Welcome to Inderes TV. Boreo released its Q3 earnings yesterday, and today we will review them with the company's CEO, Tuomas Kahri. Welcome, Tuomas!

Thank you Eero, great to be here.

Let's start the interview as usual. If you could walk us through the Q3 development in a nutshell.

Yep, we had a strong Q3. We achieved a great 26 percent growth in sales for the quarter, 25 percent of which was organic. So indeed, organic growth has been very strong. On a trailing 12-month basis we are at EUR 72 million, so overall growth has been very strong. This year our earnings rose to EUR 3.5 million from EUR 1.7 million in the comparison period, and the trailing 12 months is EUR 10.5 million. So that has also risen very strongly. Perhaps it is good to mention here as well that when compared to the comparison period in Q3, back then we had a very weak comparison period behind us, and conversely Q4 last year was extremely strong. So it might be that there is some difference between the comparison periods here. But in any case, it can be stated that it was a strong Q3, and everything actually went better than one could have ever imagined. Sales are performing very well. We managed to get deliveries through. And so on, Q3 was very good.

If we go through the development a bit more closely regarding the business areas, let's start with electronics, for example. It was mentioned there at least that Delfin's improved earnings drove earnings growth, so could you open up these drivers a bit.

Yes, there. The electronics business is quite strongly such that it follows the general development and trend of the Finnish economy. It has been good, so. So of course there is. There is a high weight. Milcon is growing very fast, and it continues to grow, which of course shows in the earnings of the entire business area. And then regarding Delfin, the driver there is that they carried out this product platform renewal, and now that it has been done, the cost level is in a way under control, and as sales are moving, the earnings come through nicely there as well.

Then to technical trade. Here the growth and earnings improvement were particularly strong, at least compared to our own expectations. If you could go through this further.

Yes, technical wholesale, technical trade is such that right now it shows very strongly. First of all, the good situation of the Finnish engineering industry everywhere welding takes place. That benefits our welding business and Brownious and Spets Elektrod, and their growth has been very good. Likewise then Machinery MT or MT. And and. And Machinery. As the old parent company itself, they have also achieved good growth from here. From the Finnish industrial sector and in that sense of course. It shows very strongly there that when sales grow, then this so-called operational gearing of ours works extremely well. Meaning that costs do not grow at all at the same pace as sales increase. So that is extremely positive there.

What if one looks for some weaknesses in an otherwise strong report, cash flow was somewhat weak and working capital was tied up in inventories. Are these company-specific challenges or is it just a consequence of growth? How would you comment on this?

I would comment that probably the biggest driver overall there is that when sales grow well and companies naturally want to ensure that they have products to deliver to their customers. Then it has tied up a bit in inventories. And the second is of course that we do see some minor risk that deliveries from our principals might be delayed. And as the end of the year approaches, then perhaps we want to prepare a little for having enough product to sell as well. If I psychoanalyze you a bit, this is probably the area where at least this CEO looks in the mirror while shaving in the morning, thinking that this is where we need to be more precise. It is an area that one must continuously keep an eye on.

You had operational leverage, which you have talked about a lot. There was really strong operational leverage, costs largely unchanged. At the same time as revenue grows, how much room does this leverage still have to operate, so to speak? In other words, at what point do you need to start making investments in operational cost mass, or can revenue still grow significantly without major investments?

We can of course. It is of course terribly difficult to say. Exactly, but our belief is that there is still room in that operational leverage. If it at some point starts to demand investments in people, for instance, we are ready to do that. We naturally assume in our own plans that that will also happen later. When sales grow, a bit more staff will also be needed at some point, but there is still room for efficiency gains. Across our entire entity, in our business.

Exactly, I know myself. During the quarter, regarding the broad financing package update, meaning you got a new smaller, low-interest hybrid loan as well as a new bank financing package, could you open up this package a bit more and how it supports your strategy here?

This is another thing that succeeded really nicely during this quarter. That we got. We ended up in a situation where we have less hybrid loan than before. Its interest rate is lower than before. And then we also negotiated a new financing solution with our main bank, where not only did some of our financing move from the hybrid to the bank loan side, but there is also a EUR 13 million acquisition facility, which is currently completely unused. So this enables us to continue acquisitions as soon as we get suitable targets across the finish line.

You also announced a new acquisition at the beginning of October for the first time in a while. You bought a small company called TEXpro Oy, so could you explain a bit what interested you in this target to allocate capital to it?

TEXpro Oy. First of all, a great company overall. It is nice to get to welcome the people of TEXpro Oy into the Boreo family. Nice to get new people into our house. New contributors, of what we think. So it is. It is of a size that is interesting to us. It is a company that has been run extremely well up to now. It is. It is a profitable company, having been a very profitable company already up to now. Then the customers and products there are such. They fit well. We understand what business, let's put it this way, that company is in, and through this it is. There is potential to get good synergies out of that cluster to which we. The one it belongs to. Perhaps not so much on the cost side, but on the customer end. Meaning that we can better serve customers, both TEXpro Oy's customers and our, for example. Filterit's customers, which is nearby and in a very similar type of business.

What does your M&A pipeline look like looking ahead? Can we expect new deals before the end of the year?

Our pipeline looks good. We are very actively having discussions with new, completely new cases. And then of course companies with whom negotiations have already been started earlier and matters progressed. So we are continuously approaching them, and we have the readiness on our part to finalize more acquisitions this year as well.

If you could comment further on what kind of targets interest you, are they smaller niche players like TEXpro Oy or?

Indeed we are. Our interest is in that we have quite strict criteria regarding what kind of companies we would like to join Boreo. And we stick to them. Meaning that at no point should an acquisition be an end in itself, but the target must be such that it fits us well, and that is adhered to. TEXpro Oy. Was a good example of a company that was interesting from our perspective because it was of a suitable size. It was in a business that we understand, and in addition its profitability profile was already good to begin with. Such companies are gladly bought more, and negotiations regarding these are currently underway. Indeed.

Right. Let's go through it. A little bit more on the demand outlook at the end. The Finnish economy has started to pick up this year at the same time. However, recently interest rates have risen somewhat. What does your demand outlook look like across different business operations at the moment?

Yes, we see. We see good demand in our operations. The demand profile overall. So, as mentioned earlier, these. Finnish industry, however, currently seems to be doing moderately well, and that drives our demand in both the electronics business and technical trade. The area that has been talked about many times before is construction and particularly this kind of residential construction, which could further boost our business if it were to start growing in Finland.

Exactly. You actually announced a Capital Markets Day for later in the month as well, so would you like to give any preview of that? Naturally, we will return to it in more detail in that connection.

Then we will probably talk at that point about what our future goals are and how this business model works. How we believe this serial acquirer model works and what it means for us strategically. So these matters will be reviewed there, and it's great if as many as possible can join in to listen. That is of course really nice.

Thank you Tuomas for the interview, and let's touch base again in connection with the Capital Markets Day.

Thank you, Eero! Thank you.