Boreo Plc, FINANCIAL STATEMENTS BULLETIN JANUARY 1 - DECEMBER 31, 2023

February 29, 2024, at 9:00 EET

Moderate profitability and strong cash flow in challenging markets during 2023  

October-December 2023

• Net sales decreased by 18% to EUR 37.1 million (2022: 45.0).
• Operational EBIT declined by 6% to EUR 2.1 million (2022: 2.2) and accounted for 5.6% of net sales (2022: 4.9%).
• EBIT decreased by 26% to EUR 1.2 million (2022: 1.7).
• The profit for the period under review totaled EUR 0.3 million (2022: 0.9).
• Net cash flow from operating activities was EUR 2.1 million (2022: 3.7 including operations discontinued in 2022).
• Operational EPS was EUR 0.25 (2022: 0.32).
• EPS was EUR 0.00 (2022: 0.16).

January-December 2023

• Net sales grew by 1% to EUR 161.3 million (2022: 160.4).
• Operational EBIT increased by 8% to EUR 9.5 million (2022: 8.7) and accounted for 5.9% of net sales (2022: 5.4%).
• EBIT decreased by 2% to EUR 6.3 million (2022: 6.5).
• Net cash flow from operating activities rose significantly to EUR 11.6 million (2022: 4.1 including operations discontinued in 2022).
• The profit for the period under review totaled EUR 2.8 million (2022: 4.4).
• Operational EPS was EUR 1.40 (2022: 1.82).
• EPS was EUR 0.47 (2022: 1.12).
• Net debt relative to operational EBIT of the previous 12 months was 2.5 (2022: 2.2 and 2.4 at the end of the previous quarter).
• Return on capital employed increased and was 11.0% (2022: 10.4% and 11.2% at the end of the previous quarter).

The Board of Directors’ dividend distribution proposal

The distributable assets of the parent company Boreo Plc on December 31, 2023, were EUR 17.5 million, of which the profit for 2023 is EUR 5.8 million.

Boreo’s aim is to pay an annually increasing dividend per share, considering capital allocation priorities. In the short term, however, the company’s objective is to strengthen its financial position and thus ensure the implementation of its growth strategy also going forward. As a result, the Board of Directors of the company proposes to the Annual General Meeting that no dividend will be paid for the financial year that ended on December 31, 2023.

Financial guidance and business model

Boreo's primary objective is sustainable long-term profit generation. This is achieved with a business model that is based on the acquisition and ownership of great entrepreneurial companies with ability to generate sustainable long-term earnings growth and strong cash flows. The profits generated by the portfolio of companies are re-invested back to operations or to acquisitions with attractive expected returns on capital. The decentralized operating structure promoting culture of ownership and release of entrepreneurial energy is a core pillar of the firm’s business concept and sustainable earnings growth is ensured through the support and coaching of companies and the personnel.

Boreo’s focus is on earnings growth with attractive return on capital. The company's long-term strategic financial targets are:

• Minimum 15% average annual operational EBIT growth
• Minimum 15% Return on Capital Employed (ROCE)
• Net debt to operational EBITDA between 2 and 3 (including acquired businesses as if they had been held for 12 months at the reporting date)

Boreo’s dividend policy is to pay an annually increasing dividend per share, considering capital allocation priorities.

The above-mentioned strategic financial objectives still serve as the company's financial guidelines. In line with its guidance policy, the company does not give separate short-term financial guidance.

In August 2022, Boreo sold its entire 90% holding in the electronics component distribution business in Russia. For 2023, all figures in this report relate to continuing operations, unless otherwise stated. In the income statement, the comparison periods have also been adjusted for continuing operations, while the data in the cash flow statement have not been adjusted in the comparison period and include discontinued operations. The December 31, 2022 balance sheet no longer includes discontinued operations. Other than that, the accounting principles of this review do not include any changes that affect comparability and the underlying financial statements figures have been audited. The comparison figures in brackets refer to the corresponding period of the previous year, unless otherwise specified.

Group’s key figures

Key figures, continuing operations

* Calculated in accordance with the calculation principles established with financiers. The formula for calculating the indicator is presented later in this report.

**The effect of the interest rate of the hybrid bond recorded in equity adjusted by the tax effect is considered in the calculation of the EPS starting from Q1 2022. In Q4 2023, this net effect was EUR 0.12 per share, in Q1-Q4 2023, the net effect was EUR 0.48 per share, in Q4 2022, the net effect was EUR 0.12 per share, and in Q1-Q4 2022, it was EUR 0.44 per share.

***Cash flow for comparison periods includes discontinued operations. The formula for calculating the indicator is presented later in this report.

Q4/2023 - CEO Kari Nerg:

Year 2023: Moderate profitability and strong cash flow in challenging markets

In year 2023, we continued to take good steps in improving the quality of our company portfolio and in the development of Boreo’s long-term value creation playbook. The three new companies welcomed to the Group (Filterit, Lamox and Delfin Technologies) showcase our target and ability to acquire companies with prospects to generate sustainable profit growth and high returns. The launch of version 1.0 of our operating manual – the Boreo Book – was an important milestone to further root the core principles of Boreo Way to our organization. This continued the systematic development of our operating structure and the actions completed in 2022 (introduction of Boreo Clock, the Game Plan concept and profit & return related KPIs). Furthermore, the introduction of our approach on sustainability and the definition of focus areas & KPIs was an important step in supporting the development of our companies.

Financially, the year was challenging as market conditions deteriorated from Q223 onwards. Sales in 2023 increased only by 1% to EUR 161 million due to negative organic growth of EUR 12 million. We defended operational result throughout the year by exiting the low-margin SANY business in Finland and Sweden, focusing on improving sales margins and reducing fixed costs. The Group’s operational EBIT increased by 8% to EUR 9.5 million. Operational EBIT margin improved from 5.4% to 5.9%. In addition to the improvement of profitability, we succeeded well in our attempts to reduce working capital and generate cash flow. Operational net cash flow improved from EUR 4.1 million to EUR 11.6 million and operative cash conversion was 129%. Because of the growth of earnings and the strong cash flow, Return on Capital Employed (ROCE) improved from 10.4% to 11%. Return on Trade Working Capital (ROTWC) improved from 26.7% to 30.3%. In line with the recent history, the financial position remained stable, net debt was at EUR 36 million and leverage at 2.5x (2.4x in Q323).

Excluding the Finnish and Swedish SANY businesses of which we made an exit in H123, the Group’s ROTWC was at 32.3% and ROCE at 11.3%.

Q4 2023: Challenging end for year 2023, cost optimization actions of at least EUR 1 million completed

The last quarter of 2023 was operationally challenging and net sales decreased from EUR 45 million to EUR 37 million. In particular, the weak market conditions impacted our electronic component distribution and construction related businesses. As during the entire 2023, we defended gross margins and operational result successfully and operational EBIT margin improved from 4.9% to 5.6%. Operational net cash flow for the quarter was at a good EUR 2.1 million level and operative cash conversion was 73%.

We expect market conditions to remain challenging in the first half of 2024 and, in accordance with our communication in Q3 2023, our short-term priority is on ensuring profitability, cash flow generation and strengthening the Group’s financial position. In the second half of 2023 and in the beginning of 2024, we have completed cost optimization actions which target annual fixed costs net savings of at least EUR 1 million. The actions include both the reduction of costs at Boreo HQ, its Business Areas and the companies. The run-rate impact of the actions is expected to be achieved from the second half of 2024 onwards.

Strategic review: updated playbook to achieve profit growth and improve returns

As continuation to the development work done on the operating structure, we have during the last quarters carried out a strategic review of our companies. The focus of the review has been on the evaluation of prospects of our companies to create long-term sustainable profit growth and return on capital that exceeds ROTWC of 50%. Given the capital light nature of our businesses, ROTWC greatly drives the Group-level returns (ROCE). Hence, it is a KPI we use in the steering of our companies and that we have set as a minimum mid- to long-term target group-wide in 2023.

Following the review, we have today communicated that our existing long-term strategic targets remain unchanged. As an update to what we have previously communicated, we plan to achieve our profit growth targets and the minimum ROCE of 15% using the following playbook:

• We acquire great entrepreneurial companies with the ability to generate sustainable earnings growth, strong cash flows and high return on capital,
• We invest in the growth of our companies which already exceed the 50% ROTWC target and can grow with an attractive return profile, and
• We carry out short- to medium-term transformation and reorganization programs in companies operating below the 50% ROTWC-threshold.

If we are not convinced of the companies' ability to achieve the targets by 2026-2027, we are ready to consider structural actions for the companies.

The now communicated update to our ownership philosophy and our strategy to steer the group towards our long-term targets is an important refinement of our thinking about responsible long-term ownership and capital allocation. We view high margins and returns on capital as a necessity in building a decentralized owner and acquirer of entrepreneurial companies and are committed to take firm action to improve the quality of the firm. Many of our companies already meet our targets and with decisive implementation of needed actions in companies below target levels, the returns of the Group can be improved significantly.  We are convinced of both the long-term value creation potential of our business model and our ability to develop the company towards our goals even in a more challenging market environment.

Boreo Plc’ financial reporting in 2024:

Financial Statements Bulletin for 2023: February 29, 2024 at 9:00 EET The Financial Statements Bulletin is available on the company’s website after publication at: www.boreo.com/investors.

A webcast where CEO Kari Nerg and CFO Aku Rumpunen present the Financial Statements Bulletin will be held today, February 29, 2024, at 11:00 EET. The presentation is in English and questions can be asked after the presentation. The presentation material is available before the webcast on Boreo's website: www.boreo.com/investors.

You can watch the webcast at: https://boreo.videosync.fi/2023-q4-results.

The event will be recorded and the recording will be available after the event at: www.boreo.com/investors.

Interim report 1-3/2024: April 30, 2024
Half-year report 1-6/2024: August 7, 2024
Interim report 1-9/2024: October 31, 2024

The Annual Report and the Financial Statements Jan. 1 - Dec. 31, 2023 will be published in week 10.

Vantaa, February 29, 2024

BOREO PLC

Board of Directors

Additional information:

Kari Nerg
CEO
tel +358 44 341 8514

Aku Rumpunen
CFO
tel +358 40 556 3546

Distribution:
NASDAQ Helsinki Ltd
Financial Supervisory Authority
Principal media

www.boreo.com

Boreo in brief:

Boreo is a company listed on Nasdaq Helsinki that creates value by owning, acquiring and developing small and medium-sized companies in the long-term. Boreo's business operations are organized into two business areas: Electronics and Technical Trade.

Boreo's primary objective is sustainable long-term profit generation. This is achieved with a business model that is based on the acquisition and ownership of great entrepreneurial companies with ability to generate sustainable long-term earnings growth and strong cash flows. The profits generated by the portfolio of companies are re-invested back to operations or to acquisitions with attractive expected returns on capital. The decentralized operating structure promoting culture of ownership and release of entrepreneurial energy is a core pillar of the firm’s business concept and sustainable earnings growth is ensured through the support and coaching of companies and the personnel.

The Group's net sales in 2023 were EUR 161 million and it employs over 300 people in seven countries. The company’s headquarter is in Vantaa.