Boreo Plc, HALF-YEAR REPORT JANUARY 1 TO JUNE 30, 2022
August 10, 2022, at 9:00
Stable performance in a challenging environment, Russian operations sold on 9 August 2022
April-June 2022 (continued operations)
Boreo’s operations in Russia have been classified as discontinued operations and all figures in this report relate to continuing operations unless otherwise stated.
Net sales grew by 34% to EUR 40.4 million (2021: 30.2).
Operational EBIT increased by 34% to EUR 2.4 million (2021: 1.8).
EBIT stood at EUR 1.8 million (2021: 1.5).
Free cash flow (including discontinued operations) was EUR -2.3 million (2021: -0.1). Free cash flow was particularly affected by the increase in working capital.
The profit for continuing operations for the review period stood at EUR 1.1 million (2021: 1.0).
The profit for discontinued operations for the review period was EUR -6.6 million (2021: 0.6). The result was negatively affected by write-down of approximately EUR 5.9 million in the Russian operations, resulting from the classification of Russian operations as discontinued operations in accordance with IFRS 5.
Operational EPS was EUR 0.44 (2021: 0.45).
EPS was EUR 0.28 (2021: 0.35).
In June, the acquisition of Signal Solutions Nordic was completed.
January-June 2022 (continued operations)
Net sales grew to EUR 72.1 million (2021: 54.0).
Operational EBIT increased to EUR 3.5 million (2021: 3.1).
EBIT stood at EUR 2.4 million (2021: 3.3). EBIT for the comparison period was significantly affected by a non-recurring EUR 0.8 million sales gain from the Espoo headquarters.
Free cash flow (including discontinued operations) was EUR -1.5 million (2021: -0.7). Cash flow was weakened mainly by the growth in working capital.
The profit for continuing operations for the review period stood at EUR 1.5 million (2021: 2.4).
The profit for discontinued operations for the review period was EUR -5.9 million (2021: 0.7). The result was negatively affected by write-down of approximately EUR 5.9 million in the Russian operations, resulting from the classification of Russian operations as discontinued operations in accordance with IFRS 5.
Operational EPS was EUR 0.67 (2021: 0.83).
Classification of Russian operations as discontinued operations
As an event after the review period, Boreo announced on August 9, 2022 that Boreo sold its 90% shareholding of the electronic component distribution business in Russia (“YE Russia”) to companies controlled by Mr. Yrjö Pönni, current General Director and 10% shareholder of YE Russia. In May 2022, Boreo announced it had started to take actions taking steps to exit Russian operations. In this half-year report, Russian operations have been moved to discontinued operations in accordance with IFRS 5. Unless otherwise stated, all figures in this half-year report relate to continuing operations. In the income statement and balance sheet, the comparison periods have also been adjusted for continuing operations, while the data in the cash flow statement have not been adjusted and include discontinued operations. Discontinued operations also include the subsidiary of the Russian operations located in Turkey.
Financial guidance and business model
On March 4, 2021, Boreo announced its new strategy and strategic financial objectives for the strategy period 2021-2023. Boreo's business model is to own, acquire and develop operations in Northern Europe and the main focus areas of the strategy are acquisitions, operational efficiency and people & culture.
The company's long-term financial targets for the strategy period 2021–2023 are:
At least 20 % average annual net sales growth over the strategy period,
At least 8% operational EBIT at the end of the strategy period,
Net debt/operational EBIT 2-3x (excluding items affecting comparability, including acquired business activities as if they had been held for 12 months at the reporting date), and
Annually increasing dividend per share.
The above-mentioned strategic financial objectives still serve as the company's financial guidelines. In line with its guidance policy, the company does not give separate short-term financial guidance.
As of the Q1 2022 interim report, Boreo has changed the accounting principle of operational EBIT so that operational EBIT no longer takes into account the impact of the allocation of acquisition costs. The impact of the allocation of acquisition costs arises from the depreciation of fair value allocations at the time of acquisition based on IFRS during their useful life. The company feels that operational EBIT before allocation of acquisition costs better reflects the profitability of its operations. The change has an impact on operational EBIT and operational EPS. The figures for the comparison period have been adjusted to reflect the same principle to maintain comparability. Otherwise, the accounting principles of this review do not include any changes that affect comparability. The comparison figures in brackets refer to the corresponding period of the previous year, unless otherwise specified.
Group’s key figures
Key figures, continuing operations
relative to net sales, %
Profit before taxes
Profit for the period, continuing operations
Profit for the period, discontinued operations
Free Cash flow***
Equity ratio, %
Interest-bearing net debt
Interest-bearing net debt relative to operational EBITDA of the previous 12 months*
Average number of personnel
Personnel at end of the period
Operational EPS, EUR
EPS, EUR, discontinued operations**
Free cash flow per share, EUR***
* Calculated in accordance with the calculation principles established with financiers. The formula for calculating the indicators is presented later in this report. Figure for H1 2021 and the situation at the end of 2021 adjusted to reflect the definition of continuing operations.
**The effect of the interest rate of the hybrid loan recorded in equity adjusted by the tax effect is considered in the calculation of the EPS starting from Q1 2022. In Q2, this net effect was EUR 0.12 per share and EUR 0.19 per share in H1.
*** Cash flow includes discontinued operations.
Q2/2022 - CEO Kari Nerg:
Sound financial result and financial position
The financial result for the review period was good and I am pleased with the performance of our companies in a challenging operating environment. Net sales increased by 34% and operational EBIT by 34%. Organic growth was EUR 5.7 million and acquisitions contributed EUR 4.7 million to net sales growth. Our companies successfully maintained margin levels at previous quarters’ levels. Free cash flow was was primarily negatively affected by inventory levels that were kept high to ensure supply capacity. The Group's net debt relative to the 12-month EBITDA rose from 1.6x in the first quarter to 2.5x mainly due to the classification of Russian operations as discontinued operations. However, this is in the middle of the target level we have set for leverageand we expect the balance sheet position to strengthen over the next few months supported by operational performance and the implemented personnel share issue.
As a result of the crisis in Ukraine, in March we started to investigate options for the business operations in Russia. On August 9, 2022, we announced the sale of YE Russia’s business operations to management of YE Russia. The completed transaction provides us with a solution to completely exit Russia and for the business and personnel of YE Russia a more sustainable long-term solution.
Three acquisitions completed
During the quarter, we successfully continued to allocate capital to acquisitions and carried out three acquisitions. The Signal Solutions Nordic (SSN) acquisition strengthened the Electronics business in Finland and Sweden and expanded the Group's operations to Poland and the United States. The acquisitions of GT Motor and LED Systems were add-on acquisitions for Machinery and Yleiselektroniikka which complement the companies’ existing product offering.
The personnel share issue is an important step in developing the operating model and aligning the interests of shareholders and personnel
At the end of the quarter, we carried out a successful and oversubscribed personnel issue, in which the Group's personnel invested approximately EUR 1.5 million in Boreo's shares. As a result, the number of personnel shareholders increased significantly. This was an important step in our goal of greater alignment of the interests of shareholders and personnel and strengthen the basis for operations in decentralized operating structureand provides excellent conditions for continuing the work focused on shareholder value creation.
The companies performed well in a challenging environment
For our Electronics business, the second quarter progressed as expected and stable performance in line with previous quarters continued. The operational EBIT margin was at a decent 4.4% level although depressed by shifts due to long delivery times and the non-recurring credit loss provision in Yleiselektroniikka. Without this non-recurring provision, the operational EBIT margin would have been 6.2%. The Finnish companies operated as expected, while the Baltic companies performed better than expected in the beginning of the quarter, despite increased geopolitical uncertainty. We expect the companies’ performance to remain stable in the next quarters thanks to strong order books and a positive demand outlook.
The Technical Trade business area met our expectations in the second quarter with a good operational EBIT of 12%. The financial result of Muottikolmio, Machinery's Construction Equipment unit and Power unit, and Pronius, was excellent, while Machinery's Metal Machines unitwas below the set target. The Ukrainian crisis affected the Metal Machines business as expected and we implemented measures to improve cost efficiency in the unit. The challenges posed by the Ukrainian crisis on Pronius' welding equipment distribution business were smaller than expected in the quarter. The outlook for the demand of our products is stable for the rest of the year, except for the Metal Machines business, and we expect our companies to retain good performance during the rest of the year.
Our Heavy Machines businesses performed well in the second quarter, although the result was slightly below our expectations. As a result of the Floby Nya Bilverkstad (FNB) acquisition and the strong performance of the Putzmeister and Sany businesses in Estonia, net sales increased by 51% from the comparison period and operational EBIT was EUR 0.6 million (5.1%). In Estonia, the Putzmeister and Sany businesses exceeded our expectations, Finland's result was as expected and Sweden was below its targets. The performance of FNB was good, although supply chain challenges limited the company's delivery capacity. With the support of strong order books, we expect performance to remain stable in the near future, although long delivery times have already shifted deliveries to 2023 and price increases and inflation cause pressure for the companies’ profitability.
Outlook for the near future is stable uncertainty though in the operating environment
The operating environment is currently characterized by a number of uncertainties due to, e.g., the crisis in Ukraine. In the near future, performance outlook in our companies is relatively stable. We will continue to actively monitor developments in the market environment and react with measures if necessary. In the acquisition market activity continues to be lively and due to our working business model, we see good opportunities to allocate capital to acquisitions in the near future.
We will update our strategy and organize a capital markets day in fall 2022
In the last year and a half, we have taken our first steps as a serial consolidator, gathered experiences for future development and successfully grown the Group in Finland and abroad. As the strategy period 2021-2023 is halfway, we will review our strategy and our ways of working in the coming months and organize a capital markets day during the fall 2022. The date of the capital markets day will be published shortly.
Vantaa, August 10, 2022
Board of Directors
tel +358 44 341 8514
tel +358 40 556 3546
NASDAQ Helsinki Ltd
Financial Supervisory Authority
Boreo in brief:
Boreo is a company listed on Nasdaq Helsinki that creates value by owning, acquiring and developing small and medium sized companies in Northern Europe. Boreo's business operations are organized into three business areas: Electronics, Technical Trade and Heavy Machines.
Boreo’s main objective is to create shareholder value in the long-term. It aims to achieve this with an acquisition-driven strategy, creating optimal conditions for its businesses to increase sales and improve profitability, and by being a best-in-class home for its companies and personnel.
The Group's net sales in 2021 were EUR 122 million and it employs some 300 people in seven countries. The company’s headquarter is in Vantaa.