Good morning. Good morning from Vantaa, from the Boreo headquarter, and welcome to this webcast in which we will go through the Q4 2022 highlights, financial performance, and also discuss the financial and financial performance of Boreo in the last couple of years. My name is Kari Nerg. I'm the CEO of the company, and Aku Rumpunen, our CFO, is here together with me to discuss the recent happenings in the company. Agenda looks like follows. I'll be starting the webcast with elaborations on 2022 developments in the company, continue thereafter to 2022 and Q4 2022 highlights.
Thereafter Aku will go through the business performance at group level and business areas in more detail. After the presentation, we're happy to take questions that you can pose by using the chat function that is there available in the webcast link as well. Welcome on board. First of all, I wanted to bring a couple of reflections to what has happened in the firm in the last 3 years. Those of you who have followed us in the last months and quarters are familiar with these slides, nevertheless, laying out the context to our 2022 performance and beyond to Q4 2022 as well.
A few key points I wanted to note out. First of all, we're of course happy on the development that we have seen financially and strategically in the firm since 2020, which can be seen as the start of the Boreo era, followed by the acquisition of majority shares in Yleiselektroniikka by Preato Capital in 2019.
Thereafter, we have done significant amount of work to build up what Boreo today is, a diversified serial acquirer, set up the decentralized organization, launched a new strategy, revised it once in 2022 as well, and taken on a lot, let's say the lessons from the last couple of years of operations as a serial acquirer, to the way we developed the company today and the way we intend to continue developing the business going forward as well. Acquisitions have been an integral part of our value creation journey in the last three years, will also continue to be in the years to come.
We have now executed close to 20 transactions in the last three years. Latest one, which we announced today, is more add-on acquisition to support water cooling business within our Technical Trade Business Area. I think that now overall, if you look at the performance, we start to see the first signs of our ability to create shareholder value in the long run. The earnings have developed and sales positively, whereas we have room to improve with regards to our capital efficiency and returns on capital. It's important to note that when looking at the three years back, it has not been only...
Though we have not proceeded only as in, as they say in movies, we have had some, I mean, difficulties, challenges that has been posed in 2022 because of the merger or, sorry, because of the exit from our electronics distribution business in Russia. We spent close to a year in 2021 with the contemplated merger with Sievi Capital that ended up not being, not going through at the end of 2021. Reflecting, I mean, all that, what has happened, very pleased of the way that we've been able to bring the company from where we started in 2019 and 2020 to where we are today.
As we have reflected in our strategy update in September 2022, going forward, the focus will be simply on, from a financial point of view, in growing steadily and steadily the earnings that we generate and also doing that in a way that it creates shareholder value, so focusing more and more on return on capital. Importantly, of course, last but not least, developing the way we operate as a decentralized, diversified serial acquirer. Two slides which I wanted to bring out here from 2022 performance, I believe you will find interesting is the first in this slide, focusing on the graph that is on the bottom of this slide that is presented.
The earnings growth that we have generated from 2020 to 2022, from the EUR 3.3 million operational EBIT to EUR 8.7 million in 2022. The green bars there reflect that we've both been a good owner for our businesses during this time for those businesses which were part of the group in 2020. The total amount of organic growth that we have created in this business amounts to EUR 2.4 million, mainly driven by the performance of the old YEs or Yleiselektroniikka in Finland, as well as the Baltic operations, as well as Machinery that has developed well during the last couple of years.
Acquisitions have comprised a larger share of the earnings growth that we've seen, so EUR 4.8 million, as you see from the slide. And already today, the profit contribution from those acquired businesses starts to be at the levels or even above the earnings that are generated by the old portfolio. Overall, what we want to stress out with this slide is that we are meant to be an acquisition machine, an acquisition machine that where we deploy a lot of the capital and cash flow that we generate into acquisitions.
At the same time, very importantly, we want and need to be a good owner for the business that we have and expect on, in our ability to be able to do so as well. I think a very important slide also, kind of breaking down a bit the performance you've seen by business areas in the last couple of years. In this slide, you see the net sales growth, operational EBIT growth, and operational EBIT margin growth by business areas in from 2020 to 2022. What is...
The couple of boxes which are reflected there in green color indicate, in my opinion, quite well, the strong and positive developments that we have been able to generate in the last couple of years. Within the Electronics BA, operational EBIT has grown from 1.8 million EUR to 4.2 million EUR in 2022. The margin has been developing positively, close to 2% margin expansion or improvement in the electronics business area. In a similar way, you see a similar sort of a development in the technical trade business area, from 1.3 million EUR operationally to 5.3 million EUR, and margin developing to double digit numbers in 2022.
Then on the less of positive side, we have not been successful in operating our heavy machines Business Area, well during the last couple of years, partly due to a couple of reasons. One, the operating environment has been the most challenging, for our businesses within the heavy machines Business Area, so a lot of disruptions or in the supply chain. Also, we clearly have had issues in the ramp-up of our SANY excavator business of which we made a decision to exit, exiting from Finland and Sweden now in the course of 2023. Something where we clearly are focused on, in bringing that Business Area back on track, and believe that we are on...
We have the toolbox also to get where we have been with in measured by, let's say, a relative profitability of the Putzmeister operations as well as Global, you know, B works that in Sweden in the years to come. Importantly, looking at the last blue I mean, the box of noted with blue color there in the bottom. We have also systematically invested into the group side of things of creating the organization that is driving the business, the business area organization, the group capability that are required to run the show. EUR 1.8 million more of cost attached to the group compared to 2020. We expect this development to...
The cost development to phase down in the years to come. The more new businesses we acquire, the With less of a headcount and less of an overhead, those will come to the firm. I believe an important source of scalability and also supporting our margin development going forward. I hope that I think these are important slides to reflect that we've done really good. We've succeeded well in certain parts of our area, certain parts of our business. At the same time, we've had difficulties on the heavy machine side and believe in that, and we have the ability to bring that business area also to reasonable figures in the years to come.
Going towards 2022 overall and continuing with Q4. First of all, in Q4, Aku will be discussing more in depth, we recorded a EUR 2.2 million operational EBIT. That would have been without the communicated write-off related to the SANY operations, EUR 2.5 million or 5.6% EBIT margin. A steady and stable development in line with the expectations we roughly had when we approached the quarter, and 15% EBIT growth at EUR 2.2 million versus the quarter before. We continue on the growth track. For the full year, 2022.
2022, without the exited Russian operations, we've generated 21% EBIT growth compared to last year, 6 percentage points above our 15% strategic target. Well on our way in executing and reaching the targets on that then in 2022. With regards to operational or return profile capital efficiency, we clearly have a room to improve. Landing with regards to return on capital employed to 10.4% at the end of 2022. Aku will then explain in more detail what is impacting that and how we intend to also gear that number upwards in the coming quarters and years to come.
Our leverage, so net debt to operational EBITDA developed positively during the last quarter. We deleveraged the business from 2.5 to 2.2 as a result of the operational result. Strong cash flows or release of the working capital, also partly due to the sale proceeds received from the Russian exit communicated in Q3 2022. That leaves, I mean, overall a leverage position with which we feel to be comfortable, leaving also room to continue on the acquisition track as we have after that, as we have done in Q1. The Filterit acquisition was done in Q1 2023, and now we said before communicated today was more add-on to Muottikolmio as well.
Then very briefly on 2022, kind of strategic highlights. We took significant steps in relation to all our three strategic areas. First of all, acquired 9 companies throughout the years. Completed 9 acquisitions. As said, Filterit was completed now then in a couple of days on side of 2023. The key notions with regards to acquisitions are in my opinion, the ones noted in the slide. First of all, the companies we acquired clearly contribute to our objective of gearing up the margins, as well as capital efficiency of the whole group. In average, those companies we acquired have recorded a 15% EBITDA margin in the years before the transactions.
Steady, and steady development of or steady level of profitability that we also want to see from our companies. When we have continued on the path of acquiring companies at decent valuations. In average 3.9x EV/EBITDA, excluding earn-outs and with earn-outs, at 4.6x. Tells, in my opinion, in our ability to maintain the discipline required, in creating value through acquisitions. 2022, I think we took very significant steps both in the way we operate and run the firm. We established a lot of, let's say, new structures on based on which the operations of our independent and rather autonomous companies are based on.
The Boreo Game Plan concept could be framed also as strategy concept. The Boreo Clock that is shown in the picture in the slide, which lays out the board work of our companies, the monthly reporting work for our companies and so forth. These items that, together with, for example, the launch of Boreo Academy, have been such which have been, which are important in running the firm and also making sure that once the company grows, we have a standardized ways of operating and developing the company as well. Importantly, I think when it comes to incentivization and when it comes to aligning the...
When it comes to the question of aligning interest between our shareholders and personnel, the EUR 1.5 million invested in summer 2022 by personnel of the company as part of the directed share issue, direct share issue program that we made, very important step overall also in our journey. Good development overall that we expect to continue also in the course of 2023. Briefly on acquisitions, I already noted basically the highlights of new companies with strong margins and returns on capital.
One additional point I would like to note out here is also that especially when it comes to the Filterit and the Geomatikk transactions, we see both of these acquisitions important also from a point of view of broadening our capital allocation universe. Basically meaning that if we look at the nature of those businesses as well as the end exposure from a customer point of view for those companies, those are clearly areas which we see as important for Boreo's further development.
Rather non-cyclical areas of process industry, for example, here in Finland, is something that we see to form a good basis for continuing growth by Filterit organically, but also through acquisitions going forward. Then the second point I would like to note on this is related to the add-on of Basti to ESKP as well as the Lamox acquisition. These are also good signs that our companies and the key people in those companies have also started to capture better the thinking related to M&A and how M&A can be used as part of the strategic plans of those companies.
2 rather small acquisitions, as you see from the numbers, but important, I think, from the point of view of development of those, 2 companies. Good experiences that we continue to make in scaling our M&A capabilities and acquisition capabilities throughout the company. Last, finally last slide on my side, a dividend proposal for 2022. Our board proposes for the AGM to continue on the path of paying an increasing dividend per share. However, so that, reflecting or copying the same approach that we already took in the year before.
First of all, that the board proposes to the AGM that a EUR 0.22 dividend per share would be distributed, and thereafter, the board would have authorization to, at their discretion then thereafter to dividend out a second OPCO 2022. Which I believe also reflects the update that we made to our dividend policy in September 2022. Target to annually increasing dividend per share, but taking into account our capital allocation priorities. That's a recap from my side, and then I would will leave the floor to Aku to go through Q4 2022 in more detail. Please.
Thank you, Kari. Recapping the last quarter of 2022, first starting from the quarterly net sales and operational EBIT that we certainly already reviewed. As a recap, 15% increase in net sales from EUR 39 million, EUR 45 million year-on-year. Operational EBIT also 15% growth quarter-on-quarter comparing to the last quarter of 2021. Profitability very much in line, stable against last year on a 5% level. However, note that here that now in Q4, as mentioned, we had one-timer write-off of EUR 0.3 million regarding the SANY businesses in Sweden and Finland.
Excluding that, profitability in the first quarter would have been 5.66%, so a bit above 2021 level. Rolling twelve-month figures more showing the trend, how the business and the company has developed. EUR 160 million net sales compared to EUR 122 million, increase of a bit over 30% there. On absolute terms, EUR 38 million growth from where the companies that we have acquired during 2021 and 2022 impacted roughly EUR 27 million. Inorganic growth was roughly EUR 27 million now in 2022 against 2021. The rest, roughly EUR 11 million, was inorganic-- oh, sorry, organic growth. On the right-hand side, rolling twelve-month operational EBIT, EUR 8.7 million compared to EUR 7.2 million in the end of 2021.
21% increase, so a bit over our new strategic target. The profitability also in the rolling twelve-month term, very flat now during the year on a 5.4% level. Components of growth, net sales growth now in Q4. In the previous quarters, we have seen maybe more stability in the growth between organic and inorganic growth. However, now in Q4, basically all from the growth came from the acquisitions during 2022 SSN and Infradex, as well as Pronius. Organic growth, on the other hand, was slightly negative because of the heavy machines development. Also the comparison period of Q4 2021 was very high.
Coming back more on that one in the next slides. Looking into the business area shortly. Electronics continued operations. Acquisition of SSN Asset and Infradex during the last year grew net sales very much now in the previous quarters. Operational EBIT also clearly above 2021 level on 8.3% level. Very good performance in the Finnish operations. A bit, of course, differing between the companies, but overall performance as seen here in the figures, very good throughout the year and also in the last quarter. Also good performance continued in Baltic countries.
Overall, from the outlook side, order books intake is still on a good level despite of still, of course, continuing uncertainty in the overall economic environment. Technical Trade, there the growth of roughly 18% quarter-on-quarter came mainly from Pronius acquisition from inorganic side. Profitability also on a good level, a bit above Q4 2021 level. Also in these business areas, of course, the year has been different from the performance point of view in different units, especially in Machinery where still the power business division performed very strongly in Q4. On the other hand, the metal machine side in Machinery has been suffering most from the Ukrainian crisis throughout the year and still Q4 was challenged.
Construction businesses, both from Muottikolmio and Machinery's construction equipment side performed according to our expectations, despite of the fact that the overall construction market is softening, and the outlook is also there a bit or contain uncertainties. As Kari mentioned, 2 acquisitions now in the end of the year and in the very beginning of this year will provide us and support us with the new business opportunities now in the new industries. Heavy Machines, a bit different story here. As mentioned, negative sales now in Q4 against well, comparison quarter in 2021, which was extraordinary strong.
What impacted mainly the Q4 performance here was still the continuing delays in the deliveries, especially in the Putzmeister business, which significantly impacted our performance and numbers in Q4. From both profitability side also, the SANY business did not perform still according to our expectations and once again this EUR 0.3 million write-off was done now in Q4 to that business unit in Finland and Sweden. FNB supported with the Lackmästarn and the acquisition that we did in the end of last year. Good performance despite of also delivery challenges in that business.
Positive is still that we have good order books levels and when this delivery delay topic slightly goes away, we definitely believe that we are able to bring the performance and the business to the levels that we have seen in the previous quarters.
Aku, let's take a short technical break. I need the battery, otherwise we will, you know, Soon go out of presentation. Apologies for this.
Other operations, ESKP and Vesterbacka Transport here, still very stable net sales performance and also profitability decent despite of the high inflationary environment that we have seen in the end of the year especially. Two very important KPIs. Return on capital employed, one of our strategic target where we aim to be over 15% level in the long run, ended to 10.4 in the end of Q4. Slight decrease from Q3 from 10.8% level and clearly below last year level.
Has to be noted as the title says, that hybrid bond that we issued in the beginning of 2022 Now heavily impacted on return on capital employed and return on equity during the year. Now in the end of last year, the impact of that EUR 20 million in the rolling twelve-month terms is fully in, so that will not anymore increase the capital employed levels in the next quarters, which should definitely support also the performance that we can see from these two important KPIs. Same goes with return on equity at 12.1%. Again, even in equity side of the impulse is relatively bigger. Kari, your mention today is one of a good too. We closely monitor our leverage levels.
It has been roughly on 2.5x levels in the past quarters. Now nice to see that dropped to 2.2, mainly because of good cash flow. I will come back on the next slide a bit more on that one. Equity ratio solid, a bit over, I could be 22. Ali on the left, earnings per share, gray bars especially we should look into here operative earnings per share, roughly 30% down compared to Q4 2021. There we have to note that this hybrid bond interest impact was roughly EUR 0.13 in the last quarter. Excluding that like for like, we would have been in the bar in EPS side.
Cash flow, very good green bar with the operative cash flow amounting to EUR 3.7 million now in Q4, supported by the release of working capital roughly EUR 1 million, which is our heavy focus now as we focus on the capital efficiency according to the updated strategic targets and priorities. Also cash flow after investments EUR 2.6 million here supported by the proceeds received from the sale of our restaurant business. That is all from the financial side. Now we go into Q&A.
Yeah. Thank you. Thank you, Aku, and thank you for questions that have been asked. I have a set of those here. If I start first with a few less non-financial questions which are here. First of all, there is a question which says that would you like to say something of M&A going forward? What is the window of opportunity from the point of view of market opportunities and from financial position of Boreo? A good question. Thank you for that. Pipeline. Pipeline the one that we have at the moment is and continues to be strong.
As we have said in the last quarters, we have during 2022 more systematically started to work with sourcing activities within the BAs, so business areas, also including our companies. This has yielded on a good pipeline that we have, which is a broad pipeline for which potentially there will be deals to come in the years to come. Plenty of discussions ongoing with entrepreneurs who might or might not be prepared to sell and join Boreo, let's say now in the short term or then in the longer run. Overall, the pipeline is good. What we see from the M&A mark...
more from the M&A community, so advisor activities that there is clearly activity on the market. The valuation levels here, in my opinion, they are slightly lower than they were, let's say a year ago. However, when it comes to good companies that continue to be good regardless of broader economical situation, I think that still the prices are not that volatile. Definitely on somewhat lower level compared to where we have been. We have a balance sheet. With our balance sheet, we believe that we are able to continue on the path that our strategic targets set.
Of course, if we, if we look to accelerate the M&A doings in a, in a much more significant manner. The capital structure is something that we need to work with. We continue to focus our resources in sourcing and finding good companies and finding entrepreneurs who want to join the family and thereafter, financing and financing, we have the means to arrange in one way or the other. That was first. A second question is related to the SANY exit. Any news related to the timeline, and also if the exit process prolongs, is there a risk for additional write-downs?
I mean, there's not much more to say at this stage of what we have communicated. We, as Aku said, we have taken in a EUR 0.3 million write-off of that exercise and expect to be able to manage that exit within those limits as well. It will take some months. I expect that in the course of first half of the year, we start to have a majority of that process sorted out. It is a sort of ongoing process with which we work and gradually we'll come out of that exposure that we have.
If we continue more towards financial questions, maybe to Aku first. There are a few questions related to net working capital. Two different questions. First, do you expect to be able to bring net working capital down more, or how would you comment the current level? The second question is, do you think there is room to release net working capital? How much?
Definitely, yes. I think we are only in the start in that kind of work. As I mentioned, we have been and we are focusing and bringing the kind of knowledge, training our operational people, keeping this topic heavily on table in our monthly reviews. Yes, answer is definitely we believe that further room to improve in working capital levels we have. What is the exact EUR amount that is a bit difficult to say. I would maybe say that we aim at gradually decreasing the levels and that will then bring some EUR also on table.
We have, I think two questions related to supply chain disruptions issues, and I think if I read them correctly, this relate to heavy machines mainly. First of all, first question is how much sales was transferred from Q4 due to supply chain issues, and do we expect this to be recovered in Q1 2023? Also a question related is when do we see the supply chain disruptions easing? Well, I would comment first on the delays or the transfer of deliveries on the heavy machine side. So we are talking about a couple of millions of Euros of transferred sales.
We do expect them to be recovered in 2023, not fully in Q1 2023, most likely to a great extent in the first half. This there continues to be now in particular regarding the Putzmeister business delivery issues. Those have been, A, mainly related in the last year to chassis deliveries from the chassis suppliers to our OEM. At the moment, there are also some delivery issues which we experience at the side of our OEM supplier that cause delays as well. Nevertheless, we believe that sales has not been lost. It's a matter of time when we will then see those and see those being recognized.
Now the supply chain disruptions easing question, I think if we look at the... If overall I would describe, of course it differs by business area and also different specific businesses, but I would say that definitely we start to see some signs of supply chain disruptions easing up or going downwards. So delivery times start to be shorter, but they are not there where they were before this, all this started at the end of, at the end of 2020. So definitely issues continue to be there, but slowly it seems so and the feeling is that delivery times are getting shorter and then we are going towards that let's say more of a normal state. Aku you could take the next ones.
First one is, a question on price levels. How much are our prices currently up year-on-year? Is there difference compared to Q4? Have we been able to offset costs in cost inflation in technical trade and electronics? How would you address that?
A bit maybe a rounded answer because that differs between our businesses and business units. If we look at the long-term trend in gross margin, that has been very stable. No major ups or downs there. Although an inflationary environment has been impacting on the cost side, we have been able to quite well to offset that increase.
Agreed. Another question? This is still on, let's say on order books. We mentioned that outlook is stable or cautiously positive depending on or varying between business areas. How long is our visibility and how has our order backlogs developed during Q4? which.
I think we had that comment in the business area slide. In all business areas, the order intake that we follow on a monthly basis is on a good level. We haven't seen basically any decrease in the order intake levels, meaning that also the order books are on a good level. Then the length of the visibility differs again quite a lot between businesses. I would say that in heavy machines where we have different kind of units that, for example, in electronic components, the visibility is longer, maybe 1 year or so, where in other businesses it might be then somewhat shorter. Overall, the order book and the outlooks are good.
Good. Continuing still a few questions. On group cost, there is a question that should we expect quarterly group operation cost level of EUR 0.6 million to be a good proxy for 2023? I would say overall, if we look at the run rate of group cost at the moment, as I mentioned at the beginning, we will see a declining growth trend.
We will continue to see a somewhat growing trend, for example, due to investments that we make on the ESG side, where due to also that both in terms of personnel, the team that has been put in place also means I mean, both personnel cost increases to a certain extent, as well as working with external experts on that topic. I would say now that this level is maybe slightly on the lower end, but significant, let's say in the ballpark, nevertheless. There is a question on companies. Which companies do we expect to improve the most in 2023?
I would say that a few comments on that. First of all, Machinery is a company where you might remember that in the course of 2022, we had, let's say issues with our metal machines business area that, so to say, fell from the fell off the cliff due to the war started in Ukraine from a demand point of view. We definitely expect to see a positive development out of that business area during this year. As such, we contribute to Machinery's performance this year.
Secondly, I would note out that Milcon, one of our businesses in the Electronics Business Area, which is focused on the military side of things, continues to have a very good outlook on the demand side and further improving outlook. However, our ability to execute on that and capture the potential in concrete numbers has not been there yet. I would note that as one single company as well. Thirdly, also, I mean, You've heard us talking about the Heavy Machines Business Area performance and lack of its performance in 2022.
Definitely for that business area as a whole, we expect 2023, and the coming 12-18 months to be a period where we can bring the businesses, back to where they have been. I would say that those are a couple of reflections on that side. There's still a question on availability situation within electronics and technical trade, and whether this had any impact on sales during Q4.
No, no significant. Maybe some in technical trade in Pronius business. At least in Machinery side, I think that we did not have that as a reason.
Not even close compared to the heavy machines business area delays. Then I think we will wrap up with the last question, though there is a question on different sector developments. Can we talk about that a bit? The question goes that, "I've understood that the outlook has improved due to geopolitical situation, but how is this currently affecting your businesses and what kind of growth possibilities do we expect this to bring in for the long term?" That's a good question. I mean, I talked about the Milcon point of view already before. Definitely on the electronic component distribution side there, we have a number of companies within that business area which are supplying to the defense sector broadly.
The investments that are taken to support that development, the positive trend there is, we expect this to have a positive impact for many of our businesses in that area. In a similar way, we do have within the technical trade Business Area, cooperation related to defense sector and definitely something that we continue to see a positive sign. For example, in 2022, the auxiliary power business or the generators that we sell and market in Finland through Machinery, there we saw a significant upward trend in demand and sales in 2022. This type of different positive contributors to existing business.
Then on the M&A side, at the same time as we have said before, we have been continuing to work on evaluating interesting acquisition opportunities on that side as well. Let's see what that might bring ahead. Then there was still one additional question that came, and I'll take that. That's a short one. What are our expectations for logistics companies' profit development in 2023? As Otis refers to, when we talk about our logistic companies, we're talking about ESKP together with Vesterbacka and Basti that have been acquired with that. Overall we are, I mean, overall ESKP is performing well. The guy is a very good niche operator.
In spite of all the inflation and pressure on margins that have been caused for that business in the last 1-2 years, it still operates with really good margins in the context of logistics businesses. We expect this trend to continue. We have been successful in bringing on new business that supports the sales development and also the team is hardly working on making sure that cost efficiency is there and competitiveness from that point of view remains. We are, let's say, rather positively cautious on or positively oriented towards that, but definitely not the easiest times for our logistics businesses because of inflation that is there.
With that said, I think that we are done with the questions. Many thanks for those and appreciate taking the time and listening in and, we look forward to seeing you all again in the next update. Thank you very much and see you next time.
Thank you