Case Peikko: Can financial crisis 2008-2009 teach us anything?

For those not familiar with Peikko, we are a company manufacturing and selling innovative construction materials, all made out of steel. Currently we have our own sales force in 33 countries, and manufacturing operations in 11 of them.

During these Corona times I made a brief look at the historical numbers. I have been working for Peikko since 2005, and as a CEO since 2010.

By looking at some historical data, I wanted to study on what happened then and would we experience something similar. In 2008 Peikko’s turnover was 115 M€, and then in 2009 it dropped into level of 73 M€ -> a huge drop of 42 M€ revenue.

Based on a simple study on historical numbers I concluded that

1.   About 15 M€ revenue drop was based on the ending of a massive energy-related project. The ending of this project had nothing to do with financial crisis, it just ended in the very wrong time for us. And there was no way to replace these volumes.

 2.   About 15 M€ revenue drop was due to dropping of steel prices. Peikko is manufacturing all its products from steel, and when the material prices dropped down, naturally the end-customer prices went down as well. This led Peikko to have huge inventory write-offs, but also affected the revenue levels.  See the steel graph below.

3.   About 10-15 M€ revenue drop was based on volume drop, in real kilograms. Less customer orders, less revenue gained. 

In the below historical graph you see the “new non-residential construction”, a market estimate from 19 different countries from EU-member states. This market segment is the most important for Peikko – new offices, factories, shopping malls, hospitals, schools etc. It is interesting that the rock-bottom of the market, those green column in the pictures, did not take place in 2009, but only several years later. Will the same happen in Corona times?

In the same picture you can also see an orange curve of Peikko’s revenue in millions of euros. Surprisingly, we were able to go back to growth mode almost immediately after crisis, despite the fact the markets themselves were not recovering very fast. In fact, this segment of the market was still in 2018 much less than in 2008. 

The most interesting table for me to find was when I looked at our budgeting process in December 2008. When doing this budgeting exercise 3 months after Lehman Brothers had fallen, all our Peikko unit leaders were wrong, including naturally myself. We planned to have same revenue in 2009 than in 2008, however, fulfilled in total only 64% of our budget. 

After several years of growth, nobody from us expected to go down and so fast. But so we did! In some country teams only 4% of the budget reached! And the BEST team fulfilled 89% of its budget. No wonder some of the teams were discontinued in 2009 – construction sites were simply not operating in those countries anymore.

So the question is, will 2020-2021 crisis be different from 2008-2009? Future will tell.

It looks like Peikko is not going to face huge drops of revenue due to material pricing sinking rapidly. It would be very difficult to think that steel prices will go down very fast -> price levels are not historically high in 2020. Also, we have no larger-than-life projects ending in 2020-2021 either.

It seems that if we go down, it is purely based on demand going down. And this is exactly what we should be ready for – whether it happens now or not. 

History does not tell about the future, but sometimes it may help to understand how the future may look like! What the shape of the Corona recovery will be V, U or something else, I still believe that Peikko is able to recover fast, just like we did in 2010-2011.