding us what we were telling in this webcast. Strong performance during H1 of the year, and that should give us a very good starting position to address H2 of the year and the full year of 2026. We have a very strong order book, which means that we should be able to continue with the sales growth. We are seeing that our operational gearing works. Once we get the sales up, we should be able to get the result also coming through.
Tuomas Kahri: Thank you very much for coming and listening to Boreo's Q2 webcast. Maybe I'll finish the discussion by reminding us what we were telling in this webcast. Strong performance during H1 of the year, and that should give us a very good starting position to address H2 of the year and the full year of 2026. We have a very strong order book, which means that we should be able to continue with the sales growth. We are seeing that our operational gearing works. Once we get the sales up, we should be able to get the result also coming through.
Speaker #2: So strong performance during the first half of the year. And that should give us a very good starting position to address the second half of the year and the full year of 2026.
Speaker #2: We have a very strong order book, which means that we should be able to continue with the sales growth. And we are seeing that our operational gearing works.
Speaker #2: So once we get the sales up, we should be able to get the result also coming through. We've generated strong cash flows. Meaning that we have been able to decrease our leverage during this year.
Tuomas Kahri: We've generated strong cash flows, meaning that we have been able to decrease our leverage during this year, which then all in all should give us a good base to continue with the M&A and developing our balance sheet going forward. Thank you very much for your time and for your attention, and looking forward to continuing the discussion with you. Thank you.
Tuomas Kahri: We've generated strong cash flows, meaning that we have been able to decrease our leverage during this year, which then all in all should give us a good base to continue with the M&A and developing our balance sheet going forward. Thank you very much for your time and for your attention, and looking forward to continuing the discussion with you. Thank you.
Speaker #2: Which then, all in all, should give us a good base to continue with the M&A and developing our balance sheet going forward. So, thank you very much for your time and for your attention.
Speaker #2: I'm looking forward to continuing the discussion with you. Thank you.
Rafael Osmanov: Thank you.
Rafael Osmanov: Thank you.
