One loss-making / small piece off from Eezy and sharpening the focus
”Eezy Plc sells the business operations of Farenta Oy, specialized in pharmacist staffing, to Apteam Oy”
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Alternative perspective: selling off a piece of the business to generate cash for interest payments for the rest of the year. It provides temporary relief, but at the same time, future growth prospects are diminished. The sale price wasn’t disclosed, so it’s difficult to evaluate more precisely whether this is positive or negative from the company’s perspective.
Farenta has incurred a total operating loss of approximately 900,000 euros over the last couple of years, and its operations have contracted. So, provided they didn’t have to pay a lot themselves to get someone to take it off their hands, then at these valuation levels, getting rid of such a heavily bleeding business is likely a good move for the company’s owners and financial situation. Judging purely by the numbers, that ship was unlikely to have turned around anytime soon.
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Good news for March. Revenue and volume for employment activities tracked by Statistics Finland show strong year-on-year growth:
That’s quite a hill that’s been climbed, and it’s more pleasant to do business in a slightly growing market than in a heavily declining one.
It’s certainly great if some actual euros have been gained from Farenta.
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In my opinion, it is not hard to evaluate whether it is positive or negative. Even if that small loss-making unit, which is not part of the core business, had been given away for free, I think it would easily lean towards the positive side. If they actually received some money for it as well, then that is great.
And I also disagree with your alternative view in that I believe that by cutting losses, there will specifically be more cash left over for paying loan interest as well.
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I think it’s worth remembering that the financial statements of an intra-group subsidiary don’t always reflect the reality of that subsidiary’s business profitability. Within a group, expenses can be allocated quite arbitrarily for various reasons.
I find it a bit hard to believe that Farenta really posted that roughly €900k loss on about €9m in revenue over the last two years. I mean, it seems truly incomprehensible to manage that in the staffing business.
In any case, that Farenta acquisition by Eezy was a complete disaster. It’s probably just a coincidence that when the acquisition was announced in March 2022, Apteam was founded less than two weeks later by Farenta’s founder and former CEO Mikko Veräjänkorva (link below). And since then, the revenue curves of Farenta and Apteam have been nice mirror images of each other 
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It’s negative, at least in the sense that it shows Eezy hasn’t been able to make the business profitable with its expertise. After all, staffing and recruitment are supposed to be Eezy’s core competencies. Perhaps the competitors simply handle it better. For instance, Wulff seems to be doing well and is taking customers away from Eezy.
In addition, this business might have even been sold at a negative price; we just don’t know. A point of comparison is the Sotka/Asko case, where the sale price was nominal and, furthermore, the seller wrote off large loans, meaning it was sold at a very significant loss.
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It’s no secret that Eezy has not succeeded with its profitability in that segment.
For example, from the company presentation provided in connection with the latest share issue:
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Of course, it has been a negative that they haven’t been able to make it profitable, but it can still be seen as a positive that they’ve realized it’s time to divest, given they lacked the expertise to operate profitably in that segment. Regardless of the sale price, the release of working capital is a positive in any case.
Now we will likely see some sort of write-down that will impact the reported earnings. This will then conveniently provide more losses to reduce the tax burden.
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Based on the available information, it is difficult to assess the quality of the Farenta deal, as visibility into the business is limited and the purchase price is undisclosed. Its journey under Eezy was a failure, and I am critical of selling off parts at what is (hopefully) the bottom of the cycle. It reduces future growth drivers.
On the positive side, if those figures are correct and, for example, group structure costs aren’t simply shifted to other units, then even a small boost to profitability could be a significant help if weak performance persists—especially when it comes to staying in the black and meeting debt covenants.
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The shareholder list has been updated after the share issue. It shows the Savolainens’ maneuvering that was already discussed here earlier. The ownership stakes of some franchise entrepreneurs decreased in the issue, as I had somewhat suspected before the offering. Since no subscription notifications were heard from Markus Jussila, his DG-holding has naturally also disappeared from the list. Board member Mikko Wiren’s company has entered the list, and it hasn’t exceeded the notification threshold as it remained under €20,000. Additionally, Vesa Puttonen’s firm, among others, has risen to the list of largest shareholders.
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Observations from the latest Hela (Private Employment Agencies Association) revenue review:
As was already evident from Statistics Finland’s data, the industry grew in March, and cautious growth is also expected for April:
For Eezy, the largest segments grew (Industry is the largest):
Staffing services revenue grew in Q1:
The economic situation remained weak and the outlook improved a notch from March:
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Here are Petri’s pre-result comments as Eezy reports its results on Thursday.
Our Q1 revenue forecast is nearly at the level of the comparison period, but we expect the company’s result to have improved year-on-year, supported by profitability improvements from efficiency measures. The company has not provided guidance for the current year, and we do not expect any to be given in the Q1 report either. In connection with the results, our focus, in addition to the profitability turnaround, will be on the latest comments regarding market development.
I’ll also add Pete’s comments on the staffing service industry’s performance in March.
According to the staffing industry revenue survey, the turnover of the 20 largest companies in the industry was approximately EUR 122 million in March, representing a 3% growth compared to the same period last year. The development of the overall market is significantly linked to staff leasing services, which accounted for approximately 81% of the largest operators’ revenue in March. Consequently, the revenue of staff leasing services was approximately EUR 99 million, representing a 3.5% growth from the comparison period.
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There has indeed been a lot of movement on the shareholder list in connection with the offering:
Many completely new names have appeared on the list, and in addition to the previously mentioned Puttonen, several other “rational investors” (in my opinion) have joined. This was a positive surprise for me, as interest in these small-cap “noodle stands” has been quite weak lately.
Inderes’ forecasts have a reasonably positive expectation regarding EBITDA development (€1.3M → €1.8M), but after reviewing last year’s reports, I’m actually expecting slightly better development. In my own “back-of-the-envelope” calculations, even the operating profit could turn slightly positive, provided there are no extra write-downs or one-off costs from preparing the offering in the Q1 results.
Tomorrow we’ll be wiser regarding this as well.. 
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In case anyone was still wondering about this topic, today’s report confirmed that it was indeed a loss-making operation: “Operating profit was impacted by a €0.2 million impairment related to the sale of the loss-making pharmacist and dispensing pharmacist business.”
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The improving profitability trend continued, and cash flow was also clearly better than in the comparison period. Furthermore, we now achieved pure EBITDA without any adjustments. Expert services pleasingly achieved growth, but in staffing services, system-wide revenue still declined. If revenue can get back on a growth track, this will turn out well. Or rather, it must start growing if the Finnish economy begins to gain momentum now.
Isn’t that an unexpectedly small write-down for Farenta? I don’t know the value it was held at on the balance sheet, but when you want to get rid of a loss-making operation, book values usually turn out to be quite optimistic.
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In my opinion, revenue development left something to be desired, as it underperformed compared to the market. The company’s cost control is quite impressive, given that EBITDA improved by EUR 0.6 million despite the decrease in revenue. Even the operating profit would have turned ~50 thousand euros positive, were it not for the impairment of the pharmacist and master of science in pharmacy business.
Quite a decent performance in terms of profitability for the weakest quarter of the year. In my view, the most important thing has been to break the cycle of losses, and the company seems to have succeeded in that. Next, revenue should be put on a growth path, which would start leaving something on the bottom line as well.
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Adjusted EBITDA (oikaistu käyttökate) was now €1.9m and in Q4 it was €2.9m, meaning the LTM (last 12 months) adjusted EBITDA is now €10m, having risen for three consecutive quarters. Q2 is still an easy comparison period; after that, revenue growth will be needed to support further improvement. A one-million-euro improvement to the Q2 EBITDA is likely not an unrealistic forecast with current profitability, which would put the annual run rate at €11m.
With an €11m EBITDA, I previously calculated the following:
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@Petri_Gostowski, as a request for the interview, could you ask about the development of sales and revenue growth? It would also be good to inquire whether any partnerships with major customers have ended or are about to end, which could continue to have a negative impact on revenue development in the future.
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Here is a company report on Eezy from Petri following the Q1 results.
Eezy’s Q1 report was twofold, as the company’s revenue development lagged behind the market, but restructuring measures turned the operating profit back to growth in line with our expectations. In our assessment, a prerequisite for a sustainable turnaround is a return to revenue growth, regarding which the operating environment remains uncertain.
Quoted from the report:
Staying on board
The valuation of Eezy’s share is twofold; at the current profit level, there is no upside in the stock, but even with a moderate turnaround, the valuation becomes attractive. In light of the evidence, the company’s own efficiency has improved, which creates the conditions for a profitability turnaround. However, this is highly dependent on revenue development, which in turn is subject to market growth and the development of Eezy’s market share. We continue to base our view on medium-term earnings growth due to the high long-term expected return it offers.
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