Very good morning and welcome to Boreo's Q3 2024 results webcast. My name is Kari Nerg. I'm the CEO of the company, and today with me is our new CFO, Jesse Petäjä. We'll discuss the events of Q3 and the outlook going forward. Starting off with the presentation, before we jump into Q3 happenings, I will shortly discuss the overall situation where we are as a firm. Then Q3 highlights as normal, and then Jesse will continue with more detailed business-related comments and also some reflections on group financials. Followed up with Q&A, and please use the chat function made available there if you have any questions, and we will address those then at the end of the presentation. So starting off with our strategic targets and now let's say an update where we are.
As the headline says, the overall situation of the firm remains as a challenging one as it has been the last couple of quarters, so mainly driven by the significant decline in sales we've experienced throughout the portfolio. We are currently far away from our strategic targets. Profits have declined from the peak of roughly EUR 10 million a year ago to a level of roughly EUR 7 million at the moment. Returns up from 13%-12%- 8% driven by the profit decrease, and then leverage on the other hand elevated now above 3x, which is our max target range for indebtedness and clearly work to do in order to get the company back on the track where we would like it to be.
The main reasons behind, as communicated today in our release, are especially the pre-Boreo portfolio having struggled on the customer side, so sales challenges, lack of demand in the industrial side, and also mainly because of the reason that many of those businesses are quite CapEx related in terms of their demand. So that clearly hits us in terms of our performance today. Also the fact that the Finnish economy is not doing well and the majority of our portfolio being focused on the Finnish market is a clear reason behind the challenging performance and current trading as you can see from the figures. Here's a slide I brought to bring you a bit of additional detail from the portfolio. The ones who have followed us have seen this before as well. Basically here categorizing our companies acquired since Q3 2020 and the pre-2020 portfolio.
We do see that both of the parts of the portfolio have experienced declines in their profitability. However, the decline has been much more rapid or dramatic in our old portfolio, so especially challenges in Machinery, Tornokone, our Finnish Putzmeister business, as well as the former YE International Yleiselektroniikka portfolio, so a clear drop from roughly EUR 6 million down to EUR 3 million rolling 12-month profits as opposed to for the new portfolio from roughly EUR 6 million to EUR 5 million . The new portfolio has performed better, even not as we have expected, but anyways showed more resiliency during the tough times in the market we have experienced.
Finally, on the group cost side, now we can see that there's roughly EUR 500,000 decrease in our rolling 12-month group cost level, but we expect going forward the group cost also to reduce by roughly EUR 800,000 on an annual basis as the actions related to group related functions have been taken now during this year. Even though the company is in a challenging situation at the moment, we continue to be confident on our ability to create long-term value. The business model as such works. We do believe in our ability both to develop and own our businesses and also showcasing.
If you look at the roughly EUR 60 million we've invested in the last four years to acquisitions, we still continue to be at around a 15% return number for those acquisitions, which is partly supported by also the decrease in our deferred purchase price payments, which declined significantly during this year and the following. However, a good indication that even though the overall picture looks challenging inside the firm, there is a good and sizable share of the portfolio that continues to perform rather well. So overall, if we look at what we expect going forward, we continue to be confident that when the market conditions start to gradually improve, there is a clear improvement potential in the portfolio.
Finally, then, on the big picture, we have updated our strategy last spring, not only focused on acquisitions, which are an integral part of the long-term value creation plan and the business model, then also the investments that we continue to make to support the organic growth of our companies. But as we see, due to still the portfolio not fully reflecting what we would like to see the portfolio to be, we continue to, and we have already implemented a number of reorganizations in our businesses, mainly in the pre-Boreo era businesses, which have already improved the cost competitiveness of those companies and also then support profit generation once market conditions improve.
So even though we're not at the moment fully focused or as heavily focused on searching for new acquisition targets, we do work with a number of M&A cases at the moment, and if we have a chance to complete acquisitions in a manner which support and are enabled, considering the overall situation of the firm and the financial standing, we are open for those types of actions as well. However, primary focus, as we've discussed the last couple of quarters, is in the existing portfolio, making sure costs are in control and also making sure that working capital is on a level that continues to still secure sufficient and reasonable returns on an operational basis. So those were a couple of reflections on the big picture and then continuing with Q3 2024 highlights.
Even though we experienced a heavy decline and a significant decline in sales, roughly 30% compared to last year, we were still able to secure a decent or moderate profitability of around about 6%, so a significant decline compared to Q3 2023. However, if we look at the development throughout 2024, we've been able to bring the profitability back from a poor level of Q1, now in Q2 and Q3, still on a reasonable basis and expect this also to continue in the coming quarters. One of the most positive messages now out of the report and our performance is that the cost actions we've taken continue to kick in better than we initially anticipated. We communicated six to nine months ago that we target roughly EUR 1 million annual fixed cost savings. Now we are going above a EUR 2 million mark.
In this specific Q3, the costs were roughly EUR 1 million below compared to a year ago, which would indicate even a much more sizable cost reduction, but we expect that there will be some pickup in the coming quarters versus this quarter. So safely a number of EUR 2 million and hopefully somewhat more to come on the cost saving side. The trading outlook continues to be decent, so our order books throughout the quarter, they improved compared to the Q2 2024 situation, and they're roughly at the level of Q1 2024. As a minor negative happening was that our sizable single orders in our PM Nordic Putzmeister business in Sweden, they were postponed now to 2025 due to postponement of chassis deliveries for those concrete mounted pumps. However, they continue to be in our order books, and we expect a strong 2024 then for our Swedish Putzmeister operations.
Priorities as before, profit generation de-leveraging leverage is clearly elevated at 3.3x. Considering that we have the hybrid instruments on our balance sheet, this is clearly too much. However, at the same time, we continue to have a good level of comfort in our ability to steer the firm through these challenging times and have enough liquidity to support the operational performance of the group as a whole and our companies. Then running briefly through the more detailed slides, so here clearly is the main reason for our poor performance. Sales on a rolling 12-month basis now have declined from over EUR 170 million down to EUR 130 million, so a heavy EUR 40 million decline.
If we look at where that mainly comes from, as also in the previous quarter, still the Putzmeister business continues to account for a significant part of that decline. At the same time, the positive news from that business is that we clearly continue to dominate the marketplace in all of our three markets, so we haven't lost any market share during the challenging times, and as a result, once the market returns, we do expect to be in a good position to generate profits in line with the recent history as well. Machinery has had a tough year, primarily in our construction-related business, also the metal machining part and partially our power business. Now we completed in the beginning of Q4 a de-merger of Machinery to the separate parts and expect that then also strategic-wise support the development of those companies going forward.
On the positive side on the margins, I already talked about the fixed cost side of it supporting our profitability. The gross margin profile continues to be as good and positive as it was already in Q2 and partially already in Q1. So even though sales decline, the sales mix and the good work that our people have done in the companies, we still continue to generate, or we generate on a relative basis, better gross margins. So clearly over 5% was better than a year ago. We do expect that once our sales start to go up again, the gross margin profile will come down closer to where we've been before, but definitely not back to the 25% levels where we have been because we've closed quite a lot of small businesses inside our portfolio, which do not continue to be in the future there anymore.
Also the acquisitions we've done in 2023, especially at the end of 2022, they have also clearly improved the gross margin profile of the portfolio. But the positive development as such. Cash flow now, we didn't quite meet our objectives in Q3 with regards to working capital, so we continue to communicate in the last quarters that we target to bring the trade working capital down to roughly EUR 25 million. Now we are at EUR 28.5 million, EUR 0.5 million increase versus Q2. We have succeeded well in lowering the inventory levels in our businesses, so roughly a EUR 10 million reduction since summer 2023, so where the inventories were at their peak. However, the development on accounts receivable, accounts payable have not been favorable so that it would be reflected as heavily in the overall and total trade working capital numbers.
So we do continue to see that with these levels of sales we experience at the moment, we have a chance to bring working capital down to roughly the level of 2025, but it will take some time. So we do expect positive development in the coming quarters, but in a bit more slower pace than we initially anticipated. When returns are negatively impacted by the profit decline, we have experienced both on the group side, but also then the return on trade working capital metric that we follow in all of our companies, a bit more stable development in our electronics portfolio compared to the technical trade portfolio, but anyways on a group level, significantly down and not where we believe these portfolio companies can be. Final slide from my side.
So as we communicated in the report, we do see that there is a decent performance outlook there in the coming quarters, so supported by the increase of order books, as explained. The construction logistics Sweden deliveries are now delayed to 2025, part of which we expected to materialize in Q4 2024, but then I think now expecting first deliveries to happen in Q1 2025. A very good and pleasing development of order books, especially in our Signal Solutions business and Milcon, so two electronics companies. Signal Solutions had a tough 2023, but now clearly uplift has happened, and we expect that also to continue in Q4, especially in our Finnish and our Polish Signal Solutions businesses. Costs decline as planned or more than we communicated before.
Cost action has been taken both at the HQ level, but then particularly in our old portfolio companies, Yleiselektroniikka here in Finland, YE International Estonia, especially where we've gone through a reorganization and will continue to, as a result of that, pursue a sales process of our real estate also in Tallinn and then Machinery also, which has gone through a reorg throughout the year. The most positive outlooks going forward continue to be Milcon on the defense industry side, Delfin Technologies is a stable trajectory in our health technology business, Filterit, our process filtration, water treatment business, even though some challenges throughout the year with regards to industrial demand, but anyways a quite stable outlook, as is the case with our courier logistics business, ESKP here in Finland.
So we do see, I mean, in the big picture, we don't see that the market would have already started to pick up dramatically, so that there would have been a significant change of play on the demand side, but we do have more orders and stronger order book. The costs are lower, so even at quite moderate level of sales, the company is able to generate profits, which is positive and creates confidence towards the future. So that's it from my side, and then I hand over to Jesse for further more detailed review.
Yes, thank you. So looking at the financials in more detail for the third quarter, we reached sales of EUR 28.4 million in a quite challenging market, reflecting a 31% decline from the previous year when we had EUR 41 million in sales. As Kari mentioned previously, a large part of this decrease was due to three components, so our Putzmeister business, our Machinery business, and then the YE businesses in Finland and the Baltics. And on the EBIT side, we reached EUR 1.8 million, which represented a decline of 29% from previous year. On the relative profitability side, so EBIT percentage, we were at 6.2%, which reflects that we were still able to defend profitability in a period with declining sales. And this is mainly due to higher gross margins and then the cost measures we implemented throughout the year.
Looking at the cost side of things, our direct cost ratio has been ticking down steadily throughout the year. This is mainly due to both the sales mix, so a shift towards the aftermarket sales, especially in the Putzmeister businesses. Then we have done pricing actions in our portfolio companies and also reviewed and discontinued some low-margin product segments and put our focus on more high-margin business going forward. And then as Kari mentioned, the acquisitions at the end of 2022 have also contributed to this. On the indirect cost side, the rolling cost base has also been decreasing throughout the year. If we look at Q3 versus Q3 indirect costs, we are down EUR 1.2 million.
This is not fully reflected in the rolling figures yet, but as Kari mentioned, we have achieved our previous cost measure targets and are on our way now to achieve more than EUR 2 million per year of cost savings. The indirect cost ratio, on the other hand, has been ticking up a bit and was at 23.8% at the moment, but this is a reflection of the lowering sales and still shows that we have been managing the cost base in a period where sales have declined double digits. Then jumping over to our business areas. So looking at the electronics business area at first, our sales for the quarter was EUR 12.1 million compared to EUR 16.3 million in the previous year. This was a decline of roughly 24%. The operational EBIT percentage stayed at 8.1%, which was a good performance in the market.
This is mainly due to the gross margin improving from the previous year due to successful pricing actions and then the sales mix changing as well in the current environment. We have also done some profitability supporting measures, as Kari mentioned, the reorganizations in our YE businesses in Finland and Estonia. This has included streamlining the organization and discontinuing some product segments in the especially Estonian market. On the absolute operational EBIT level, the rolling 12-month figure has come down to 3.7 compared to 4.5 in the last year, but has remained relatively stable throughout the year, leading to return on trade working capital decreasing to 43% from last year's 50%. And this now mainly due to the decreasing profits. So on the trade working capital side, we have succeeded in the past year, but the declining profits are affecting the ratio more.
Then other notable developments for the quarter. In connection with the Estonian streamlining, we have initiated a sales process of our real estate located in Tallinn, and this we expect to finalize in the coming months. We are in the process there. Otherwise, looking at the broader performance of the market, the Baltic companies have had a challenging quarter. This is pretty much throughout the Baltic countries. On the positive side, Milcon, for example, they have performed well in the current environment, and they have a positive outlook going forward with growing order books supported by the increasing demand in the defense industry.
SSN, after a tough year last year, improvements this year. The third quarter was a bit tough due to timing issues, but they have an increasingly positive outlook going forward. This is through their major customer ramping up investments and then finally mentioning Delfin, their investment program proceeding as planned. So last year they initiated a platform reform, and this year they are also assessing their strategic options, both in terms of product and then geographical focus, then jumping over to technical trade. There s ales at EUR 16.2 million in the third quarter compared to EUR 24.7 million in the corresponding quarter last year.
This was a decline of roughly 34%. The operational EBIT remained still at 7.6%, which similarly to the electronics business area was a result of defending profitability. On the technical trade side, this also came through the sales mix, as mentioned, largely through to a shift towards more aftermarket sales, especially in the Putzmeister businesses. Then we have done pricing actions in the companies and same thing as electronics, discontinuation of some product segments with low margins. We have also done the streamlining of organizations in a few companies. Kari mentioned Machinery. We have done some streamlining in Muotikolmio and been able to reduce the indirect costs in the business area as well.
On the EBIT side, so rolling absolute figures, we are at EUR 5.2 million at Q3 compared to EUR 7.3 million last year, so declining absolute levels of profitability and then return on trade working capital corresponding and declining to 27%. Even though there as well, we have done a good job on the working capital side, but profit has taken a hit due to the sales decline, then noting a few things, developments from the quarter, so our largest business unit, Machinery Power, a bit challenging during the year, still holding up moderately. The outlook is still moderate and a bit hazy going forward, but order books are remaining at Q2 levels. They are up from the beginning of the year, so slight positive developments there. Muotikolmio, on the other hand, they have defended profitability very well during the year.
This has been due to the mentioned reorganizations, some pricing actions, and then especially more sales mix shift towards their Termotuote and Isodrän products, which are on the construction renovation side. Termotuote is the product we acquired in 2023 with the Lamox acquisition. Fronius, they have managed the challenging environment well. The outlook is looking brighter. They are, of course, supported by their strong market position in Finland. On the opposite side, Machinery MT, so the metal machining part of Machinery has been struggling lately. This is more due to their sales being more CapEx driven, so the products are more, they are larger investment for the customers. Other notable topics, Filterit, moderate demand in the market.
They are still doing okay, and Filterit has developed positively in terms of they are investing in their sales force and investing for growth, so focusing on both geographical and industrial expansion in Finland and building for 2025. Putzmeister businesses, Finland has been tough for Tornokone. Sweden, on the other hand, has defended the slower market quite well with strong aftermarket sales and then securing a strong order book, which now, as Kari mentioned, is shifting to 2025. Moving on from the business areas to earnings per share and return on equity. Operational net cash flow per share for the quarter, EUR 0.25 per share. Operational EPS, EUR 0.10 per share, reflecting the current situation. Return on equity, these are on a quarterly basis, so declining curve reflecting the profit level.
On a rolling basis at Q3, we were at 7.8% return on equity, but this is a strong reflection of the current profit decline, and then we have a slight elevation on the equity side with our old hybrid still remaining by EUR 4 million in the capital structure, and then looking at the capital structure and debt facilities currently in our portfolio, so on a maturity side, 2025, we have our usual EUR 5 million of debt repayments coming up, then we have a renewal or refinancing of our RCF facility of EUR 4 million, which currently is unutilized, and then there is a reset date of our old hybrid of EUR 4 million in Q1 2025.
Then in 2026, we have a maturity date for our current term loan facility, EUR 60 million , and then our acquisition facility of EUR 12 million , which EUR 6.5 million is in use as of Q3 this year. And then the new hybrid has a reset date in 2027. And in terms of facilities in total, we have EUR 73 million of facilities, of which EUR 56.5 million are in use now in Q3. This is the term loan, EUR 23.5 million acquisition loan facility, EUR 12 million, which is used at EUR 6.5 million. Then the two hybrids, EUR 20 million and the old EUR 4 million.
Then we have an overdraft facility of EUR 9.5 million . At Q3, we have EUR 2.6 million in use of that. And then the unutilized RCF facility of EUR 4 million. So on a liquidity basis, we reported in our Q3 report as well. We have a short-term liquidity of EUR 13.8 million, which we are currently comfortable with, and then in addition, of course, good relationship with our financiers here. So not looking into any near-term action in terms of these, we have a good position with our debt facilities. That's about it for the finance side of things, and then the Q&A.
Okay, thank you, Jesse. There is a set of questions I have disclosed, all the ones which have been presented. I'll start from the bottom. So first question, given your comments on the order books, should we expect the revenue to have bottomed at Q3 despite the postponed deliveries in Putzmeister? I mean, yeah, I would say that the order book generally is stronger now, and it does support our short-term outlook.
As such, the overall, if we look at the absolute level of less than EUR 30 million, we do expect to be able to operate above those numbers going forward. Then there's a specific question on the Baltics. So we have done some changes to our operating model and product portfolio in the Baltics. And I believe this as a background for everyone. I think this relates to the YE Estonia actions we have taken. So closure of our B2C business in Estonia, also some of the actions we've done in Lithuania earlier this year. So how is this visible? Are these changes how visible they are in the numbers? And given that the revenue declined 39%, well, actually the impact is not too heavy.
I mean, we did lose, we will lose some sales, and we've already lost some sales due to the closure of the B2C business and certain parts of the Lithuanian business, but the bigger impact here is that our Latvian operations experienced an extremely strong growth from 2021 over to 2022 and continuing to 2023, so I believe close to a 3x sales growth in those years, and now we have returned back to much more modest levels, but still above the pre-peak numbers, so doing actually on a longer term perspective, looking at it how the business developed quite okay, but that is the main reason for the decline now in the Baltic revenue, so the market has not declined by 39%, much less than that. Continuing with questions, this is a question in Finnish.
If I try and translate, so do we see that our companies would have, so to say, demand that would have been building up as there has not been investments taken by our customers? And then the question continues that whether our companies have a potential to go back to the earlier year levels if the market conditions improve? And then basically a note to say that hopefully the cost actions taken have not taken the growth potential. Very good question. The starting of, I believe there is already some demand, which is sort of built into the system in Finnish, patoutunutta kysyntää. We do see that, for example, on the metal machines side.
So we do see that our welding business, Fronius in Finland, for example, we have already started to see that a period of not doing a lot of investment on the customer side has yielded into improvement in the activity on the customer side. Continuing on that, in the same value chain, we have our Machinery MT business, which are larger investments compared to welding machines. There we still continue to see that it takes more time for customers to decide on investments, given that those are much more sizable investments versus welding machines, which have picked up first. So those two, as an example, reflect that there is some demand there, which is not yet fully materializing. The same goes, I believe, also with our, I mean, Putzmeister business here in Finland, especially, which is now being commented here to be in a tough market environment.
We do see that a lot of the capacity from Finland has been sold out to the export markets to balance the demand, supply and demand side. But we do expect that even a slight pickup in construction activity will also start to yield positive developments then to our businesses. So some signs at least. And then as a quick note, I would say we do believe that there is a significant upside in the portfolio. So the portfolio companies have declined altogether by roughly EUR 5 million from the peak. On top of that, we've taken now EUR + 2 million profits or costs away from the business. And we do see that we don't need to build up to similar fixed cost base even to reach, go back to + 20% higher sales levels to where we are at the moment.
So that's why we believe there is a clear potential for improvement in our profits once the investment activity starts to pick up again. Some further questions. I'll take the business comments first. Your electronic sales have usually been highest in Q4. Do you see similar seasonality this year? We do. I mean, mainly as a result of, as we commented, the positive development of Milcon and SSN. I mean, also not only this year, but before, especially the defense industry demand at Milcon. Majority of the profits have always been generated in Q4. And we expect this to be the case in 2024 as well.
SSN has, as we mentioned before, picked up nicely in terms of order intake now in Q4 and already in Q3, but also now Q4. So we do expect those to be the main contributors in driving electronics sales up versus now Q3 this year. Continuing, there is a question still on the business side. Are the postponed deliveries of Putzmeister already in your inventory, or will they build inventory before being delivered in H1 2025? Maybe Jesse wants to take that. Are they in our inventory, or will they build inventory before being delivered in H1 2025? So these are the Swedish deliveries, basically, what I refer to here.
The expectation is that they will not materially build up the inventory. So we have certain payment terms with the supplier. And once the order has been placed, the payment structure from the customer is such that we will not result in a high increase in our inventory levels in the meanwhile.
Yes. Then there's a question on our real estate divestment process in Estonia. A good question, but I refuse to answer to that given there is a process at the moment in place. Hopefully we will then comment on that when we have something to comment. I mean, the size of the, it's not a huge building. It's roughly, in terms of size, the similar type of building that we had here in Finland and still in 2020. So in Espoo, our former headquarters. So if you go and look into that in terms of the size of the facility, you can sort of get some sort of an idea of what we are talking about here. But I will not go into further detail there.
Then there are questions, two questions on, well, on financial situations. So our leverage being currently at 3.3x and how much do we have room to our covenants? I mean, we haven't disclosed our covenants, but we do still have quite a bit of buffer there. But we haven't disclosed the exact covenant thresholds, and neither will we do that now. But there is room there. And then a continuing question, what should happen that you would face problems with your liquidity? Well, the biggest part is, of course, profit generation, which is somewhat more important compared to inventory side. But I mean, in simplicity, we would still need to see a quite sizable decline in profits and then at the same time an increase in our working capital to face problems.
And as we commented, I mean, the market continues to be uncertain. But I go back to what we've said throughout the presentation that the cost actions do support. We still have work to do with working cap. We do believe that there is a sufficient amount of liquidity in the system to support our companies and the group through the winter and towards gradually improving 2025. Then there is a question on use of the Boreo share to reignite the M&A growth. I will be careful in what I say in terms of the value of our share at the moment. But I mean, maybe you can get the feeling out of that saying what we're saying here in terms of our, in terms of what we expect our companies to be able to generate.
So we do say that now we are, and the portfolio is far away where we expect that the potential is. We do also see that the market will improve, has improved. It's not going down for sure. It shows signs of some stability and maybe some gradual improvement. So at these levels, of course, somewhat always cautious on using M&A. And we haven't done that in the future either to a significant extent. But I mean, each acquisition case is a specific case. And then we do look at those situations on a situational basis.
So if there's some incentive elements, for example, for entrepreneurs as we've done before, we might consider it meaningful to use some part of the share and so forth. But naturally, share price development has been what it is. We need to take that into account when we talk about using our share for any purposes of this kind. And the final question is then on our hybrid. So are you looking to pay back the old hybrid next spring?
I mean, we have said before that this is the plan to follow that path that on the reset date is there. Then as we intend to pay that back, then we will comment or release the necessary releases when the time is right in accordance with the terms which are there in the instrument. But yes, the plan is to pay that back. That's it. I have now ironed out all the questions. Thank you for those good questions and thank you for taking the time to be with us for 45 minutes. We end up here and say thank you again.
Thank you.
See you next time.