From the Boreo headquarters, welcome to this webcast session where our CFO, Aku Rumpunen, and myself, Kari Nerg, will discuss the key events and performance of Boreo in the Q3 of 2023. Agenda is as normal in our webcast. Stopping a bit, technical problem. Timo, can you please mute yourself? I hear your voice from here. Still again, Timo, if you hear us, please mute yourself because we hear your voice. Thank you! Okay, so getting on going. So agenda is as normal in our webcast. I will discuss the key highlights first, and then Aku will discuss the business area, group level performance and numbers in more detail.
Please use the chat function if you want to ask any questions, and we will take those then after the presentation. So Q3 for us was a very similar quarter than Q2 of this year. So as the headline of the presentation already said, in terms of profitability, a decent performance from the group and from a cash flow point of view, extremely good and positive development. So cash flow pouring in nicely during the quarter as also in the first nine months of the year. Regards to profitability, we were at EUR 2.9 million operational EBIT, slightly below the comparison period.
I'm happy to see that the margins are improving, so uplift in operational EBIT margins. Gross margins of our companies continue to develop well. We've been successfully operating in the inflationary environment in the last couple of years and been able to maintain and slightly increase our gross margins. Now, looking at this year, sales and demand environment has been more challenging compared to 2022. Because of that, the organic growth on a group level is somewhat negative during this quarter, whereas the companies we've acquired in the last year have contributed to the result as expected and positive. The firm's financial standing continues to be stable.
Despite the fact that we executed one transaction, Delfin Technologies, bought in July 2023, net debt to operational EBITDA, supported with the strong cash flow, remained at a stable level during Q3. If we look at a bit of the trending performance on our three financial and strategic financial targets, we've grown in the last 12 months operational EBIT by 14%. 11 point 2% is where we stand currently with our return on capital employed target and as already said, 2.55 x net debt to operational EBITDA. Important to note that if we look at the numbers excluding the already discontinued SANY excavator business here in Finland and in Sweden, the uplift...
Let's say we would have already seen an up, further uplift in the profitability margins to 5.9%. Earnings growth without SANY is 19%, and return on capital employed is close to 12%. So although now, if you look at the last couple of two, so basically the two quarters, the earnings generation has been on a stable level compared to the comparison periods of 2022. Still, looking at roughly 15% minimum annual average operational, or 15% minimum, or 15% operational EBIT growth, that's a decent number as we see it.
Then, going a bit more further into our businesses, as I already mentioned in the beginning, happy to see the positive gross margin developments or the stable gross margin level developments you see in this light. Overall, in the group level, somewhat of a improvement, in particular, driven by the strong performance now in the last one-two years of our technical trade business portfolio. Also very important to note that if we look at the performance of our 22 companies, majority of them, over 2/3, operate at very good profitability levels and capital efficiency levels.
Looking at, for example, the important return on trade working capital metric that we measure group wide also, over roughly 2/3 of the companies are clearly below the 50% mark that we basically set for our businesses. If we look at the more or less negative parts of the performance, basically now in the quarter, as a result of three different businesses, the exited SANY business, the Signal Solutions Nordic operation, as well as Floby Nya Bilverkstad in Sweden, the negative organic growth seen is because of these three companies.
If we look at the future prospects for this business thing, nothing has changed in our thinking with regards to the competitiveness of those companies in the mid- to long term. We are confident that we are able to bring the profitability of those companies back to the levels where they've been in 2022. So overall, majority of the portfolio continued to perform well. There are clear signs of—or let's say there has been improved signs of—more pressure on the demand side, so pressure on turnover in the last six months. But overall, a good and a decent situation when we look at where our companies overall stand.
Then, clearly, the highlight of the quarter is the excellent cash generation. So here in this slide, you have the last 12-month operating cash flow development of the group. So we updated our strategic targets in Q2 or Q3 2022, so a bit more than a year ago, shifting clearly the focus more on capital efficiency and returns. And also, if you look at now what has happened during the last four quarters thereafter, we've roughly generated EUR 10 million of operational EBIT, with an operating cash flow of roughly EUR 50 million.
So a very significant and a good development, driven by stable earnings development, but also clearly the reduction of working capital, roughly EUR 8 million from the peak seen in August 2022. So very nice development, and a mark that we continue to move into the right direction. If we look at then the important metric of return on trade working capital. So basically, this is the one- off the key KPIs we look at and we drive at the group level for all of our companies. So since I mean, during the last 12-15 months of positive development, from 27%- 30%.
When we look at the reported numbers, if we exclude the discontinued SANY business from there as well, we are roughly at 32.5%. So a clear 5.5% improvement there as well. A positive development, as you see here, mainly with the electronics businesses, as well as our technical trade business area, whereas mainly due to the challenges related to the SANY operations, but also FMB in Sweden, the heavy machines have had a tough time, if we look at both the earnings and cash flow generation in the recent history. However, this continues to be we see a positive trend going forward with this.
There's a clear signal also that the companies and our organization starts to better capture the thinking and the mindset of how important capital efficiency and returns overall are. And then we gradually continue to and expect to see a positive development with regards to this as well. Then a bit... a couple of words on our outlook. I mean, as you know, we don't provide guidance on a short-term level. But clearly, if you look at where what are the key drivers and key focus areas at the moment in steering the firm, we continue to focus as at all times on creating profits, also creating cash flow.
With regards to the profitability, because of the signals that we've seen during the last six months, roundabout, there is an—we have put already some months back additional focus on cost control. Expect that also to contribute during the next quarters positively to our earnings generation. And although we have already released quite significant amount of working capital from the existing companies, we still believe there is some room to go when it comes to reaching the sustainable normal level of working cap that should be tied to our businesses. So in Q2, we were at EUR 32 million, roughly. Now we are at EUR 29 million for the current portfolio.
There is still a few million euro of possibility to further optimize working capital, and still operate at a very sustainable level. So that continues to be a very important focus area going forward as well. Then with regards to our financial standing, so we clearly want to, as we've successfully maintained a stable leverage during the last two-three years, we want to continue on this path and also reflecting the changes in the interest environment, rather push the leverage downwards from the existing 2.4, maintain it at the low end of our strategic target range.
Also then when reflecting our M&A activities, we have during this year completed three acquisitions, invested roughly EUR 10 million to acquisitions. That important work for the longer term continues creating good new companies and targets for the group. However, increasingly important during these times is to make sure that the financial standing of the firm remains solid and protects us for the future as well. Then finally, from my side, our board of directors made a decision yesterday to distribute the second part of the dividend to which there was a normalization given by the AGM.
So we continue on the path of paying an increasing dividend per share. So altogether, EUR 0.44 this year. And there you see the details related to that, the record and the payment dates. But importantly, we see that balancing also, when we're not talking about huge sums that do not really move the needle on a group level when it comes to our ability to continue deploying capital in an attractive manner. So we feel that also balancing between paying dividends and allocating capital to new ventures, this is the right thing to do as well. So that was released yesterday, the press release related to that.
That's my intro to the quarter, and I will then hand over to Aku to continue more in detail on the numbers.
Yes. Good morning also from my behalf, and thanks, thanks, Kari. I will, I will continue with the financials. Sorry about this. Now we have some issues with the slides here. Here we go. So a bit repetition of also, but starting from the rolling development. Sales and operational EBIT development, as seen from the graph, 9% growth compared to last year Q3 in terms of sales and 14% improvement growth in operational EBIT slightly below our strategic yearly target of 15%.
Quarterly figures, not going to net sales anymore here, but, but highlighting the improved profitability still in the quarter, operational EBIT margin improved from 6.8%- 7.1%, despite the challenges in some business units. Then, how the sales developed in terms of different components, organic growth versus inorganic growth. So this quarter here was supported by the recent acquisitions that was done in the beginning of the year and also Delfin Technologies here in the beginning of Q3. However, in organic growth side, that was unfortunately negative, because of the moderate performance in some business units.
And basically same, same development here in, in operational EBIT side, positive from, from the M&A, side, but then negative from, from organic, from our own businesses, so to say. Then a bit, longer term time, frame and development, rolling 12-month figures, in, in, in the direct cost ratio and indirect cost ratio on the left. Firstly, the direct cost ratio, which, which says that, that there's still the development in the, in the, in the pricing and in, in con, controlling the, the direct cost side was, was good, and that was, supported also slightly by the newer acquisitions and, and the newer companies. But, but as seen here from the absolute, rolling 12-month direct cost base, that has gone down now from the Q2, 2023 should be there.
So from previous quarter, alongside with the sales. However, the situation is opposite in the indirect cost side when we have basically stable indirect cost absolute amount, but when the sales was now in rolling 12-month terms decreased, that increased also the indirect cost cost base for the ratio. Then moving on, some words from the business areas. Electronics first here, Operational EBIT margin 6.3%, that was below last year's Q3 , impacted, of course on many things. But overall, from the Finnish operations side, I think the performance was still good. Overall, the outlook remains stable, although in some businesses the demand outlook has been a bit weakened, for example, in YE Finland case.
As mentioned before, SSN impacted largely to the numbers in Q3 with the same reasons than was communicated in Q2 already. However, the newly acquired Delfin Technologies in the beginning of July performed well and according to the expectations, as did the Baltic operations overall. So very solid performance there. And capital efficiency, also good development there, despite the fact that rolling 12-month operational EBIT slightly came down from Q2 this year. Technical Trade very good operational EBIT improvement from last year.
Also stable outlook overall in all of the businesses, except for in the construction side, and there, especially in Machinery's, construction equipment department, where the current market environment definitely impacted on the figures and diluted the performance. However, still solid outlook in Muottikolmio side. Machinery's Power business, still very strong performance, and also what comes to outlook, no major issues seen from that side. And Filterit Oy, both acquired this year for Filterit in the very end of last year, but very good performance and supported business area there.
One thing I want to highlight here, capital efficiency, although, return on trade working capital here in, here is quite stable over the quarters, but still, it's rolling 12-month figures, so there is a bit of a delay also in that sense. But good release of working capital according to plans that we communicated already in Q2, and there is still room to improve that side. Then Heavy Machines, again, good, stable performance in the Putzmeister business overall. As Kari mentioned, the quarter was negatively impacted by FMB's challenges still in the ERP implementation side, and with that, also the delivery capability size side. But that we expect to ease up in the coming quarters.
However, operational EBIT margin a bit improved from last year level, and as did return on capital employed also from the previous quarter. And now we start to see gradually the positive development there after the exit from Finnish and Swedish SANY businesses. Finally, other operations very stable through the time series here, EUR 1.2 million net sales, and still the margin development very stable, despite some inflationary challenges that we have seen during the past quarters. Then, two very important KPIs, return on capital employed. That is our strategic target also. As we can see now, the previous quarters have been very stable in the development. Definitely not satisfied with that one.
I said SANY, exit is still in the numbers, and SANY performance is still in rolling 12-month numbers, but that will in the coming quarters will be over. However, the capital employed, if we look at that one, that has been now very stable during the past quarter, despite the three, four acquisitions that we have also done. So that also tells about the successful release in the working capital, at the same time offsetting that increase. And then return on equity now dropped from previous quarters, 11.3 level to 8.4, and that was because of...
purely because of the performance and also impacted by the increased financing costs because of the increased interest rates. So that impacted on the rolling 12-month figures also. Then, as mentioned before, net debt to operational EBITDA still very stable, 2.4 level in the end of Q3, despite of the acquisition that was done now in Q4, sorry, Q3. And cash conversion extremely good now in the quarter, 150, 50%. And then, finally, to end with, on the left, we have earnings per share, operational earnings per share. And now we took also the operational net cash flow per share as a comparison.
So as we can see from this graph, again, in Q3, where the heavy focus has been put on the cash flow and release of capital, that has definitely bear fruit with resulting with very good operational cash flow per share. And if we then look at the gray bars, there we see a clear drop from the previous years' Q3 in terms of earnings per share. And as mentioned, the main contributor has been the increased financing costs, but also, of course, the performance in the EBIT side.
One thing I want to mention there, when we do the comparison quarter-on-quarter basis, last year in Q3, we saw one- off financing gain from the hedging instrument that we released or issued in Q2 last year. So that was one- off in the comparison period that we'll be not see anymore in the coming quarters. On the right, cash flow, as mentioned, EUR 9 million release or operational net cash flow during the past two quarters, heavily supported by the good performance in the working capital release. So I will end up with this, and now we go back to the Q&A. Thank you.
Yes, thank you. Thank you, Aku. Thank you. There's a good amount of questions. I think let's start with the questions looking at the history. So first of all, there's a question about cash flow improvement. The question goes, could you say a bit more about the elements contributing to this big improvement? It's a good question, and mainly, I mean, the major two contributors to now for Q3 are related to, A, to Machinery's good performance. So I think we commented that already in Q2, that the Machinery's working capital was one, was unusually high in Q2 and early this year, and thereafter successfully, we brought down working capital to levels where it has historically also been.
Some room to go still, and expecting some positive improvement in the coming months as well. Then secondly, overall, the Putzmeister operations as part of the heavy machines business area, also a good working cap and cash flow development there. And then thirdly, I would say small good things here and there, movements here and there, as normal, but overall, I think kind of working capital and cash flow is well managed at the moment by our companies. Then there are a few questions on the business areas. So number one, let's take that. So electronics business area. So sales declined despite the Delfin acquisition.
How much of this was explained by Signal Solutions Nordic, and how much did Delfin Technologies contribute? I mean, I would say, Aku, you can further comment, but mainly it's mainly so that Delfin, A, contributed as we expected. Not going to precise number as we don't go to comment directly on company level figures, but nevertheless, as we expected when acquiring the company in July, and SSN, it was pretty much the whole of the impact or seen in the electronics business is because of SSN.
Correct.
So that's clearly... And also there is another question related to SSN as we're there bridging from there directly. So how is the outlook? Since the summer, we saw a clear bottom in the summer, thereafter, positive, gradual positive development in Finland, in Poland, as well as especially in Sweden, in the signal businesses. And we are proceeding in accordance with the plans we put in place and the estimates we put in place during the summer.
Basically, we are still, I mean, compared to the strong last year, we are below those levels and expect to remain below the levels, but gradually going to the right direction and doing development work with both existing customer base but also new customers, which we expect to strengthen the business in the long run. So, we are progressing well with regards to that. And then there's another question on heavy machines BA. So heavy machines sales declined by 24.4%. How was this divided between effect of SANY exit challenges in FMB and other decline? Aku, maybe you can take that.
Yes, well, that mainly came from SANY exit, but also from the FMB side. So I would say roughly 50/50 was the sales impact, FMB and SANY.
Putzmeister, I mean, as a result, as already commented in the figures, Putzmeister had a good quarter and a good amount of orders and let's say deliveries to customers during the quarter as well. Then continuing still on the businesses, so there's a question on Delfin Technologies. So how is the strategy work with Delfin Technologies going, and can we say anything more on that? I mean, broadly, I mean, if you look at the whole acquisition, it has Delfin Technologies has continued to operate as we expected. The onboarding has gone extremely well. Also to that contributes to development work that we've done with regards to M&A, developing the processes.
So nowadays we're getting, let's say, the basic onboarding stuff already much more quicker than, let's say, two years ago, and that's a very positive thing. Second positive thing is that the Delfin organization is really motivated, committed to continuing to develop the company under new ownership. And there are a lot of initiatives ongoing with regards to the longer-term future, R&D projects, different business development projects, in the medical side, in luxury cosmetics industry, and also in the pharma industry. The strategy work itself is still ongoing. We'll take some time to iron out, let's say, priorities going forward. It's more of a selection of what do we select out of a good amount of strategic alternatives?
How do we prioritize those together with the company? So, more on that to come when we are ready with the work. Then let me scroll a bit forward. One question in between to Aku, how much quarterly interest cost is with current interest rates? How much are the quarterly interest costs with current interest rates?
Okay. Okay, good question, and then I already a bit opened that one, but now in the Q3 , our net interest expenses were EUR 0.7 million. So that represents the current status, and maybe a bit continuing on that one. But of course, if we look at quarter-on-quarter, because there are basically three components or three reasons for increased net financing costs. One is increased interest level overall. Second is the a bit increased IFRS 16 liabilities compared to year-on-year. And the third is then the positive one-off as said in Q3 2022, because of the one-off gain in the hedging instrument.
But 0.7 is and was the expense, interest expense now in the quarter.
Thank you. And then the final question on historical things. So there is a question on electronics business area. How did our performance compare to the broader market in Finland and the decrease in this market that is seen in statistics that are available? Well, that's, first of all, it is correct that you see a decline overall if you look at electronic component sales, for example, in the Finnish market. However, it's good to remember that really extreme year also on a longer term horizon when it comes to 2022 overall. I mean, if we exclude SSN, the Finnish businesses, including then Elfa electronics in Finland, Noretron, Milcon, Infradex, pretty, I mean, on those companies, the development has been okay.
I think, I think overall, we see as we communicate the positive trends when it comes to, for example, Milcon, driven by the positive demand out of the military industry. And then when it comes to the other smaller companies, or the smaller companies, Noretron Components and Infradex, quite stable development throughout. Some challenges in Infradex due to construction-related business, so thermal cameras that goes more into the, more to the construction end, but on the other hand, good development work when it comes to, for example, let's say, state-related customers.
But to answer the question, I think we broadly are going with the market, and overall on a year-by-year comparison, still are showing positive numbers in the electronics overall. Then there are—I mean, then some future questions. There are good questions here. Let me scroll a bit. First of all, so now in this webcast and in the presentation, we're saying that we've seen a weakening market in the last six months, and how did the outlook change in Q3 in different business areas? I mean, there is not too much of a change compared to Q2. The similar trends are there. Everyone knows what's happening in the construction industry.
We have different sort of positioning through our companies in the value chain. So positive developments, more on the renovation construction side, for example, with Muottikolmio. Also positive views when it comes to the Putzmeister business, especially the aftermarket part of it, but also new deliveries, especially in Sweden, related quite a lot due to the ongoing green transformation as well. Clearly more visible signs when it comes to the Machinery construction equipment business, for example, here in Finland, as already said in Q2. Then overall in the industry, there are, of course, uncertainties, but overall, we have more OpEx in the businesses.
We have small companies with good positioning in many of the value chains where we are present, and also a good amount of work strategically done in the companies, which we expect to protect our ability to perform quite nicely in a tougher period of time, but no dramatics there. Then still a few ones. You mentioned that costs are in focus, as we did, and what measures are we targeting? I mean, if you look at... That's mainly if you look at fixed cost, OpEx, and personnel-related costs. We have already done actions when it comes to some people in the organization, in group wide, where resignation, and therefore, there are no recruitments done.
We see in the coming months also a few retirements, no recruitments to be done. So overall, on the personal cost side, clearly there are actions, actions that, that have already been taken and will be taken. We don't see a need to, to, go through it, at this stage, at least to any sort of larger reorganizations. What's over tells also about the confidence that we have towards the future. Of course, now we're looking at next year, we are also, also taking, and being cautious on what- or, or let's say, designing, designing next year's plans and looking at making triggers that, what sort of actions need to be taken if, if, if market is more difficult than we anticipate.
But as of today, we don't see a need to go more aggressively there. On OpEx, you can always find things to improve efficiency and expect also that we will find a significant amount altogether OpEx and fixed cost for the next year that will also support profitability next year. And let me check that if we have missed anything. Yes, there is still one question, I think, which was not answered, and this is related to working capital, that we have already reduced working capital by a significant amount in the last quarters, and mentioning that, let's say the EUR 25 million level is something we believe we expect it to be possible.
And this question relates to whether we expect this to happen in Q4. No, we don't expect that to happen in Q4. I think it's a bit of a longer-term target, but we see that with these activity levels where we currently operate, which are quite stable compared to the previous year on a pro forma basis, there is still a bit of room to go downwards towards the EUR 25 million mark. But it's something that we think will take a bit more time than Q4. Yes, I think I have taken all the questions which we have here. So, thank you again for participating.
Thank you for the good, good questions, and look forward to seeing you again next time, early next year. So thank you, and that's it.
Thank you.