https://www.kauppalehti.fi/lehdistotiedotteet/kh-group-indoor-groupin-muutosneuvottelut-paatokseen-uusi-toimintamalli-laajenee-valtakunnalliseksi/cd1acdd4-f450-5225-aa73-e1635292cb3a
Surely there will be distributable profit left on the bottom line now..
25 Likes
The market has quite little confidence in managementâs promises/set targets, reflecting the share price change. Admittedly, this operating model reform was already announced in August, aiming for 10 MEUR in annual efficiency improvements. Considering this KH Group ownership stake (58.3%), it is slightly less than 20% of the companyâs market value.
1 Like
It remains to be seen.. I personally believe that these large-scale restructurings will yield results and interest rate cuts will gradually start to reflect in the situation of businesses and consumers..
Significant layoffs will indeed yield results in due course, and if the housing market picks up next year, that will also provide support..
I personally follow the advice to buy when others are afraid.. Then the expected return is right if the outlook turns around..
Another tactic is to first gain confidence from the numbers.. Often, however, the best buying opportunities are then left behind, though itâs a less risky approach..
9 Likes
14.8. 0.55âŹ
15.8. Indoor Group aims to achieve an annual operating profit improvement of at least 10 million euros by the end of 2026 with the program.
4.12. As a result of the change negotiations, 162 employment relationships will be terminated at Indoor GroupâŚThe reform is estimated to bring Indoor Group an annual operating profit improvement of at least 10 million euros by the end of 2026.
4.12. 0.55âŹ
The market is not yet convinced by this program. Yes, itâs only one of KH Groupâs holdings. But perhaps the most significant in terms of value creation.
Regarding NRG, itâs still just about optimizing the timing and price of sales. KH Koneet is overperforming in a historical 2000s construction recession. Indoor, with its debts, is the most significant determinant of KH Groupâs value.
Indoorâs management cannot be criticized for lack of effort. Praised for courage. How many times in OMXHPI history has a (subsidiary) companyâs staff reduction of -25% been announced? Record-breaking numbers.
But in my opinion, Indoorâs management can be criticized for choosing the direction. So, thatâs where the criticism comes from. The focus, at least based on communication, has been solely on costs for the past 1.5 years. And thatâs concerning. The most crucial thing for KH Group is to get rid of Indoor (with its debts). How does streamlining operations âto the boneâ improve Indoorâs sales potential? Isnât one then selling only âgrowth potentialâ if ârestructuring potentialâ has already been maximized? At least to me, itâs unclear how this growth potential has been improved in the business reform (to maximize the future exit)?
Many here seem to believe that in due course, in a good economic climate, a safe exit from Indoor will be achieved. To them, I would ask what a good economic climate concretely means to them?
⢠What is the growth of the home furnishing market in Finland in a âgood economic climateâ and what facts is this market growth based on?
⢠Is Indoorâs market share in a âgood economic climateâ larger, the same, or smaller than now?
⢠What is the net effect of these?
Iâm boringly repeating myself: Indoorâs top line is at risk.
⢠How is a -25% reduction in staff implemented without affecting customer experience and the top line? What has this 25% of staff been doing during working hours if it hasnât added value (sales/better customer experience/cost savings) to the company?
⢠What are the strategic competitive advantages that will win market share from competitors?
So, I would express a wish to @Thomas_Westerholm and the Inderes team: from the ownerâs perspective, it would be most essential to hear Nikulainen/Veijalainenâs views:
⢠How much, when, and how will Indoor grow (in your targets)?
⢠What are the alternatives for an Indoor exit?
⢠Which of those alternatives is being pursued/is most likely and why?
⢠With what key figures will this exit target be achieved?
29 Likes
I donât see any particularly big top-line improvement for Indoor in general in the future.. Ikea and its competitors will take care of that.. But it should be possible to achieve a turnover of over 190M.
It is precisely the bottom line and profitability that primarily determine the exit price.. Not necessarily growth prospects.. Thatâs why an operational management system reform has been carried out, processes are being refined, and efficiency is being improved. So that operating profit can be brought to a reasonable level.
In my opinion, the right things are being done now.. A very smart solution to combine Asko/Sotka and run operations with fewer staff, especially since sales have decreased. Now there is time to train staff, improve efficiency, and acquire expertise from both operations.. Before the market recovers to ânormalâ.
In such a situation, itâs pointless to keep extra staff doing nothing if business isnât happening.. Below are a couple of graphs..
Based solely on the economic cycle, 15% of the workforce should be cut, and the rest through efficiency improvements/consolidation of operations.
https://www.etu.fi/tietopalvelu/tilastot/huonekalukauppa.html
12 Likes
While reducing staff and merging brands, the selection should also be simplified. The selection at KHâs furniture stores is such that it requires too many salespeople. There can be the same number of products, but options for patterns and other features should be reduced and clarified so that the customer can make their own choice. And alongside this, better availability; something must also be in stock for immediate availability. This is how those dominant chains operate, and it works in todayâs hurried consumer world.
2 Likes
Agree with @tunturisusi that it is a very good thing that Indoor still has potential for efficiency improvements now that the old separate ERP systems have finally been consolidated into one system. Now, resilience in the market is being tested, and for Indoorâs domestic competitors like Isku and Masku, the situation is more difficult, and there is no potential for efficiency improvements other than by closing the weakest stores.
The development of the furniture industry after the pandemic is, according to statistics, a direct consequence of the slump in housing sales, which could be expected to turn to growth next year once interest rates clearly start to fall.
Based on my own experience, furniture purchases are linked to buying or changing a home. When I bought a cottage four years ago, all new furniture for it came from Asko. Similarly, when we moved to a smaller apartment in the city two years ago, almost all old furniture was then replaced with items better suited for the new apartment, and mainly purchased from Asko. Outside of these occasions, furniture purchases have been very sporadic.
As for KH Groupâs share price, I see (and have also heard) that institutional investors have lost all faith that KH Groupâs board is pursuing anything other than Preato Capitalâs interests after the failed Boreo merger attempt. I believe that the same merger attempt concerning KH Koneet is still Preatoâs goal now that all of Sievi Capitalâs investments have been divested.
12 Likes
Hardly a merger.. The money will be put into the internationalization of KH-machines..
That merger train has already leftâŚ
If they intended to use their own share as a means of payment, then the odds are not in the same jinxed stateđ¤Ł
9 Likes
Yes, absolutely, I agree with @Tunturisusi that the right things have been done regarding costs â judging by the numbers, an incredible amount of âextraâ for some reason. What I disagree with you on: it seems that in recent years, hardly any strategic measures have been taken to increase top-line competitiveness. Letâs be honest, for example, the now-mentioned gap between stores is not strategic top-line competitiveness. Itâs a solution where store staff can be combined and costs tightened. Not wrong. But completely insufficient. Focusing solely on cost-cutting is insufficient for Indoorâs safe debt servicing capacity and maximizing sales potential (=the most important current strategic project for the entire KH groupâs value creation).
What I would have hoped for from the âoperating model reform programâ would have been BOTH savings AND increased competitiveness. Here are some of the simplest examples:
- Optimizing store circulation so that the entire circulation, assortment, and square footage of 2 stores could have been maximally optimized (removing the entire partition wall)
- Assortment optimization. If the current assortment leads to continuous market share loss, the assortment should either be expanded to new product areas, made more competitive in the best parts, or significantly reduced to bring organizational costs/sales item to a competitive level.
- Competitive logistics built on a new ERP. And even maximizing speed: Verkkokauppa.com states that practically the only growing delivery method is deliveries within a couple of hours. In cities, it seems that for the new generation of consumers, delivery time from online is hours, not days. What if this trend becomes a more essential part of consumer expectations year after year? Or even maximizing price: A quick glance shows that you could get a bed to the city center from Jysk for 0 ⏠free in 4-9 days, from Ikea for 19 ⏠in 2 days, and from Sotka for 79 ⏠in 11-16 days?
If market shares are continuously lost, thereâs a big risk of getting into a shrinking volume spiral. In that spiral, the benefits of a couple of years of -10M⏠savings projects are eaten up in the same 2 years. Letâs hope H1/2025 doesnât reveal that âwe are continuing our reform program by optimizing our store network,â after which weâll be even deeper in the spiral where sales decrease due to cost-cutting, and real control over fixed costs is lost. In the worst case, the result is the âcut to the boneâ retail chain I mentioned, which has no understanding, skill, or competitiveness to gain market share. It will be a long search for a buyer for such an organization and assortment (=store).
@Thomas_Westerholm also noted in his latest analysis: *Indoorâs peers are also mostly priced at a discount to book value, which may signal market doubts about the industryâs longer-term value creation prospects. The biggest risk related to Indoorâs business and valuation, in our view, is that the company gets stuck in the current expensive spiral of shrinking and streamlining its business due to very aggressive competitors." We have surely seen and experienced these examples of âshrinking and streamlining spiralsâ: Stockmann (not Lindex), Lähikauppa, Anttila, Kodin1, Nokia, Compaq, ElcoteqâŚ
If the only path to a successful Indoor exit is âmarket normalization,â we are at quite bold scores in the PI risk analysis. It is very likely that the new normal market will be a very different normal than in 2010-2022.
19 Likes
I personally believe that in a ânormalâ situation, furniture retail in Finland is relatively stable and closely tied to the housing market. One could imagine that the market follows GDP more closely.
When people have been struggling financially, itâs likely that players like Ikea are winners in a declining market. Indoor is in a somewhat difficult position as itâs aimed more at middle-income earners downwards. Sotkaâs target group doesnât have extra money for larger purchases due to increased general expenses, and âAsko-typeâ customers have postponed purchases or switched to Ikeaâs selection.
Ikea has a strong brand. Relatively high-quality products, a large selection, comprehensive home furnishings, a functional online store, design services, etc. The only downside is probably store coverage, but people travel from further away to these megastores.
I somewhat disagree that revenue determines profitability so strongly that a drop in revenue would strongly determine what remains as EBIT. If one calculates that ânormalâ EBIT could be around 5%, then with 200M revenue, thatâs ten million. Cost cutting and operational efficiency are key here, and the savings gained from them, not whether the revenue is 180M or 190M.
2 Likes
How could a similar merger attempt still go through, given that, for example, Laakkonen alone holds over 10% of the shares?
1 Like
A merger does not need 90% of the votes to go through, but a supermajority, i.e., 2/3 of the shares and votes represented at the general meeting, meaning it is much easier to implement than a tender offer.
3 Likes
Laakkonen is probably not particularly attached to KH-Group. Itâs an investment like any other. If the terms of the merger were more equitable and Laakkonen saw it creating shareholder value, why wouldnât he agree to it? And as already stated, only a 2/3 majority is required.
3 Likes
Good and analytical discussion, nice to read the thoughts.
Regarding saving and cutting costs, they are not solutions to this Indoor challenge.
These only slow down the inevitable, which is ahead if sales donât pick up.
The keys to the solution in the long run are in sales and only there. Indoor must reinvent itself to suit the current market and start generating sales.
If one looks around at what has been achieved, sales are not increased by endless massive discounts and campaigns or an excessive selection of different options with long delivery times.
Modern people live in a world where everything is immediate and now; the fiercest competitors understood this a long time ago, and similar benchmarks can be found in almost all industries.
A carefully considered selection, good quality, the right price from the start, and sufficient stock.
And when someone comments that Ikeaâs quality is poor and disposable, I would advise them to buy something from there as a test.
I donât believe Indoor will succeed with its current approach in any housing market situation.
16 Likes
What do you mean by âeverything immediately nowâ?
When I moved to Finland in the summer and needed to furnish my apartment quickly, I ordered items from Sotka on two occasions. Both orders arrived as agreed; one arrived home in two days, the other order in three.
The functionality and clarity of the online storeâs ordering process were excellent in every way, and the prices were also reasonable.
7 Likes
I mean that modern people lack the patience to wait. Whether itâs about information, service, or goods.
Itâs good that there are different and successful experiences.
However, individual good or bad experiences do not change what one sees by studying the success and success factors of companies.
Ikea is a good comparison here. You either get the item immediately, or it remains unbought entirely.
1 Like
I cannot comment on Laakkonenâs actions, but I would personally see it this way: to get even a 2/3 majority, Preato must present a favorable exchange ratio to KH Groupâs shareholders if they intend to propose the merger again. A merger with Boreo wouldnât be a bad idea in itself, provided the exchange ratio is right.
A small example of the kind of marketing and stakeholder work KH-Maskin does in Sweden. The video is likely from about 1.5 months ago. KH-Maskin was the main sponsor for the evening at FrĂślundaâs league game in Gothenburg. Included hospitality and machine demonstrations.
11 Likes
At the end, a review of users of kh products
EARTHWORKS:
39:05 Extensive report on the news from machine contracting companies in the Turku region
39:28 Kuljetusliike Sautila Oy (Sautila Transport Company Ltd)
44:59 Isoniitun Kone Oy (Isoniittu Machine Ltd)
50:14 Rakennuspalvelu Rale Oy (Rale Construction Service Ltd)
57:30 Akseli KiinteistĂśpalvelut Oy (Akseli Property Services Ltd)
01:03:26 Kaivuu Sirkkilä T:mi (Sirkkilä Excavation T:mi)
01:12:24 Siiriâs greetings & Good news coming! Christmas Special 20.12.
9 Likes