Boreo Oyj (STU:YKKA) Q2 2024 Earnings Call Highlights: Navigating Challenges with Strategic ...
Operational EBIT Margin: Achieved 7% in Q2 2024.
Revenue Decline: EUR 8.5 million decrease, primarily from construction businesses.
Rolling 12-Month Sales: Approximately EUR 144 million, down from over EUR 170 million.
Cost Savings Target: Minimum EUR 1 million annual savings underway.
Leverage Ratio: 2.8x, with plans to deleverage.
Gross Margin Improvement: Significant uplift in technical trade division.
Operational Cash Flow: Negative EUR 1.9 million in Q2 2024.
12-Month Operating Cash Flow: EUR 12.1 million.
Direct Cost Ratio: Continued decline due to cost-saving actions.
Indirect Cost Ratio: Increased due to sales drop.
Electronics Margin Improvement: Notable improvement from previous quarters.
Operational Earnings Per Share: EUR 0.21 compared to EUR 0.29 last year.
Return on Equity: Declining trend due to moderate net result and increased equity.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Boreo Oyj (STU:YKKA) restored profitability to historical levels with a 7% operational EBIT margin despite sales pressure.
Cost-saving initiatives are on track, targeting a minimum of EUR 1 million annual savings, contributing positively to results.
Positive developments in certain business segments, such as F&B and Filterit, with stable outlooks and improved performance.
Gross margin improvements, particularly in the technical trade division, due to a favorable sales mix and effective management.
Strong operational cash flow management, with EUR 12.1 million generated over the last 12 months, despite market challenges.
Negative Points
Sales continued to decline, particularly in the construction business, with a significant impact on overall revenue.
Leverage remains high at 2.8x, with pressure from hybrid instruments affecting cash flow, necessitating deleveraging efforts.
Market outlook remains challenging, with no significant improvement expected in the latter part of 2024.
Operational cash flow in Q2 was negative by EUR 1.9 million, primarily due to a decrease in accounts payable.
Fixed costs, although reduced, are still impacted by lower sales, with indirect cost ratios increasing due to top-line declines.
Q & A Highlights
Q: Interest rates have started to decrease during the summer. Will the decrease in interest rates benefit Boreo's result at the end of the year or next year? A: Both. We will gradually start to see positive impacts now, already a bit in Q2, but more so going forward if the lower interest environment persists. However, we have some hedging in place that stabilizes interest increases, which could negatively impact the valuation of hedging instruments. In the mid-term, we should see lower interest costs. (Aku Rumpunen, CFO)
Q: If you compare your position now to your expectations at the end of '23, did H1 go as you expected? A: No, we ended up below our expectations for H1, particularly on the revenue side. We anticipated a challenging market environment, but demand was tougher than expected. However, we succeeded better than expected in reducing costs and managing our balance sheet. (Kari Nerg, CEO)
Q: Fixed costs were clearly lower in Q2 compared to Q1. Is the cost level of Q2 representative for H2 as well? A: Yes, broadly speaking, the fixed cost level is representative going forward. Traditionally, Q3 has lower fixed costs, and we expect this trend to continue, though the deviation might be less than before. Additional cost-saving measures will kick in towards the end of the year, mainly in Q4. (Kari Nerg, CEO)
Q: You mentioned that the order books were down Q-on-Q, and biggest deliveries are expected in Q4. Should we expect group sales in Q3 to be similar to Q2? A: Yes, we expect more solid ground in terms of order book for Q4 than Q3. Historically, Q3 has been one of our best quarters, but this year, Q4 is expected to be stronger. (Kari Nerg, CEO)
Q: You mentioned working on deleveraging. Does that require divestments or capital structure arrangements before returning to the acquisition path? A: We are evaluating all tools available, including potential divestments of companies that may not meet our long-term financial targets. We continuously evaluate possibilities for capital structure arrangements and will comment further if needed. (Kari Nerg, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.