A good and sunny morning from the Boreo headquarter. Welcome to this session where myself, Kari Nerg, and our CFO, Aku Rumpunen, will discuss the developments of Boreo during the H2 of 2023. Agenda, as before in our webcast. I will recap both strategic and financial highlights of the Q2. Then Aku will discuss the business performance, group and business area, company-specific, more in detail. We will take at the end of the session questions that you may have asked during the webcast. Please use the chat function made available for you.
So starting off, in Q2, the Q2 was for us a decent quarter, an okay-ish quarter, I would describe. Financial performance-wise, profitability was on a moderate level, EUR 2.4 million of operational EBIT at the level of last year, 5.6%. Profitability margin is a, I would call it a decent to moderate performance from our current portfolio. At the same time, the cash generation, I'm very pleased with that, to see that the earnings and the return on capital mindset is rooting in the firm better and better quarter, quarter by quarter. In the quarter now, a strong, roughly forming euro operating cash flow, 165% for this period.
If you look at the performance during the H1 of the year, we had a strong Q1 when it comes to earnings growth, roughly 90% growth compared to last year. Cash generation, on the other hand, was not that strong. If you look at H1 overall, we've grown results on a good level, roughly close to 30%. Also the, the operational cash conversion, roughly about 100%, has been on a steady level. Overall, H1 has been a good start for the year.
During the quarter, we, we also continued to execute our M&A program and acquired or announced to acquire a company called Delfin Technologies in June 2023, closed on Q3. On the side of Q3, so not visible yet in our numbers, but happy to welcome yet another great entrepreneurial business to the Boreo Group. If we look at the trending performance, financial-wise, a bit more in detail, profitability-wise, we continue trending in the right direction. Rolling twelve-month basis, 26% earnings growth in the period ending June 2023. This is a good result and demonstrates also the performance during Q1.
Of course, looking at it from a Q- from a, with the longer term lens, starting from EUR 3.9 million in 2021, being now at closer to EUR 10 million overall, tells that we've gone to the, to the right direction as the firm, and look forward to seeing and expect to see gradually improving performance in the, in the coming quarters as well. Returns on capital are on a modest level at the moment. Our target, 15% minimum return on capital employed. We are not there yet. We're working hard to steer the firm towards that direction.
Now, return on capital employed remain quite stable, compared to the previous quarter, negatively impacted slightly by the operational profitability, on the other hand, supported through the strong cash generation we saw in the quarter. Leverage in line with the trend you've seen in the last one to two years, so we continue to steer the ship carefully, maintaining a solid financial position, leverage at 2.4x net debt to operational EBIT. Also, at the levels where we, towards the future, like to be, rather downwards than upwards. If we look at a bit more specifically, a couple of key highlights from my side on the business area performance and company, but specific performance.
During Q1, we introduced for the first time the metric that we use in the steering of all our the whole group and all the companies, part of the family. The return on trade working capital. We are currently now at 29% on a rolling 12-month basis. As a reminder, roughly with this sort of a portfolio, we should be around 40% in order for us to be at the expected levels of 50% return on capital employed at group level.
electronics and, and, and technical trade business areas has been trending rather positively in the last last quarter with regards to capital efficiency, whereas we've had our difficulties with, with the Heavy Machines Business Area. Now, during Q1 and, and, and the H1 of the year, in electronics business area, the, the figures, although they look quite okay on a, on a, on a business area level, were negatively impacted by, by especially the challenges we've had at Signal Solutions Nordic related to the investment holidays or let's say, pushing forward investments on the side of our main customers.
On the other hand, for example, our Baltics businesses have been operating extremely well and developing to the right direction already the last three years, but especially now during the last year. In particular, the profitability and performance development has been great in our Latvian business. On the technical trade side of things, all business, all the businesses as part of the portfolio, so Machinery, Pronius, Muottikolmio, J-Matic and Filterit, delivered a good profitability during the quarter. On the other hand, at Machinery, we have had our, let's say, temporary challenges with regards to working capital. Too much working cap tied into the business, and we're working hard to change that situation in the H2 of the year.
Within the Heavy Machines Business Area, a great achievement, how we were able to complete the exit. We completed from SANY operations in Finland and Sweden. Also, happy to see the Putzmeister business, which has been under cost and, and a cost pressure, in the last cost pressure and also delivery challenges during the last two years, delivered a stable, 5% operating result. On the other hand, at FNB, the other business we've had our difficulties with in the H1. We've undergone investments into improving our production processes, the production flow, the manufacturing of timber trucks and other, other equipment in the firm, as well as implemented a new ERP during Q2.
This had a negative impact on the Business Area results, also the group results, consequently. Negative operating profitability during the quarter, which we expect to ease in the coming quarters. M&A and acquisitions are an integral part of our business model. As a reminder, we've deployed since Q3 2020 roughly EUR 43 million to acquisitions, now not including the Delfin acquisition that was completed now in early July. However, 16 acquisitions, good companies, which all contribute to the gradual improvement of the resiliency of the firm, also the financial profile of the company. These companies, we've been able to acquire roughly at 5x EBITDA on a consolidated basis now, looking at it backwards.
As, as mentioned in the very beginning, one of the highlights of the quarter was the acquisition of Delfin Technologies, a company based in Kuopio, in Finland. A health technology business that produces handheld skin and edema measurement instruments. So a new type of a business for us, which we found and we're happy to welcome to the group as a result of our own proprietary sourcing work that we started in 2022. An interesting company that serves customers both on the medical side of things, but also in the luxury industry.
With, as you, as you can see from the numbers, really strong, strong and long, also long-standing, strong profitability, high margins, also high, high returns on capital. On the back of the positioning also, the validation that the company has in place on the, for clinical use, both in the U.S. and in the EU, very happy and eager to, to continue, and starting to work with the team to, to create, an interesting growth path towards the future.
The next six months or the H2 of the year will be, will be the time to, to do some strategic decisions as to, as to, as to the, let's say, the strategic direction of the firm and, and at the same time, maintaining a, a steady financial performance as we've, we've seen in the last years.
Finally, from, from my side, a sort of a brief outlook towards, towards the future, not guidance, as we in line with the way we do things, but nevertheless, talking a bit more on where our focusing in the firm internally is and how we think about the world, given that the, let's say, business environment, is a is somewhat of a tougher one compared to the last years. Number one, we, we remain confident that the that our earnings target 15% earnings growth per annum in the minimum is a target that, that, we can achieve in the, in the coming, coming years.
We have seen during Q2, as seen from many companies and industries, not totally in Finland, but globally during Q2, some signs of a weakening and more challenging environment. However, our order books in the companies continue to be rather healthy, and given the work that we have done, both organically with the companies that we've already owned for a longer period of time, but also, through acquisitions, we are quite happy with the portfolio companies we have and are confident in their ability to continue defending margins and making money in this type of environment as well.
This will be demonstrated, and I can also see in the numbers, profitability-wise, gross margin-wise, that how our businesses have developed in the last quarters. Secondly, capital efficiency is a core area where we work with the organization. Not only, I mean, we're not there here to optimize our working cap levels on an unsustainable basis in the short term. However, we work with our MDs and our key people and the whole organization to root the mindset of the importance of let's say, prioritizing and balancing between making a good operational result, but also taking into account the cost through the balance sheet that is attached to making that result.
As of Q2 2023, the operative working cap that is tied to our business is around about EUR 31 million, excluding Delfin figures, which are rather low. I believe that we are, I mean, the normal sustainable level where our companies can operate in the longer run is closer to the mark of EUR 25 million, and we are working to get towards this target in the coming quarters. Naturally, the new companies joining the firm, the absolute figures will continue to hopefully arise, but nevertheless, relatively speaking, we should be able to achieve and release some capital out to working cap in the short term as well. Financial position, we want to maintain steady in these environments.
We have, during Q2, also, increased buffers, financial buffers into the firm by negotiating an EUR 8 million increase to our existing credit facilities, which support, are there to support the companies and the operational performance, should there be a need to do that. That's a good thing. Secondly, also, we remain continuous discipline to safeguard the position, safeguard the financial standing of the firm at any given time. Last, but not least, a bit of a longer-term outlook. We did, during Q2, communicate through our social media channels that we were glad to finalize in June a version 1.0 of our operating manual called the Boreo Book.
This book is, I believe, quite a very important milestone in the development in the development of the firm as, as, let's say, after three years of figuring out the concept, learning, making mistakes, making improvements, I believe we have arrived with this book and its content to a simple set of guidelines which will serve as the guidance for building the firm for a long period of time. Very happy to have been able to work with that with the larger amount of our key employees and, and, and finishing off that first set of the document.
We do feel that we want to communicate more and more on the long-term value creation drivers, on how we build the firm, how we work with the firm to make it a successful one in the long run. For this purpose, we have a plan to introduce a concept what we call Boreo Series, during Q3, in which we will aim to through series of letters in the coming quarters and years, to open up and facilitate the discussion around what we believe really matters in developing the firm and giving stakeholders externally and internally better understanding on how we intend to build the company in the long run.
More to come on that front. Overall, very happy with the steps we are taking in steering the ship. With regards to business model, we are taking big steps towards the future. That was my presentation. I hand over to Aku for more financial operational.
All right. Thanks, Kari. As a tradition, let's continue now to do the financials. A bit of a recap. If I can change the slides here. Nothing happens. Now, sorry about that. Let's start from the, from the rolling 12-month top line, top line performance. As shown here, the growth still continued on a yearly basis, 22% increase compared to Q2 last year, despite of the fact that, that we had now in, in, in Q2, a bit slow quarter, especially in some operative companies. On the other hand, the newly acquired new businesses contributed well to the, to the quarterly sales figures.
Operational EBIT side, in line with the last quarter's rolling 12-month figure, but profitability wise, as seen here, very stable throughout the previous quarters, 26% improvement against last year, Q2. Still, Q2 figures, moderate sales growth, 5%. I will come back once again on the reasons more in the next slides. Then also from the operational EBIT side, in line with the Q2 last year, as well as the, the profitability very much level on the same level. This picture we haven't had for a while, I think this well describes our cost efficiency in the, in the long term, kind of trend-wise. Again, here, rolling 12-month figures.
On the left, we have direct cost ratio, which we can see that has been very stable throughout the past quarters. We have had quite turbulent and also difficult quarters in the past from the market side, different kind of inflationary pressures, et cetera. But this shows that we have been able to quite well also level out the impacts and, and then move the cost pressures towards our pricing, for example. On the right, indirect cost ratio as well. Lowering curve, which means that the indirect costs have been quite well also in control.
A bit up in the last quarter here, mainly because of now the exit from, from SANY operations, but also somewhat impacted by the newly acquired companies and the different cost profiles there. Overall, throughout the past two years' time here, very solid development. From the organic and inorganic sales development side, this quarter now was a bit extraordinary from the previous quarters that we have shown. Mainly or purely the growth came from the M&As, now from Filterit and J-Matic acquisitions especially, as well as Lamox, during the end of last year and the beginning of this year.
Then, on the other hand, the old businesses, meaning organic growth, was negative, due to the earlier mentioned reasons. From the operational EBIT side, same here, so the contribution positive gain from the acquisitive acquisition side, and then on the other hand, from the organic businesses, a bit negative development now, quarter on quarter. Moving on still to the business areas. Electronics first here, 6.4% operational EBIT margin was decent one. It could have been also better, mainly due to the fact that SSN had very difficult Q2.
On the other hand, the other Finnish operations here performed stable compared to the previous quarters, and also the order book and outlook has remained very stable in the businesses. In Baltic operations, especially in Latvia, a very strong quarter, supporting very well the performance of the business area. Then finally, but definitely not the last, is the capital efficiency. 50% return on trade working capital, which is a very good improvement, supported by the EBIT performance as well as the capital actions. Technical trade, again, solid performance. Twofold, I would say. In machinery power business, first of all, strong quarter compared to the previous year's same time, and also still order book is good for the coming quarters.
Construction market is challenging at the moment. There, our Machinery construction equipment business is mostly at the moment suffering and definitely outlook there. On the other hand, in Muottikolmio side, which is more from the renovation construction market side, still very, very good performance and also active, active market as we speak. Metal machines, Pronius and Machinery metal machine businesses, well, Pronius good performance, although being a bit below last year, very strong quarter. Still metal machines is a bit softer with the outlook also. As said, J-Matic and Filterit, very good two acquisitions supporting very well now the performance of the business area.
Return on trade working capital, slightly decreasing trend here, but we have very much taken the focus now, especially in the machinery side, on the release of working capital in the latter part of the year, and that we are following very closely. Heavy Machines Business Area, definitely the highlight of the quarter was the exit of SANY operations, which was closed now, according to the expectations in the end of Q1 also. That, especially the capital release side of roughly EUR 1.8 million, was definitely the positive side, supporting the cash flow and capital efficiency. That being still on a very negative trend, and we are definitely not satisfied on that one.
On the other hand, Putzmeister business, solid performance with 5.1% operational EBIT in the quarter. So stable there. Business area operational EBIT hit by the EUR 0.2 million one of course now during the quarter because of the exit of SANY businesses. FNB performance below expectations now in Q2 mainly due to the investments in our new ERP system, which definitely has not been, been the success until, until now. We, we believe that those challenges are behind and we will, we will benefit from the new operational system going forward, bringing more efficiency also.
Finally, other operations, ESKP business, again, with EUR 1.2 million sales and 10% operational profitability. Very stable those throughout the past quarters. Return on capital employed development, as we have noted in the past quarters, especially that the hybrid bond issue in the beginning of 2022 has impacted on the trend very much. Now during the past quarters, that impact has been leveling out already. We definitely expected that, that the Q2 return on capital employed would be slightly higher, but that is on an 11.2% level, mainly because of, of now the performance in Q2.
Return on equity, likewise, very much impacted by the, by the hybrid issue, and now a bit pressed in, in Q2, mainly because of the, of the increased in interest expenses and, and that impacting on the, on the net profit. As Kari mentioned, Net Debt to Operational EBITDA, very stable on a 2.4 times level, and cash conversion, very positive. Rolling 12-month figures here, 96%, and that peak now in, in Q2 was mainly, mainly impacted by the release of, of cash in SANY's businesses in Finland and Sweden. Then finally, earnings per share, slightly below last year level, as mentioned, as the operational EBIT was, was very stable compared to Q2 last year. The slightly negative impact now come from the, from the increased interest expenses, especially.
Very pleased with the, with the cash flow performance in Q2, 3.9% operational cash flow. That, of course, will be the heavier focus also going forward. That's all from my side, and now we go to Q&A.
Thank, thank you, Aku. I've been glancing, glancing through the questions, and I did post them, publish, publish them also, here, so you can see what the other people there on the line have asked. Categorizing these questions a bit.
Let's start with Heavy Machines Business Area related questions. First of all, there is a question on the Putzmeister business development. Do you expect this positive development to continue forward despite economic uncertainties? I mean, I would comment the, the situation. I think we've been able to, we've been able to maintain the, the, the majority of the leading market position in with Putzmeister business in all the, all the three countries where we operate in. We have a, have a strong over 50% market share in all the three countries. And it's been of, of strategic priority to make sure that this is the case during a downturn and also during a coming better time, or let's say, an improved environment.
We have, I mean, looking at the, the short-term outlook in Sweden, of the three countries, we have the steadiest, the longest order book for 2023 mainly, and then, and expect to, because of also now somewhat easing, delivery times, in this business, expect to be able to, to deliver a good result based on, based on the backlog that is there. The same thing, in, in Finland, also a decent of an order book, not, not as full as, as in Sweden, but nevertheless on a, on a normal level, also reflecting the customer base in Finland and Sweden. The difference that is Sweden, we have, to a great extent, large corporate-natured customers, compared to Finland, where more entrepreneurial businesses. Overall, okay, Estonia is okay.
Numbers are rather small for this year, but nevertheless, good strategic steps in taken, taken, for example, also introducing smaller mortar machines from Putzmeister to the Estonian market. I mean, yes, of course, investment uncertainties among our customers have increased. That is a clear thing. However, we continue to see activity and, and 2023 looks, looks quite okay. The question is then more on 2024 and beyond, and how, how that will look like with active sales support development, also aftermarket business that we have there, which is roughly 20%-30% of profits in those companies, of course, provides protection.
Confident on the long-term ability, definitely, also supported by the green transformation ongoing in that business and supported by Putzmeister hybrid machines, which are market leading in the, in the, in the business. Secondly, there are a few questions on, on FNB. One is, where do you currently stand with the operational performance and implementation of the ERP, and when do we expect it to improve? I think there was an other one also. Do we ex- yes, do we expect to return to organic earnings growth already in Q3? I mean, the ERP has been implemented already, and that was done. The live, go live happened, I believe it was in, in April. Thereafter, some challenges to get processes running, but we are on a good track.
H1 was negative operating result-wise. We do expect a significantly positive H2 of the year, of which signs are there already from the latest trading. We do have a good order book there, and the customer, we are fully booked in a way, both at FNB as well at Lackmästarn. The situation from a customer demand side is stable. This is about production in, I mean, not only ERP, but investments in production processes, standardization of the businesses, processes from drawings to all the way to production flow and efficiency. I mean, everyone who's dealt with this type of issues knows that there are uncertainties in ramping up and how quick that comes remains to be seen.
As, as of today , we believe we're on a good track and that should already yield a positive result in H2 of this year. That, I believe, was HMBA, if not, Heavy Machines Business Area related questions. There are a few. We continued electronics, then there are mainly questions related to Signal Solutions. Sorry, I'll scroll on a bit. Yeah, so how, how, a few questions: When do we expect, the, the top line to return? I mean, this was, in the first place, due to. We did, we did already expect, as we communicated before, that this would be, also less temporary nature, these challenges that we have.
We already do see improved performance, in particular in SSN and in Finland, on the back of the back-order backlog we have, we have there and support at least, let's say, a stable performance. I mean, SSN is not producing red figures. It's on a consolidated SSN group level, delivering still positive okay of results. However, we have certain signs that we are about to improve. When that will happen, we feel that the communication in the bulletin also kind of in the coming quarters is the situation where we are. Continuously monitoring the situation, working with our customers, I mean, the main customer that we have there, but also expanding the business. We have taken the first steps, for example, expanding to operations to Germany as well.
Significant steps, openings of new places, of, of a new location in, in Poland, for example, during Q2. Systematic good steps for, for longer term development. Yes, uncertainty for the short term performance is there, and it remains to be seen in the coming quarters when, when that kind of improvement will, will flow through. I would, I would comment those questions like that. Group-related financial questions to Aku mainly. Your group costs decreased year-on-year. Do you expect the increasing trend this year in group costs, or have you achieved sufficient level?
Yeah, I think the difference was EUR 0.11 million rounded to that. Yes we expect that is the level that, that we will also see going forward. There are some adjustments between that allocation of resources to business areas and to the kind of group functions. That is also, also one impacting reason there. Yes, that is the level that where we expect that to be going forward.
Yeah, and to make it clear, I mean, we have not adjusted. We have made reallocations of those costs to business areas starting from Q1 this year.
Yes.
This means that the business area organization-related costs are now in all the business areas, in the business area numbers here. All in all, I mean, the group costs are at the moment roughly around EUR 3.5 million, and that's roughly the level where we expect those to lie in the coming in the short term as well. I mean, we've taken people-wise, the investments that are required to support the growth and to support our businesses and definitely the highest increase of costs have been seen, and you can expect a steady development on that front.
Maybe to add still to that as we expect group costs to be in the level , that they are at the moment, also regarding the indirect cost ratio that we saw, that we also expect that the share of group costs will over time decrease when the coming quarters, quarters come.
Another financial question: Your gross margin improved notably year on year. Do you expect similar trend to continue?
Yeah, that's again, also quarter-over-quarter issue, and that was partly impacted by the newly acquired companies also, that where we have different cost profile. As we saw that slight up in the indirect cost ratio, but then on the other hand, from the, the gross margin or direct cost ratio, vice versa. That is one of the reason, and of course, now looking into the new acquisitions and also to Delfin that we did now in the very beginning of Q3, yes, that is the path and, and the development that we expect. Of course, at the same time, regarding the old businesses, keeping the, the cost control and monitoring that heavily, so that, that is also supporting the development going forward.
I mean, the gross margins of the lastly acquired four companies, I believe range between 40%-90% compared to the group, below 30% still. Of course, structurally changes, also quite heavily over time. Still one group financial question: Is all the impact from salary inflation already in your numbers, or should we expect to see some more going forward?
Well, a good question. I would say that, maybe the biggest impact and peak was already seen as the overall the inflationary environment has been now stabilizing. Of course, inflation is something which is on a yearly basis, so most likely some, increases will be seen, but definitely the highest peak is behind.
Yeah, we do. I mean, it's company very company-specific, but there are some union-related agreements there, for example, the logistics side and so forth, which will continue to yield some additional pressure. I mean, I would comment all that, I mean, in many of our companies, we are undergoing a change of one sort, when it comes to success and the long-term building of those companies. I would say that on a company level, especially in the newly acquired entrepreneurial businesses, the personal cost increased more because of strategic resourcing that is done as part of the game plans of those businesses, and which have a higher impact on absolute number of personal cost than inflation as such.
Then two final questions on M&A. Sort of one is that we indicate that we aim to continue to acquire companies, and the other one is a bit more about how much firepower do we, do we have? First of all, if you look at the financing situation, this what is written here, the cash availability is quite correct. We do have, after the acquisition of Delfin, we do have roughly EUR 8 million of the M&A facility unused. In addition to that, we have, through the recourse, RCF and Overdraft facilities, quite nicely of liquidity to support the business.
Also, as we communicated, that the working capital improvement, of course, and we expect the normal sustainable level to be lower, of course, that will continue to support, let's say, firepower, but also, I mean, overall, the financial standing of the firm. We continue on a regular, I mean, continuous day by day to screen for good companies. As we speak today, we have, on a daily basis, discussions with entrepreneurs, management meetings, and so forth, ongoing. As you have seen in the last transactions, we have geared the profile of acquired companies somewhat of a, in a way, higher quality direction, or let's say financial profile-wise, upwards and also entering into new interesting areas.
Uh, so we do, we do see that we will continue with acquisitions. Also, at the same time , we do want to maintain a solid financial standing. S o that is always a balance between of, finding the balance that how, how is the outlook going forward and what are the opportunities, what are the valuation levels, and, and so forth. But , yes, we are confident that we have already this year acquired three businesses operational profit north of two million euros. W e look forward to hopefully find a few businesses more t hat will continue to support the, the growth in the short and the long run. So definitely ambition to, to continue growth through acquisition as well.
I think that sums it up. good set of questions. Thank you. Thank you for that, and thank you for following for this session. We look forward to seeing you again in a couple of months.
Thank you.
Thank you very much!