Interim CEO Timo Lappi was interviewed by Kinnunen.
Fondia’s Q4 result was as expected, weak. Billing rates at the end of the year were poor, and the market situation appears to remain uncertain. Interim CEO Timo Lappi discusses the situation in an interview with analyst Juha Kinnunen.
Topics:
00:00 Introduction
00:15 Interim CEO introduces himself
01:40 How to get the company firmly on a growth path?
04:42 Where does Fondia concretely need to succeed?
08:15 Q4 result summary
09:53 What caused the weak result?
11:38 Decline in recurring revenue
13:49 Situation in Sweden
15:16 Last year’s biggest failures and successes
17:18 Guidance
20:05 Cost structure
21:22 Impact of change negotiations
23:11 Market outlook
A couple of comments on the morning analyst’s quick comment.
If the analyst’s comments are, for example, the following:
“After a quick glance, Fondia’s report leaves an unpleasant shadow of uncertainty, but it is difficult to draw major conclusions from it for now.”
“However, there is very little concrete information in the guidance, which consequently casts an unpleasant shadow of uncertainty over the 2025 forecasts.”
“For now, it is premature to assess potential forecast changes.”
For a company under such “active” monitoring, the old target price (which, according to the analysts providing it, should not be looked at or generally considered when making an investment decision) and a BUY recommendation remain in effect.
Could it perhaps be possible… that after the above comments, the stock’s BUY recommendation (i.e., the more important and noteworthy indicator) would be appropriate to lower at least to a HOLD level?
The value of analysts in stock monitoring should be emphasized precisely during uncertain times, that is, precisely at those critical moments when the trousers of less informed investors (or those with smaller intellectual capacity like me) start to flap.
E.g., something like:
“Due to great uncertainty, we TEMPORARILY lower our target to level xxx and await the investor call / market reaction / or-what-not. We will return to the recommendation once the dust has settled / after discussing with the company’s management / once our own minds have formed the correct stance regarding the company’s situation. We recommend caution and patience to investors until the situation has clarified.”
P.S.
So I didn’t buy today (despite the recommendation). I exited the stock already over a year ago because this company was never able to keep its promises, guidances, or visions.
Severe personnel drain, which is usually (almost 100%) a sure sign of serious management problems, has been the main reason to refuse even considering returning to this.
Maybe someday; the idea on paper is beautiful, however.
We reiterate our target price of 5.6 euros for Fondia, but we lower our recommendation to ‘add’ (previously ‘buy’) as the expected return has decreased slightly. We did not make significant forecast changes and still consider our 2025 forecasts to be very cautious, but in the absence of guidance, there is additional uncertainty regarding the outlook. However, this is offset by a very low valuation (2025e EV/EBITA 8x), which means the risk/reward ratio remains clearly positive.
Quoted from the report:
Employee satisfaction must be monitored
The last part of the outlook is also somewhat concerning, as it indicates that even within the company, the view on the impact of the measures taken is not yet clear. If, as a result of negotiations, the company were to lose key employees and also customers, this could be very negative for the company. On the other hand, it is also positive that the company has identified the risk and is taking measures to prevent it. In 2024, the employee Net Promoter Score (eNPS) fell to 19, which was a clear drop from the previous year (2023: 48). However, the index is not yet at crisis levels, but the trend is, of course, negative.
Almanakkakin has also written about Fondia after Q4.
So, is the package too hefty for many customers, and would they want to buy smaller entities? A bit like me with Viaplay. Lappi also says that Fondia will be renewing its LDaaS model this year. It’s certainly a significant transformation for a small company if the key product also needs to be renewed while the headcount is reduced. The need for change seems genuine, but to my taste, it now contains a bit too much uncertainty.
Welcome to Fondia!
On Thursday, March 20, 2025, immediately after our Annual General Meeting, we are organizing a Fondia Open House event, where everyone interested in Fondia will have the opportunity to get to know Fondia and our management. There will be informal discussions, networking, and timely speeches by Risto E.J. Penttilä and Juha Kinnunen.
Here are Mr. Kinnunen’s preliminary comments as Fondia publishes its Q1 results next Thursday.
We expect both revenue and profit to have clearly decreased from a strong comparison period. The Q1 result is burdened by one-off costs related to change negotiations, but from now on, the company will benefit from a reduced cost structure and better personnel utilization. The big question is the development of revenue in an uncertain market environment, and we made slight negative revisions to our forecasts as uncertainty increased. Interest is particularly focused on the effects of the trade war, the personnel situation, and management’s comments on the future.
Fondia focuses on improving profitability in 2025. The market situation remains uncertain, and this negatively affects the ability to assess the demand for legal services and the factors influencing it.
Fondia’s Previous Outlook for 2025 (published 13.2.2025)
Fondia focuses on improving profitability in 2025. The market situation remains uncertain, and this negatively affects the ability to assess the demand for continuous legal services and the factors influencing it. Furthermore, the full impact of the company’s change negotiations on the Group’s revenue is still difficult to estimate more precisely.
Fondia’s Q1’25 business review published this morning was a slight disappointment for us. Revenue slightly exceeded our forecast, but the cost structure was still a degree higher than we anticipated. One-off items related to change negotiations were apparently roughly in line with our expectations at EUR 0.3 million, but the operating result fell slightly short of our forecast. No official guidance was received as expected, but internally, the company’s situation seems to have stabilized to some extent. We aim to clarify the company’s expectations in more detail during the day, but the cost structure should decrease in the coming quarters, and profitability should improve as a result. Despite the slight earnings disappointment, our initial reaction to the Q1 review is relatively neutral.
Interim CEO Timo Lappi was interviewed by Kinnunen.
Topics:
00:00 Introduction
00:13 Q1 highlights
02:29 Change negotiations and one-off costs
05:49 Decline in Finnish revenue
07:10 Swedish business operations
08:53 Market activity in Finland and Sweden
10:01 Outlook clarification
13:03 Impact of tariffs on Fondia’s customers
15:02 Outlook for the rest of the year
16:34 Fondia’s internal situation
Here is a company report from Kinnunen after Fondia’s Q1.
The company’s Q1 result was a slight disappointment, but the cost structure has now decreased, and there was no reason for significant forecast changes. The stock’s valuation is at rock bottom (2025e EV/EBITA below 8x), and the expected return is very good. On the risk side, it must be mentioned that the competitive landscape for legal services could tighten significantly if larger transactions were to freeze again due to increased uncertainty.
Quoted from the report:
"..Previously, the company also stated in its outlook that the full impact of the company’s change negotiations on the group’s revenue is difficult to assess more precisely. This had been removed from the outlook, which likely indicates that the internal situation has calmed down and the outlook has thus stabilized."
Well, it’s not a big surprise. The company has aimed for 15% annual revenue growth (note: there’s no minus sign in front) and a 15% operating profit margin. Now the company has a golden opportunity to create good targets and then build management incentives such that achieving the targets (and of course moving in the right direction incrementally) is rewarded, and otherwise not. It’s completely pointless to try to feed investors such a story and then reward management for something less. I will follow with interest how this is built.
I primarily remember the smiling ladies as the “MyFondia” messengers from the listing. That was also supposed to be a significant competitive factor, at least in the listing speeches. Was it just a pipe dream? There’s no mention of AI in management’s speeches, is the “MyAI” attitude missing?
News came from Fondia in the morning. In these morning comments, there isn’t much time to delve into it, which resulted in a somewhat long and possibly confusing comment. But to me, it seemed like a familiar set from previous interviews with the (then interim) CEO. And those have seemed like sensible guidelines to me.
Kauppalehti considers Fondia a potential turnaround company; this hope has been nurtured for a long time, almost always leading to disappointment, which is reflected in the share price. Perhaps the 10th time’s the charm
A few quotes from the article:
“The share price of the legal company Fondia has fallen by over 30 percent during the year, but over the past six months, the price has turned to a gentle 1.3 percent increase. To accelerate the turnaround, a new CEO, Timo Lappi, was appointed in May.”
“Inderes, the only analyst following Fondia, gives the stock a buy recommendation. Measured by the P/E ratio, the valuation is very reasonable at 11.9. Of course, there are still risks, but the price is currently attractive.”
Here are Juha’s preliminary comments as Fondia reports its Q2 results on Thursday.
We expect revenue to have continued its decline in Q2, but for the result to have improved from the comparison period, supported by cost-saving measures. We are now seeing, among other things, the effects of change negotiations on the cost structure, but the big question remains the development of revenue in an uncertain market environment. The company is still practically without guidance for 2025, and the focus during the earnings release will therefore be on both Fondia’s and the market’s outlook for the rest of the year. We expect the market situation to have been challenging, but we estimate that the bottoming out of demand is nevertheless behind us.
Fondia’s interim report is unlikely to cause any cheers among owners. Operating profit €0.1M and period result €0.05M. Not in the red, but practically no money is being made. Staff decreases by -12.2%, but will the party get better?
4-6/2025 summary:
Revenue €6.2 million (6.7), change -7.5 %
EBITDA €0.4 million (0.6)
EBITDA-% 6.1 % (8.2)
Adjusted EBITDA €0.5 million (0.6)*
Adjusted EBITDA-% 8.0 % (9.5)*
Operating profit (EBIT) €0.1 million (0.3)
Operating profit (EBIT)-% 2.2 % (4.9)
Adjusted operating profit (EBIT) €0.3 million (0.4)*
Adjusted operating profit (EBIT)-% 4.1 % (6.1)*
Period result €0.05 million (0.2)
Adjusted period result €0.2 million (0.3)*
Personnel (average FTE for the period) 142 (162), change -12.2 %
That’s a bad result, there’s no way around it. The text section is just empty words, and no outlook for 2025 has been given yet.
The profitability turnaround is really tough, as it couldn’t even be achieved with co-determination negotiations (YT-neuvottelut). Revenue should be increased (30M+ annually) for profit to start appearing with the current cost structure.
