Morning from Vantaa, from the Boreo headquarters. Welcome to this Webcast S ession, where myself, Kari Nerg and our CFO, Jesse Petäjä, will discuss the Second Quarter 2025 Highlights of Boreo Plc. Agenda is as normal. I will discuss the key financial and strategic highlights of the second quarter and the first half of the year. Jesse will dig into further numbers and business area-specific performance. If you have any questions, please use the Q&A tool made available. Starting off with a key commentary on the second quarter. First, from a financial point of view, we continue to grow now for the third consecutive quarter, so s trong organic sales growth of 19%, of which 17% was organic. Gross margins remain stable. Our businesses in the recent quarters, we' ve been trading at around 30% gross margin levels.
On the operational EBIT side, so profitability was somewhat below last year, €2.2 million in absolute terms in the second quarter below due to somewhat higher fixed costs, which we expect to be partially periodic for this quarter. Also, the fact that last year's result was boosted by more significant burnout provision releases. Operationally, our businesses performed better than a year ago, but the accounting-related adjustments impacted the quarter-to-quarter comparison. Our leverage as a financial standing improved quite significantly during the quarter or to the end of the quarter, mainly as a result of the issuance of a convertible hybrid bond, €10 million to a Norwegian insurance company, Protector Forsikring. Leverage came down from roughly 3x- 2.3x towards the end of the quarter. Cash flow operationally was negative in Q2. Our sales grew especially toward the end of the quarter quite significantly, leading to rising receivables, which we then expect to come back into somewhat slower summer months.
Expecting positive cash flow then in Q3, and toward the end of 2025. Looking ahead, order books remained quite stable, even though we grew on a net sales basis quite significantly. Quite good order intake during the quarter, so that provides us some certainty and some visibility for trading in the coming months. However, I think a longer-term outlook is a bit more shadowed, depending on what's going on overall in the world at the moment, and a bit more unclarity toward next year and then end of the year. The coming months and order books support quite decent performance in the coming months and the quarter. On the strategic side, we're pleased to see a couple of activities. The issuance of the convertible hybrid, I already mentioned a bit more of that in the coming slides. Also, the fact that we returned to acquisition track again since mid-2023.
Closed during the quarter one acquisition, an acquisition of Spetselektroodi AS in Estonia, a welding product distributor in the Estonian market. Now in Q3, we have closed 1st of August, the acquisition of Elfa Distrelec activities here in Finland and in the Baltics. R eally happy of these strategic developments. With regards to our long-term strategic targets, we still are not there where we would like us to be. I think operationally performance-wise, we are trending in the right direction. Three consecutive quarters of sales growth start to point us to the right direction. We do expect profits to improve in the coming quarters as well, so expecting the bottoming of our result, having happened in year 2024. Returns continue to be rather, I would say, mediocre at around 8%- 9% on a return on capital employed basis.
Definitely room for significant improvement, mainly while we succeed in bringing profits back and revenue back to historical levels. W hen it comes to leverage, positive development now, so a significant downward trend or a downward movement in our leverage ratio, so now at 2.3x, considering the impact of the convertible issued now at the end of Q2. In addition to, I would say rather positive development of results, I think the key positive developments from the firm is basically the fact that the work started one and a half to two years ago in number one, protecting the profitability of the company, reducing working capital, generating cash flow, and with an objective to returning back to growth. Now we start to see the results of those actions. We've seen a significant amount of strategic priorities met during the first half of 2025.
The announced two acquisitions, which I already mentioned, the consecutive three quarters of organic sales growth and also the issue of the hybrid bond, which provides us firepower for completing acquisitions in the future and a lot of other actions and development, the actions we've taken in the portfolio. For example, the sale of the real estate in Tallinn in Q1 2025, the separation of our largest business machinery into two companies in Q4 2024 and a lot of other development actions in the businesses, which we do expect to yield positive results going forward. I think we know the company is in a much better shape than it was one and a half to two years ago as a result of the actions taken not only in the group, but in our businesses and in the portfolio as well.
On the back of that, we're well positioned to improve the performance, and to remain on a positive trend as we've now seen the last two to three quarters. On the acquisitions briefing [outing], as I mentioned in the beginning, during Q2 we closed the acquisition of Spetselektroodi , a company focused in the distribution of premium welding machine and automation products. A business that has been built on the back of the Fronius relationship since, I would say, the 1990s. We do own already since 2022, the sole distributor of Fronius products in the Finnish market. This was an expansion of the relationship with Fronius to the Estonian market as well. A strong, good, reputable business, which has been in the market in a good market position for decades, operating at roughly 10% operating margins and employing 12 employees in the country.
The transaction was closed now in May 2025, and onboarding is ongoing as we speak. A bit of a larger transaction, which we announced on the 1st of April, was the acquisition of Elfa Distrelec sales activities in Finland and the Baltics. This was a transaction signed with the long-term partner of ours, RS Group, from the U.K. This transaction was now closed on the 1st of August, so basically last Friday. We have welcomed a couple of days ago, 10 new colleagues to the markets and to our facilities. Happy to see the team growing, and a business with a lot of growth prospects going forward also being integrated into the business. Overall, very important that since the Delfin Technologies acquisition in mid- 2023, we were now able to return back to the acquisition track. We are an acquisitive firm.
We should be acquiring companies on a frequent basis. Given now the issuance of the hybrid as well, we are well- positioned to continue doing that in the future as well. With regards to the hybrid or the convertible hybrid that we issued, I wanted to bring a few points. First of all, the instrument is, as the name says, a convertible hybrid bond. It's an equity-classified instrument under IFRS. It carries a €10 million paper, carrying a 4% fixed interest rate for the next four years, providing an option for the holder of the bonds, so Protector to convert the €10 million to shares in Boreo at the price of €19 per share. We also do have a right to redeem the bond after year four, should the bond not be converted.
Definitely, we see this as an equity instrument, even though it has an interest rate component to it. I perceive this as a really important sign from a very reputable investor, and who has been following the company for a long time believing in the long-term value creation potential of Boreo as well. Happy to have completed the transaction, the rationale behind the transaction primarily being this providing support for us to be able to continue doing what we're supposed to do. A cquiring companies and developing the existing ones, and supporting investments into the existing portfolio.
It did, of course, improve our financial position quite significantly, leading to lower financing costs because the issue and the equity classification basically pushes down our senior debt financing terms and also lowers the amount of use of leverage, and other debt facilities at the point of issuance of that type. Overall, a really strong compelling instrument and a transaction which we believe to be both good for the existing shareholders of Boreo, BUT the investor Protector and the long term as well. Finally, taking a bit of a look at what we intend to do and not financial guidance, but more of a priority focus guidance toward the coming months. On the back of the now completed actions, our focus will of course as always be in the continuous development of our portfolio.
The existing companies that we own support the development of those businesses. At the same time, also considering, as we've said, if there are some companies in the portfolio which do not meet the demand or the criteria of ownership, considering potential divestitures of such companies., t his is ongoing work and this is always what is detailed in our playbook. Number two, given the increased firepower and the stable position from a financing point of view, we look forward to exploring new opportunities and potentially executing then on additional acquisitions in the coming quarters. With regards to trading of the underlying portfolio and existing portfolio, as I said in the beginning, the order books remain quite stable from the end of Q1 and are on a level which is higher compared to a year ago. They do support a decent performance in the coming months.
What happens at the end of the year is a bit of a question mark and toward next year. However, looking at the demand trends, there are some positive movements on the industry side. Construction overall, from our point of view, remains quite modest and stable, not showing short-term, let's say movements upwards. Overall, the significant part of the portfolio, which is related to industrial activities, seems there's a bit more positive signs, at least the way we see them. Let's see how things go.
We will of course act in case of significant movements up or downwards quickly, to make sure that profitability remains on a decent level. Quite happy being able to continue on the path, and basically executing the strategy that we have set in place. Currently, not on an absolute basis where we should be, but we have already started to trend in the right direction and think we will be able to do so in the short-term future as well. With that said, I will hand over to Jesse for further review of figures.
Yes, sure. Looking at the big picture on the financial side, as mentioned, we had a growth of 19% on a quarter-to-quarter basis, of which 17% was organic and two percentage points coming from the Spetselektroodi acquisition in the technical trade business area. The market conditions remain quite moderate still throughout the quarter. Looking at the rolling 12-month figures for the group, we can see that we have turned the corner and the positive trend is becoming visible in the sales figures there.
For the business areas, electronics, a bit of a mixed performance within the business area, but both Milcon and SSN continue with good results. Technical trade, a good quarter as well. Especially the Swedish Putzmeister business continued its strong performance. If we look at the gross margin and the profitability side of things, gross margins were at roughly 31%, remaining quite stable at previous quarters. We have had significant improvement in the previous years, due to our both acquisition profile and then some product portfolio decisions made in the business units. Despite this, the sales mix varies a bit from quarter- to- quarter. Now, especially through the partial recovery of sizable machine deliveries, the margins have been diluted somewhat from what they had been. On the EBIT side, relative profitability decreased slightly from the comparison period.
This was both due to the aforementioned sales mix, then a higher fixed cost base in Q2 which was a result of both recruitments, some OpEx investments in some companies, management bonuses. Looking at the comparison period, the 2024 Q2 had some burnout provisions releases in a more significant manner than what we had this year. Looking at the cash flow profile, the rolling 12-month cash flow as we define it, cash flow prior to debt service and M&A, CapEx was at a healthy €9.4 million and cash conversion at 95%. The reported operative net cash flow was €-0.5 million in the quarter. This was mainly due to an increase in trade working capitals of roughly €3.5 million, excluding the Spetselektroodi a cquisition. The increase in trade working capital was a result of strong revenue growth at the end of the quarter, which increased the level of receivables significantly.
All in all, we expect to take down the working capital level in H2, and the working capital management has been on a solid level so far. Looking at the return side of things, return on trade working capital decreased a bit to 26%. This was both due to the slightly diluted margins, but then especially the increased receivables at the end of Q2. All in all, the working capital management has been on good levels. Although we see improvement potential there as well, our main focus for improving the returns is on the profitability side, where we see a clear potential to improve in our current portfolio and driving up the returns. When looking at business areas, electronics had a sales growth of 17% on a quarter-to-quarter basis. Operational EBIT was below last year's quarter at roughly €800,000, with EBIT margins decreasing to 5.6%.
This was partly due to sales mix, so lower margins in the quarter. There has been some recruitment and OpEx investments in some of the companies. Working capital management has been on a solid level in the business area. The rolling 12-month EBIT in the bottom right corner at €4.5 million has been improving during 2025. The market conditions for the business area overall remain quite weak. The uncertainty in the electronics component business has led to some customers postponing investments and affecting the demand environment. Order books grew slightly from Q1 though, and they are on a good level going forward. Especially Milcon and SSN have continued their strong performance. The acquisition side, Kari already discussed, so we signed the Elfa Distrelec SPA in April and the completion was now on 1st of August, with onboarding going on as we speak.
Technical trade had a good quarter with sales growth of 20% on a quarter-to-quarter basis. Operational EBIT grew to €1.8 million. The EBIT margin declined slightly to 7.1%. This was due to larger machine deliveries, which diluted margins somewhat. The return on trade working capital also decreased slightly to 24%, mainly due to the increase in receivables at the end of the quarter. The rolling 12-month EBIT continued its positive trend since the end of 2024 and reached €4.9 million now in Q2. Performance-wise, the Putzmeister Sweden business continued its positive trend, a strong quarter there. Order books declined slightly from Q1, mainly due to deliveries and timings for machinery and machinery emptying. The order books overall remain at a good level going forward. On the M&A side, we had the Spetselektroodi acquisition company joining the group in May with the onboarding, progressing and proceeding well so far.
Finally, a word on our improved financial position. As Kari discussed, the convertible hybrid bond of €10 million was issued toward the end of the quarter, which due to its equity classification, strengthened our balance sheet significantly and has taken our existing financing costs down. We are currently in a position where we have €59 million of total facilities in use, including the convertible hybrid bond out of €76 million. We have a strong liquidity position, and now our balance sheet is in a position where we are capable of pursuing further acquisitions once again.
On the debt maturity structure, on the left-hand side of the page, a majority of our debts have a maturity date in 2027. This shows the total facilities maturing then, so €13 million of RCF, which is currently unused completely. We have €12 million of our acquisition facility, of which €8 million is in use currently, and then o ur €13.5 million in our term loans. Our €20 million hybrid bond also has a reset date in Q1 2027, meaning that unless it's redeemed, there's a step up in interest rates. Finally, the convertible hybrid bond, which was now issued has a reset date in 2030, unless converted to equity prior to that or redeemed by Boreo in four years' time. That's it from the financial side, I think. Thanks.
Okay. Very good. Thank you, Jesse. We continue with the quick questions. I published all of the questions here, so I think you can see and follow them. I'll try not to start regrouping them, but rather just take them one by one. I hope that's fine. Starting from the bottom, number one, on what level are we expecting the Putzmeister deliveries to continue in Q3 and H2 overall compared to Q2 level? I think overall, if we look at our Putzmeister business, meaning Sweden, Finland, and Estonia, we're looking at the development or the trading levels should be rather stable H2 to H1.
In an H2 to H1 comparison this year, the Swedish market, PIM Nordic is supporting the entire , so to say, operation quite significantly given a much more brighter outlook and a strong order book at the moment as well. We do expect a few deliveries of concrete- mounted pumps to happen in Estonia as well as in Finland. Clearly, looking at the markets, Sweden is in a better position compared with Finland, especially Finland, which continues to be a tough environment. A straightforward answer to your question, quite stable considering the three markets. Number two, this is in Finnish, related to management performance bonuses.
If I try and translate, the question roughly goes that, do the increased levels of management performance bonuses only impact this quarter, or are they divided into a number of quarters? The answer is that they impact most significantly Q2. Clearly, higher bonuses compared with the prior year where basically there were no bonuses paid. That was a significant impact on the performance now in Q2. What the level of management performance for the rest of the year will be, it's dependent on the trading of the business and the group overall toward the end of the year, and normal procedures related to doing provisions and releasing those and so forth. This is one of the periodic items that we commented during the presentation, which impacted the profitability of the quarter.
Continuing, it sounds that the outlook for your business in the Q2 report is rather similar compared to what we said in the Q1 report. Is that the right interpretation? Yes, it is. Of course, we would like these comments to come more, that we say the same things quarter after quarter. To provide a bit more color behind the answer, I think the outlook we were sort of expecting, and we were not expecting, we were on alert, seeing what the tariff-related hassles will cause and what the impact will be in Q2. We did see very little impact out of that. It didn't really impact these things, didn't really impact our second quarter and nor do we expect those to have direct significant impacts to our portfolio.
Of course, we buy a lot of components, machines from different parts of the world, and there will for sure be some tariffs imposed to products supplied to us and partially to products that we sell. We don't expect this to be major. It's more around the general uncertainty in the world that o f shadows the development of our businesses in short term, which is quite difficult to say what the impacts will be. So far, order books are where they are. They are quite decent. They're better than a year ago. That's why we say that the coming months, we expect to be at least quite decent. I think I discarded one. Sorry, I think there was a question on capital allocations priorities.
In the next 12 months.
Okay, y es. Sorry for that. I think the priority, as we said both of us, but yes, we commented , the issue of the hybrid , the convertible was driven by both the strengthening of the balance sheet, lowering financing costs. Basically, the big reason behind being that we are able to continue on the acquisition path. Assuming we would find businesses which fit our ownership criteria at valuation levels we are comfortable with, and at the same time, the financial standing of the company remaining on a decent level, then we would be happy to allocate more money into acquiring new companies. There was a question, which I take at the same time, that what is the leverage range we are comfortable with after potential new acquisitions?
Looking at the 2.3x leverage at the moment , as it is impacted by the hybrid, the €20 million hybrid we have on the balance sheet plus the convertible, of course then we rather remain on the lower end of that figure or sometimes even below that. I think when we make significant capital allocation decisions, w e look at the standing where we are as a group. A group as a whole, we look at the trading outlook of our businesses. We look at the potential returns of that new venture, whether that being organic investment opportunity or an acquisition opportunity. Sum that all up and see what's the best alternative, and what's the best way going forward.
Sometimes that might mean that, assuming you are at 2.3x, you might be willing to take a view that we gear the balance sheet rather toward 3x, if the case is really strong and we believe we can deliver downwards. It all depends on a number of items. I would say as a guidance at this stage, looking at our leverage target 2 x- 3x, given that we have those hybrid and convertible hybrids on the balance sheet, we'd rather remain on the lower end of that range or even below.
Continuing, I'll publish a few other questions here as well at the same time, m aybe I just want to take a few of the business questions. On the technical trade side, there are questions for why our fixed costs were up, especially on the technical trade. How much was driven by Spetselektroodi? Should we expect clear organic increases also in the coming quarters? How would you comment on that?
I would say, first of all, Spetselektroodi didn't affect the fixed costs too much. It was [crosstalk].
Single €100,000.
Yeah, €100,000, €150,000, give or take. Otherwise, there were more of one-time items. For example, on the Putzmeister side of things, there were investments in bauma Fairs and this type of non-recurring or once-in-a-year type of costs, which we didn't have in previous years necessarily. At the same time, there's been some growth recruitments and investments on the OPEX side as well. We talk about systems and these types of things, which we don't see increasing going forward on a cumulative basis, rather that we have now taken some steps when we have seen growth in revenues and demands, but n ot a trend that we would expect that the fixed costs are increasing on the technical trade side.
Yes. Maybe to complement that, there was another question, that the number of employees have increased in technical trade and take that away at the same time. Of course, the major contributor to that was the Spetselektroodi acquisition. On the technical trade side, we have made investments into especially a few businesses, one being machineries, auxiliary power business. Basically, the business where we sell generators. Many of you know that there's a strong trend behind data centers, and overall supplier security topics in the world. That business has a positive trend. We've made at the beginning of the year, a couple of recruitments to that business. We are also building an organization, for example, in Filterit, where there's a strong development or a strong trend at the moment. A couple of other businesses, the same situation.
On the electronics side, which doesn't directly answer the question, but also the same, especially the same trend is, at the moment going on in Milcon, where we look to invest more into meeting the demand that the defense industry currently poses. Also, quite significant investments made in Delfin Technologies related to our ventures in the U.S. market, growth in China and also in the European markets. There are quite many businesses, and quite many businesses where we've done decisions to grow or to put upfront investment. I nvestments in our case are not that much CapEx, but investments in organization and systems.
These things all of course add up. Not a single big thing, but a number of items of impact. A few questions on electronics. Jesse, if you'd like to take those as well. There's one, what is the reason for the decline in electronics earnings despite sales growth? The second one, which is in Finnish, that there was a bit of a soft profitability of electronics business area in Q2. Do we see an improvement in the trend? Maybe if you can comment, what was the reason behind the poorest or let's say the somewhat of a soft result, and then the outlook going forward.
Yes. Sales growth first of all came through, as mentioned, a few places in the business area and then we had mixed performance in others. Sales mix led to a bit lower margins, especially some deliveries on the SSN side. On the cost side, and why the fixed costs are higher, there's been recruitments in a few companies. Delfin, for example, has made recruitments now, executing their strategy. There's been recruitments in Milcon, and a few other organizations where there's a clear growth path. These fixed costs, we are now taking in. Simultaneously, there's been OpEx investments in systems, so ERP systems in a few companies now, both in correlation with this Elfa Distrelec acquisition.
We have made investments in the ERP side of things, and then we have also changed the systems in a few other companies, for example, Noretron, which has done a lot of work on the systems side. Finally, the margin effect on the profitability comes from the shifting landscape in the different businesses. Correlating to one of the questions regarding the Baltics electronics business going forward, there's been a tougher market in some of [crosstalk] businesses now, for example, as well as in Poland for the SSN Poland operations, which in different quarters, different mixes affect the EBITs differently.
Yeah. There's one additional question, which goes to, what's the outlook in the Baltics electronics business? I guess this question has been asked because let's say the increasing importance of that market to us. It's been a tough market overall now already for a couple of years. Since the war, Baltic economies have not been performing well, except for Lithuania, which has been developing more positively in the last year, especially. Looking at our businesses, I think w e came down for a few years after a significant peak upwards and growth trend, which was especially strong in Latvia. Now we are back at pre-COVID levels. There were some positive movements in the second quarter, but not at least clearly indicating big booms or anything in that direction or a significant decline.
We're at the moment, at those levels which are similar to pre-COVID before the allocation situation and supply issues started in 2021- 2022. A couple of final questions to start to come toward the end. You indicated that you see clear profitability improvements in the current portfolio. What are the most obvious profitability improvement opportunities? We have now just a few different categories of companies. There are those companies which have been trading quite positively throughout the tough times as well. Businesses like Filterit, some of the other technical trade businesses also at Electronics, Milcon, SSN, which have been quite stable now for a few years and improving, I think there's a good trend on those businesses going forward as well.
As we expected, we see that this year, compared to 2024, we see a part of the portfolio improving due to two things, our own actions, but also somewhat of an improved market. There will be a certain amount of our portfolio related to construction, for example, and industrial businesses, which will not be on historical levels this year, but they have the potential of being there in the next, I would say, 12 months- 18 months. The operating leverage of what we've been talking about before, which even though fixed costs were a bit higher, now we saw organic and significant growth, w e see there's a significant upside in operational result once the market continues to support the rest of the businesses, which are still, from a market point of view, in a challenging situation. Continuing with final ones, organic growth chunks run. There are significant chunks.
Why is that? It is partially because let's say the cyclical part of our portfolio came down significantly starting from end of 2023 toward the first half of 2024, and still continuing, I would say, Q3 2024. We came down significantly. Now we've been building our way back to where we have historically been for a few quarters. We're still not there. I think as we've said, the trend is right. There are bumps between the quarters, but the trend is right. I think we've already seen the beginning of the turnaround, but the potential is far away from being, so to say, utilized and captured. We still have companies in the portfolio which generate altogether a few million euros of annual profit, which are really far away from where they have historically been.
The markets where they operate, are overall down. We haven't lost, for example, concrete mounted- pump business. We haven't lost any market share in the last couple of years. It's just that there is no investment by the customers at the moment. Once construction, for example, industry comes back in Finland, it is for certain that we will sell more machines than we sell today. Finally, you mentioned some more investment to marketing and personnel. Is this higher level of OpEx investments expected to continue? I think we already answered this through a couple of answers provided.
With this, we did more investments. The level of cost is higher compared to 2024, but it's not that high on a year-to-year comparison as you saw now in the second quarter to second quarter comparison. That's the way we would frame it. That, I think was the last question. Many thanks for those, as always. Appreciate staying on the line and following us. Overall, we would like to thank you for this session and look forward to seeing you in a couple of months again. Thank you very much.
Thank you.