Lehto Group Plc
Stock exchange release
28 April 2022 at 7.35 a.m. (EET)
Lehto Group Plc has updated the company’s strategy for 2022 – 2026.
The company will focus on operational business and improving profitability in the early part of the strategy period
In the early part of its strategy period, Lehto will focus on operational business and improving profitability, above all by developing cost efficiency. The company's profitability has been tested in recent years by the company's challenges in controlling costs, but also by the recent sharp rise in prices in the industry. In addition, a war has broken out in Ukraine, the final impact of which is difficult to assess in its entirety. For these reasons, Lehto is preparing for a potentially uncertain market by focusing on its profitability.
Strategy 2022 – 2026
- The company will focus on its operational business and prepare for an uncertain market in the early part of the strategy period.
- Housing, wood construction: Lehto will develop its modular wooden apartment building and then seeks to increase the volume accounted for by wooden apartment buildings during the strategy period. One of the prerequisites for growth is to engage in closer cooperation with cities in town planning and building permit processes. Demand is seeing strong growth.
- Housing, concrete construction: Lehto will enhance its competitiveness by improving cost-effectiveness: efficiency in town planning and design, modularity, industrial prefabrication and an efficient operating model.
- Business premises operations are strongly focused on areas where Lehto is competitive. In the short term, Business Premises will focus on improving profitability, which is expected to decrease business volume.
- Lehto will sell its pipeline renovation operations as a non-core business under its current strategy and in order to improve its financial position.
During the strategy period, the company will operate with two service areas: Housing and Business Premises. Lehto’s strategy creates value for its stakeholders by renewing construction and focusing on three development perspectives: customer experience, cost leadership and sustainable development.
Modularity, as well as the utilisation of industrial prefabrication remain the distinguishing competitive factors for Lehto. In addition, the company has its own design office, which is not typical of ordinary resourcing in the industry. Lehto harnesses them to further develop business operations that enable scalability. The strategic choices open up opportunities to improve profitability in the construction sector and to engage in business that serves the society and the environment.
During the strategy period, the company will assess its opportunities to expand its modular wood construction abroad once its operational business is in good shape and profitability is stable.
The business vision of the Housing service area is: “A new era of living. Everyone has the right to live ecologically and affordably.” The service area builds apartment buildings using wood and concrete in Finnish growth centres.
In particular, the company seeks to increase the share accounted for by modular and industrially prefabricated wood construction during the strategy period. Before pursuing growth, the wooden apartment building product will be developed further. In addition, the company wants to engage in closer cooperation with cities in town planning and building permit processes. Demand for wooden apartment buildings is seeing strong growth.
In concrete construction, the Housing service area develops its competitiveness by improving cost-effectiveness. This involves efficiency in town planning and design, modularity, industrial prefabrication and an efficient operating model.
In the development of the customer experience, the business focuses on aspects such as strong understanding of customers, even more accurate segmentation and the development of the customer path.
The development of cost leadership creates attainable housing prices for customers, a more vital national economy and sustainable productivity levels for business. Lehto is a pioneer in modularity and industrial prefabrication: with respect to these, we see potential in both improving the degree of processing and using our competitiveness more effectively. In addition, the company develops the cost-effectiveness of projects, such as efficiency in town planning and design. In the development of operating processes and models, we are focusing even more closely on project choices and decision gate practices.
In terms of sustainable development, Housing seeks to engage in low-carbon construction without external compensation. We enable more ecological living in Lehto concept homes – they are energy-efficient and facilitate both easy recycling and waste sorting. In addition, homes and common areas are designed to reduce both emissions during use and the cubic metres that require heating. Sustainable development measures are implemented through means such as conforming with the concept during design and construction, project-specific design, and accounting for low-carbon activities during both the construction phase and the use of the apartment. In addition, the company is developing its operations to comply with the Leed Gold Homes and RTS certificates to its customers.
On 28 April 2022 Lehto announced that it will sell its pipeline renovation operations as a non-core business under its current strategy and in order to improve its financial position. The pipeline renovation business has most recently been reported as a part of the Housing service area.
The vision of the Business Premises service area is: “Ecological and affordable premises for your success – from the most sought-after partner.” With its renewal, Business Premises responds to megatrends by working together to build the success of customers. In the short term, Business Premises will focus on improving profitability, which is expected to decrease volume.
Business functions have been scaled down significantly: for instance, life-cycle functions will be discontinued. We will carry out school, hotel and office construction on a limited basis in projects where we can harness design and implementation solutions based on Lehto’s expertise. We want to provide our expertise and the solutions we have developed in-house to our customers with an eye on overall economy.
Going forward, Business Premises will build projects for growing market sectors, such as for the needs of industry, storage and logistics. In addition, the service area builds hall-type business buildings and selected multifunctional buildings, for which there is expected to be a growing need in the largest growth centres and dense urban structures. Sports halls are also included in the product range. The Business Premises service area focuses geographically on market areas in the growth triangle (the region between Helsinki, Tampere and Turku) and the Oulu region.
With respect to the customer experience, Business Premises develops solutions for the needs of customers with an eye on overall affordability and in trustworthy cooperation. The company seeks to implement these solutions with customer segmentation, a sales operating model and operating methods created for systematic customer relationship management.
In the long term, Business Premises aims to achieve cost leadership, but in the short term, profitability is the most important priority in the strategy period. The aspects emphasised in the improvement of profitability are project choices, management of risks and price changes in the tendering process, project management, improvement of controllability and further development of operating processes.
In the development of sustainable development, Business Premises deepens the sustainable development perspective in cooperation with customers. In addition, the service area is creating a framework for low-carbon operations with means such as action programmes for both specific segments and for shared use by profit centres. Furthermore, the business is making choices that aims to achieve certifications on the basis of customer needs and specific cases.
Significant changes in the strategy
The development perspectives for the 2022–2026 strategy period have been clearly limited to the three most important ones, of which the improvement of the customer experience and sustainable construction are new. Cost leadership has been at the core of Lehto's strategy already earlier. The strategy has also focused especially on implementation and drafted even more detailed action plans for the execution of the strategy.
With respect to products, Lehto will remain focused on wooden and concrete apartment buildings in housing construction, but the product range of Business Premises will be scaled down significantly. Lehto will also cease its pipeline renovation operations as a non-core business under its strategy.
With respect to housing construction markets, the company will remain in its previously selected regions; that said, the company had already announced at the end of 2021 that it will phase out its housing construction in the Swedish market. In housing construction, Lehto will increasingly shift from small apartments to apartment sizes based on local demand. It is expected that the share of housing sales accounted for by small investors will decline, that of institutional investors will remain unchanged and that of consumers will increase. The market areas for business premises have been limited more clearly.
The greatest change in terms of operational objectives concerns Business Premises, in which the volume is expected to decline.
In the early part of the strategy period, the company will focus on achieving a strong improvement in profitability.
The company seeks to achieve a positive operating result in 2023 and gradually improve the operating result such that at the end of the strategy period the company’s operating profit will represent 10% of net sales. Net sales are expected to be at the level of 2021 in 2022–2023 and to grow in 2024–2026.
(objectives for the 2022–2026 strategy period)
|Net sales||Average annual growth of 10-20%||2022-2023: at the level of 20212024–2026: net sales grows|
|Operating profit||10% of net sales on average||Operating profit will increase to approximately 10% of net sales at the end of the strategy period|
|Equity ratio||At least 35% (excluding lease liabilities under IFRS)||At least 35% (excluding lease liabilities under IFRS)|
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Website of the strategy (in English):