Good morning and welcome to Boreo's quarter 2 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 with the questions and facilitate the the answering of those in a in a little bit. As an agenda today, we are covering three main items.

First, we start with the highlights and and I'll go through a little bit of our our strategic focus areas for the year. Then we'll look at the the second quarter and the first half of '26, both from the group perspective and from the business areas.

Then we'll have a Q&A session at the at the end of the the session today. As a maybe kind of a highlighting where we are today, it's the seventh consecutive quarter that we have organic growth.

Our operational EBIT grew by 19% during the from from comparing to the to the last year's same quarter. We had a strong cash flow.

Cash flow actually increased quite significantly, and at the same time we've been able to decrease our our our leverage, so, i.e., to get some of our our our debt debt levels going to go down. That allows us to to focus on the business and to, in the future, focus more and more on M&A activities and and developing our balance sheet to become even even stronger than what we are today.

Maybe that's a kind of the highlights of the of the of presentation today, but let's go through it in a little bit more detail. Sales grew by 12% to €45.1 million.

Out of that, 7% was was organic. Our operational EBIT increased by 19% comparing to quarter 2 2025, and it was €2.6 million.

That bring 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 in the next slide a little bit more and also the leverage bit, so then let's look at the operative net cash cash flow, which was €1.6 million, and that's a significant change from from last year's same quarter when it was -€0.5 million.

The rolling 12-month cash flow is €11.4 million, and that compares to €7.6 million in in in '25. A signifi- significant improvement on that on the cash flow.

Then if we look at the order books, the order books are are growing well, I would say. If we compare to the to the second quarter of '25, we are over 25% above those levels in the in the order books overall.

We see that the demand is is somewhat improving in the in the industrial businesses, and of course in the defense sector, which which has been the case already for some time. The construction industry is is still the the one where we have an, let's say, more subdued situation, but but it's also there showing some slight kind of a signs of of of improving.

Then if we look at this from the from the perspective of the of the strategic financial targets, let's start with the with the minimum annual average of operating EBIT growth, where where the target is to to go above 15%. The the result in that today is is 18%, meaning that we have turned this into a into a green indicator at at at this point.

On the return of capital employed, that grew to six point 9.6%, where the target is is to be minimum 15%, and and therefore that's still an area where we are not getting to the to the target level, and even even even the number grew fairly nicely compared to the to the last year's situation. Then the third strategic target that we have is the net debt to operational EBITDA, and there our score is now well within the kind of the targeted range, which is between 2 and 3.

However, we kept this as we are at one 2.1 today, and we kept that number still yellow because of the fact that it doesn't include the hybrid loans loan that we have in that calculation. In reality, we are a bit higher in the in the in the measurement.

How it's being calculated or how it's been reported, we are at 2.1 today. Then if we look at look at how do we, as a management, spend our time and how do we plan to to increase the the the result of the company going forward, we have three main areas that we are we are spending a lot of time at this point.

The first one being disciplined M&A; second one being making sure that we have very clear roles for all the companies that all of the operating companies that we own; and and thirdly, strengthening our balance sheet. Those are the three items where we spend spend a lot of our our focus as the as the group management.

If we go through these one by one, the first one, the disciplined M&A, we have done some updates in our in our process, so that just supports us that we have the right information and the and the right approach to the companies that that are potential targets for us. That was was done during the during the quarter 1 quarter 2.

While that was done, we've also substantially increased the level of activity of of meeting potential acquisition targets, etc. That activity increase is now bringing some results.

We have several processes that are are kind of going forward, and and we are looking into into closing some deals all still this year. Let's hope everything goes well and and we can report that soon.

Where we are focusing our 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 once we've done the clustering work, we have also defined several of these clusters to be ready for add-on acqui- acquiring and add-on M&A.

That's where we where we mostly focusing at this point. The reason for that being is that we understand those businesses, we understand, the the or we would be able to get some some kind of operational synergies out of those companies, and also thirdly, we understand the the price level and the pricing of those those assets.

That's the area area number one. The second area is the clarifying the company roles, where, as mentioned, we have we have clustered all the operating companies into into the clusters and made sure that each and every one of the companies knows what is their role in the in the in the Boreo business.

What we're doing there, as an example, is is what we published 31st of of July. We actually divested one one operating company, Lackmästarn in in Sweden, which was a fairly small business, and and we felt that it's it is in better home with an entrepreneur who is close to the business and who can who can personally run it, whereas we couldn't offer that as a as a as a part of of Boreo.

That's just one example how how the roles are being clari- clarified within the the operating companies. We're also sharing all the best or best best practices among the the clusters and the and the operating companies.

Some examples on that area is is of course when you have clustered your your company around, let's say, customers or products or or business model, then of course it's easy to share best practices in sales or best practices in customer service. That's one area which we're very much focusing on on now.

Also the ERP projects we've been we've been running this year, and which are now basically all all live. Those are of course also bringing kind of a share best-practice sharing among among companies.

All in all, both Technical Trade and Electronics have a strong order books, and since the and the ERP projects are bringing the results to towards the end of the year, we feel that we have a very strong base in the in the from the first half to continue our growth towards the end of the year. Then the third area is the strengthening of our balance sheet.

Of course, the strong earnings and the strong cash flow have been enabling us to to continue the deleveraging of the company as as was was planned. Also, the cash cash flow will allow us to to complete the acquisitions that we are are currently looking into, and we have €4 million in in our M&A facility still available for us, we see that the the ability to to complete the M&As that we have planned for this year is is good, unless something of course happens in the projects or or or so on.

At the same time, the declining or lowering leverage also enables us to to look into the alternatives of of in a in a little bit longer term to to decrease the cost of our our our financing, and we are looking into different solutions for capital capita- capital structure development, and that's very much in in the focus of of the management for the for the year. Then if we continue with the with the quarter 2 highlights, some notes notes on on on on on on that.

Let's start with the with the sales growth. As mentioned, we had a 7% organic growth, and seventh quarter, consecutive quarter with organic growth.

We grew by 12%, and we brought roughly 4 €5 million more sales compared to to second quarter in in '25. This brings us up to €164 million in terms of of of sales.

The non-organic growth, inorganic growth was was coming from the two acquisitions we made in '25, acquisition of Spets-Elektroodi in in Estonia, and Alfa Distrikt operations, the business what we call Y.E.R.S. going forward, that brought gro- brought us about 5% of the of the total sales increase in the first half.

Both businesses continue, or both business areas continue with a strong growth this year. If we look at the gross margin, and this picture is a little bit more kind of a mixed in a in a sense that that the slide the the curves are going up and down here, especially on the on the on the gross margin.

It's really about actually mixes. It's a 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 the total picture here highlights a little bit of the of the increase of the of the of certain businesses and and and product mix within those businesses. However, we are at the at the gross margin level of 29% currently, and and we continue to focus on gross margin also as a as a tool of making sure that we can continue the the profitability of the of the business.

EBIT, as we as we mentioned here, showing some some improvement in the in the group level. Regarding cash flow, we have a strong cash flow generation in a rolling 12-month picture here.

We're up to €10.8 million in cash flow on at the at the end of second quarter, and that converts into a cash conversion of 124%. Cash flow strongly supporting, or we are getting the cash out of the out of the business, and and that of course then strongly supports us us in in the deleveraging, and also en- enabling us to continue to look at the M&A opportunities.

All in all, maybe worth saying that that the good sales development and the the margin development has has shown overall that the operational leverage or gearing of of Boreo works extremely well, once the the sales go up, we have been able to to increase the profitability. If we then come to the return on trade working capital, which is at 29% currently at the end of quarter quarter 2, it's been it's been going up, and it tells that we are able to, despite the fact that we have businesses that are are growing, we've been able to to manage the the trade working capital quite well during during this year.

Then if we move on to the to the business areas, quick update on on on on both of them. Let's start with the Electronics business area, where we saw sales increase by by 15%, and organically that's mostly driven by by Milcon.

Maybe worth mentioning the the large order that Milcon received, roughly €1 million from a defense sector partner, which is a first order in a in a fairly large program that is expected to continue until way until 2030s, so the defense sector and Milcon's role in the in the sector is is showing good signs of continued growth. On inorganic side, the Y.E.R.S.

business is is is bringing its contribution to the growth in in Electronics business area. Operational EBIT grew to €1.2 million from €0.8 million during the comparison period, and the EBIT margin is currently at at 6.8%.

The return on on trade working capital is is a little bit down from the last year's comparison period, and within Electronics that's say, driven by by the growth of Milcon. Of course, when you're growing a lot in a in a large programs that like they're currently continue currently doing, that ties a little bit more working capital.

Also, during the ERP project that we have in in in YE companies, we temporarily increased or had a increase of of trade working capital, which should then decline quite quite soon now once the the new ERP system is in in place. Order books in the in the Electronics business area are developing well, and they are notably higher than than during the last year, they were roughly 20 a little bit over 20% above the last year's level.

Also there, good development. Then the Technical Trade business area, where the sales grew by by 10%, and that is may- mainly driven by the by the performance of the of of Filterit, and also the welding equipment companies, Fronius and Spets-Elektroodi, are are experiencing good growth, and and the businesses they are serving are are kind of turning into a positive growth even in in Finland.

The return on on trade working capital increased to 32%, and that's mainly driven by the by the continued profit improvement that we have in the in the business. As already mentioned earlier, the process and manufacturing industries are are are driving our growth in the Technical Trade area, and and let's keep our fingers crossed that the the construction industry also starts to grow.

That would support even further the Technical Trade business overall. Order books, and we discussed that during the last quarter also, are are developing very very nicely.

They are almost or almost 30% up from from last year's level, however, a little bit lower than the than at the at the beginning of this year, our quarter 1, but but but still holding you know on a very high level and continuing to to to grow compared to the comparison period. The delivery times, as we mentioned already in the quarter 1, are still fairly much kind of weighted towards the end of the end of the this year, so that should give us a fairly positive traction on the on the second half also.

That wraps up my my my prepared presentation, maybe as a as a kind of a reminder: so seventh quarter of of continued organic growth, 19% operational EBIT growth, strong cash flow, and that enabling us to look into the into both M&A and dele- continue the deleveraging the the the company. I'll turn over to to Rafael for for the facilitation of the questions.

Please.

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 the ROCE target will be achieved primarily through improved profitability, but also we are aiming to maintain very disciplined working capital management.

Nevertheless, when we look at new M&A targets, we look more on companies which have sustainable pricing edge, good profitability. Although with the current portfolio there's 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 declining 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? Please.

I would say that there's no kind of a 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 a lower gross margin.

We don't see in a micro level any kind of a changes where the gross margin levels would have changed. It's more of a mix within companies, and especially between the companies.

Different companies have a little bit of different gross margin levels. Yes, then also we need, as a management, continue to 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. We've done a lot of work on that area already this year, and we'll continue to work on the pricing making sure that we actually get the input prices to our pricing or changes in input pricing.

Thank you, Tuomas. Then another comment: Given the stronger cash generation and deleveraging, how do you currently prioritize capital allocation between acquisitions, debt reduction, and dividend growth?

I'm 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, and we strive to be very disciplined in terms of pricing of these acquisitions.

In that sense, we right now feel that we're in the 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.

So.

Maybe if I continue a little bit on that, that allows us to look into the alternatives 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 sheet still this year, so that's very much in our focus.

Right. Then we have some company-specific comments.

All right. Could you comment on the performance and outlook in Machinery and Delfin?

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 a 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, 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 the terms of CapEx investment, but in terms of operating cost investment, doing some investments in Delfin.

All right, thank you, Tuomas. Then 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?

We are still 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 are moving into new space, etc. 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 €1.1 million deal with a strategic customer. 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 the growth path of the company.

Thank you, Tuomas. All right.

Then question for 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 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 that this type of processes might take longer to materialize, but 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. 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, but now we can already see that the very interesting ones are now going through the funnel towards completion. We see that the activity in the market isn't a bottleneck for us, is just picking up our pace, our processes, getting our balance sheet in order, and getting selective acquisitions executed.

Thanks.

Far, these were the comments, and well, thank you for very good comments to the audience.

Thank you very much for coming and listening to Boreo's quarter 2 webcast, our webcast. Maybe I'll finish the discussion by reminding us what we were telling in this webcast: 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.

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, 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, 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.

Thank you.