Kempower: Change negotiations completed, but profitability also needs a sales boost

Translation: Original comment published in Finnish on 9/2/2024 at 9:08 am EEST.

Kempower completed its redundancy negotiations, and the actual headcount reduction was largely in line with expectations. We believe a profitability turnaround is possible in 2025, but this will require the company to achieve success on the sales front in addition to savings. In the short term, we see significant uncertainty about order growth and market demand.

Moderate reductions in relation to the situation

As a result of the change negotiations, Kempower's workforce in Finland will be reduced by approximately 70 person-years and outside Finland by approximately 10 person-years. At the end of Q2, Kempower had 907 employees, and the headcount had increased by 311 year-on-year. The permanent reductions therefore represent less than half of the rapid growth in the company's headcount over the past year, which we believe, if properly targeted, should not impede the company's growth ambitions. Kempower has also decided to implement temporary layoffs for all employees in Finland in the fall of 2024, which is expected to result in savings of at least 1 MEUR for the rest of the year. In our view, the widespread layoffs indicate heightened uncertainty about the company's growth prospects for the remainder of the year.

Turning around profitability also requires a boost in sales

Kempower estimates that the decisions taken now, together with other savings measures, will lead to cost savings of approximately 10 MEUR per year in 2025 compared to the company's cost level in Q2’2024. The company aims to make the business profitable by the end of 2024 and has previously guided that it expects EBIT to be close to zero in the last quarter of this year (Q4). We believe the targets are achievable and in line with our forecasts but note that achieving profitability will require not only cost savings but also a rebound in sales. The Company's H1 order intake declined 33% year-on-year due to, among other things, swelling customer inventories and slowing market demand. Our current forecasts, which include a turnaround in profitability, assume that orders will return to 9% growth (y/y) by H2, although this is facilitated by the lower comparison figures for H2 last year compared to H1. Uncertainty about the growth outlook is elevated in the short term, as high interest rates and slowing growth in electric vehicle sales, for example, may affect customer decision making.