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asko & upo
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Asko’s Management Quartet in mid-1980s, from left to right: Jarmo Rytilahti, Pertti Lares, Niilo Pellonmaa and Jouko K. Leskinen.
over and Upo’s metal business nearly one third. Without the positive development of Upo’s plastic business, the decline would have been significantly steeper. Although the plastic pipes’ proportion of the company’s turnover increased and generated positive cash flow, the cash flow of all of the other business sectors was negative. During the period from 1974 to 1978, the number of Asko Group employees decreased from 7,500 to 5,600. However, this was insufficient to improve turnover and profitability. Asko Group’s fixed expenses were 50% higher than its competitors’ and the Group was generating heavy losses. In the fiscal year 1978, Asko Group recorded a loss of FIM 100 million. This was over 10% of total turnover.
The principal investor takes over sko-Upo is in a dire situation – - its assets are melting away at an alarming rate – - Operations can no longer be continued as before.” In 1978, Asko Group’s principal investor, the Finnish Union Bank, had conducted a comprehensive corporate analysis of the Group’s current state and future prospects. The results were discouraging. Over 6% of turnover was spent on interest. With an operating margin lower than 5%, the Group was unable to cover its loan expenses without additional
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loans. The Bank’s analysts estimated that heavy losses could not be avoided in the future and predicted that – unless radical changes were implemented – Asko would run out of funds in just a couple of years. Furniture production and sales were specified as the most acute problem areas. The inadequate collaboration between the two had resulted in Asko being unable to use its capacity to its full potential. The sales organisation had a life of its own and production never knew which items to manufacture, and when and how much. It was further recommended that the household appliances unit should focus on its most profitable products. In order to simplify its financial structure, the Bank’s analysts suggested that Asko divest its minor businesses and as much of its property and real estate as possible. At home, Asko’s situation was gloomy; abroad it was downright hopeless, “ – - the international network of subsidiaries generates losses and many of the units are bankrupt.” According to the Bank, Upo’s network of international subsidiaries had to be dismantled and Asko GmbH’s operations given serious consideration. The Bank’s analysts called for decisive action the Group had been unable to implement before, due to the fact that the Group management lacked realistic financial targets and the tools for measuring achievement. Asko’s management was unable to distinguish between profitable and unprofitable operations. The analysts further emphasised that swift actions would benefit all interest groups. Asko’s owners were suspicious of the Bank
and unwilling to accept the results of the analysis. The Bank concluded that Asko could not be turned around without external intervention. It offered to bring in a reliable private investor, but the owners rejected the idea. Thus, the only other alternative was for the investor to take control of the company. In order to improve the Group’s balance, a convertible bond was issued in the fall of 1979. In practice, this meant that the family surrendered its decision-making power as the majority shareholder to the Bank. According to the terms, the Bank was entitled to convert the bonds into a 55% share of stock. Asko was not the only family-owned company in Finland to be pulled under the control of commercial banks following poor results and financial travails in the 1970s. At the time, banks were suspected of industrial power politics and accused of intentional “piracy” in the media. Such opinions also received support among Asko’s owner-family. There was also an alternative explanation for the phenomenon. Due to the tightly regulated money markets, commercial banks protected from interest competition were compelled to balance their protected operational environment by continuing to finance some of their most prominent customers – for employment purposes – many years after the related business motives had ceased to exist. The terms of Asko’s convertible bond further included a clause stating that the Group’s reorganisation would be realised under the leadership of a professional manager nominated by the bank.