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					TU-91.2009 Entrepreneurial Finance
       Group Assignment
    Valuation of Iittala Group
Initial Public Offering in the Spring 2007




                                   Lauri Eloranta, 60464H
                                   Kaarina Kaste, 63609U
                                   Lasse Korpela, 56295V
                                   Hanna Toikka, 63511R
TU-91.2009 Entrepreneurial Finance                                                                                                    Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


Introduction .......................................................................................................................................... 1
1     Iittala Group ................................................................................................................................. 1
   1.1      Strategy of Iittala .................................................................................................................. 1
   1.2      Market Trends ...................................................................................................................... 2
   1.3      Offering Prospectus for the IPO........................................................................................... 3
   1.4      Strengths and Risks of Iittala Group .................................................................................... 3
      1.4.1       Valuable Strengths of Iittala ........................................................................................ 3
      1.4.2       Possible Risks of Iittala ................................................................................................ 4
2     Used Valuation Methods .............................................................................................................. 5
   2.1      DCF-valuation ...................................................................................................................... 5
   2.2      Peer-company Based Valuation ........................................................................................... 5
3     DCF-valuation of Iittala ............................................................................................................... 7
   3.1      Assumptions of DCF-valuation ........................................................................................... 7
   3.2      Discounted Cash Flow Valuation ........................................................................................ 7
4     Peer-company Based Valuation of Iittala .................................................................................... 8
   4.1      Chosen Peer-companies ....................................................................................................... 8
   4.2      Peer-companies’ multiples ................................................................................................. 10
   4.3      Iittala’s Peer-based Value .................................................................................................. 10
5     Comparing Our Valuations to the Ones Given in the Offering Prospectus ............................... 11
6     Why Did the Initial Public Offering Fail? ................................................................................. 11
7     Concluding Remarks .................................................................................................................. 12
Appendices ......................................................................................................................................... 14
TU-91.2009 Entrepreneurial Finance                                                         Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


Introduction
This is a course project made for the course TU-91.2009 Entrepreneurial Finance in Helsinki
University of Technology and its aim is to estimate the value of Iittala Group Oyj (later refered as
Iittala). Information is mainly gained from Iittala offering prospectus 9.3.2007 and Iittala’s Annual
Report 2006.

Valuation is made by DCF (Discounted Cash Flow) method and peer-company based valuation.
The paper starts by introducing Iittala, its strategy, market and product and how they impact current
value of the enterprise. Second, the valuation methods are presented. Third, DCF valuation
assumptions are presented and valuation is made. Fourth, Peer-companies are introduced and a
multiple analysis is made. Furthermore, comparisons of both valuations are made and analysed. To
conclude and sum up, there is discussion of the known fact that Iittala’s IPO failed and the whole of
the valuations is summarized in the last sections.


1 Iittala Group
Iittala Group Oyj is a Scandinavian design company that designs, produces and sells homeware and
interior design products. In 1881 The Iittala Glassworks was founded which is seen as the leading
product name of the Group. In 2004 Iittala Group was moved over to the ownership of the operative
management and ABN AMRO Capital which paid 100 million euros (Salo & Lilius, 2004) for its
equity share of 78,62% (Offering, 2007). Iittala Group consists of seven Scandinavian brands:
Iittala, Arabia, Hackman, BodaNova, Rörstrand, Höganäs Keramik and Høyang-Polaris (Table 1).
Year 2006 net sales were 189.8 million euros and EBIT 17.0 million euros. In average there were
1357 personnel in 2006 and 70% of them were employed in Finland. In addition Iittala was placed
15th in Finland’s best workplace competition 2007. (Iittala Company Presentation, 2007)




Table 1 Iittala’s brands in different countries

Iittala’s values are openness, respect, continuous development and consumer focus which can be
rather easily grasped. Iittala aims to be the leading Scandinavian design company of homeware and
interior design creating high-quality and desirable products sold in a stimulating retail atmosphere.
Customer satisfaction and loyalty create the basis of the future business.


1.1 Strategy of Iittala
Iittala’s strategy targets to growth and profitability by means of transforming from traditional
industrial player into a consumer driven retail company. Iittala states design, production and brand
management as its core competences. Iittala’s design and designers are well-known in Scandinavia,
Iittala has material know-how and well-branded product concepts which enable its leading position
in Finnish markets and strengthening position in other Scandinavian markets. However, most of
Iittala’s brand in Finland is based on domestic image. Also the belief of Finnish consumers that
domestic front produced products are better than others and they should be preferred in order to
maintain employment in Finland is a strong factor that influences Iittala’s sales in Finland. In reality
30% of production is outsourced, but this fact is kept at bay presumably because of Finnish
consumer preferences.

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TU-91.2009 Entrepreneurial Finance                                                        Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

Iittala has a dual operating model of multi-channel and multi-brand strategy operations which is
clearly seen in net sales 189.8 million euros of which 52% from Finland, 22% from Sweden, 7%
from Norway and remaining 19% from international sales and certain brands are divided between
countries (Table 1) in 2006. That is to say Iittala’s products are produced and mainly sold in
Finland, Sweden and Norway. Furthermore Iittala aims to leverage market leadership in Finland,
Sweden and Norway which are considered Iittala’s home markets. This is achieved by close
cooperation with external distributors to ensure the desired brand image and customer loyalty
campaigns in Finland and abroad. Value chain management as a part of Iittala’s strategy refers to
demand-driven sales, applied operational planning process to guarantee product availability,
increased production capability, outsourcing to ensure procurement development, centralizing
logistics in Sweden and opening electronic shops to customers in key markets in year 2006. (Iittala
Annual Report 2006)

Expansion of direct retail operations strategy element was emphasized in 2006 by opening new
branded stores: 6 in Finland, 1 in Sweden, closing unprofitable stores and concentrating on
upgrading existing stores and factory outlets. International strengthening of Iittala brand is a
strategic aim of Iittala. Higher brand visibility is achieved through 25 Iittala stores at the end of
2006, branded departments in selected department stores as well as product portfolio development
and updates. International expansion strategy is to open one big Iittala store and franchise a bunch
of smaller stores in the selected country (Kankare, 2007). (Iittala Annual Report 2006)

It is obvious that international growth is indispensable. Finnish market is a mature one and its
purchasing power is limited due to the relatively small population. Iittala’s current focus areas
Netherlands, Germany, Denmark and Belgium can turn out very profitable if brand portfolio
management is done carefully and synergies within selected countries’ homeware and design
products can be found. As a brand Iittala alone is not strong enough to develop a premium high-
quality brand in an international scale.

Iittala’s financial strategy is to have an annual growth that exceeds the average market growth in the
geographical market it operates and reach EBIT level of 10% in 2-3 years (Iittala Annual Report
2006). These can be considered realistic but not overly promising from investor’s point of view.


1.2 Market Trends
There can be seen four bigger trends in the market and in the industry environment. These are
strong overall economic growth that reflects also into the house ware markets, the change in
customer shopping habits, market polarization and more important role of internalization. These
trends are introduced here shortly and their effect on Iittala’s performance is evaluated.

Strong overall economic growth
The global economic growth is strong. For the year 2006 the global growth was 3,9 % climbing
almost 1 % from the figures of 2005. Also domestic economic growth, in Finland in the case of
Iittala, was good in 2006 resulting in growth rates over 3%. These strong economic factors reflect
also into the performance of Iittala. While strong economic growth continues, also Iittala is likely to
prosper with growing sales. Thus, this trend suggests positive growth figures for Iittala.

Change in customer shopping habits
The customer shopping habits are in the change. In the past people used to buy house ware ceramics
primarily for their function with no or little concern for the shopping experiment or brand image of
the products. Nowadays customers are growing to be more demanding: the whole shopping
experiment starting from the atmosphere in the shop or settings around the product are considered
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TU-91.2009 Entrepreneurial Finance                                                         Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

important. Further, customers want more individuality and luxury on top of the traditional function
of the product. Customers are also willing to pay more for this luxury and added quality. (Iittala
Annual Report 2006.) This trend suggest positive growth figures for Iittala if the company manages
to be successful with it flagship-store strategy. More concentration should therefore be made on
Iittala-branded high-end stores, as Iittala has already done.

Market polarization
The house ware ceramics market is polarized in to two distinct segments. For one there is the high-
end high-priced luxury products segment that is heavily based on brands and design. And then there
is the low-end low-priced mass-market product with little or no brand-centered marketing. Both of
these segments are growing. Companies targeting the middle-ground segment between these two
are in very hard position because they are not able to compete at the same time with low-priced
mass products and high-end luxury products. (Iittala Annual Report 2006.) If Iittala is able to
compete inside the high-end luxury segment, this trend will suggest positive growth figures for
Iittala.


Growing role of internationality
The role of internationality is growing. As tastes around the world are becoming more similar, there
can already be seen a so called world wide-table ware trends. Table ware design that is successful,
for example, in Germany can nowadays be successful also in the US. This was quite impossible a
few decades ago. (Villeroy & Boch 2006.)This means, that to really succeed a company has to be
able to launch more and more global brand images than before. This trend might suggest some
problems for Iittala, because it is not yet as global brand as it wants to be.


1.3 Offering Prospectus for the IPO
In Iittala offering prospectus initial public offering was justified by the want of increasing company
shareowner number from 29 stockowners, gain access to capital market, increase liquidity and
prospects of growth. ABM AMRO’s AA Capital Nordic Fund II B.V. is the main shareholder with
78,6% equity and rest of the company is owned by its directors e.g. CEO Tero Vähäkylä has 3.8%
equity. After IPO AA Capital Nordic Fund II B.V. would have 21,6% equity and e.g. Vähäkylä
2,6% equity. Offering was set at maximum 11 794 999 shares of which 1 764 705 were new shares.
Share price spread was set between 8,50-10,50 euros per share. Net gearing in 2006 was 1184% and
after IPO it would be 768% because company shareholder loans would be changed to equity capital
as new shares which are not very flattering numbers. (Offering, 2007)
TÄNNE VIELÄ PERUSARVOJA (TASETTA ? MUUTA SCHEISSEA?)



1.4 Strengths and Risks of Iittala Group
The premises for the valuation of Iittala are given here. We discuss the present strengths the
company has and also the risks it is facing. The qualitative approach given here is aimed for getting
some gut feeling about how the company will be doing in the future and what might be its future
value. This approach can thus be used to adjust the more quantitative valuation methods given later.

1.4.1 Valuable Strengths of Iittala
According to Iittala’s Offering Prospectus (Offering 2007) Iittala identifies five strong strengths in
its business. These are domestic market leadership, balanced product offering, valued brands and


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TU-91.2009 Entrepreneurial Finance                                                         Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

good brand management, retail business expertise and capability to implement strategies. These
strengths are analyzed below and their impact on Iittala’s value is evaluated.

Domestic market leadership
One of Iittala’s strengths is definitely the strong position in domestic home ware markets, that is, in
Finland. This position may also be used in leveraging Iittala’s international expansion strategy. The
domestic market leadership by itself suggests that the company is now and in the future a valuable
investment, whether or not the international expansions worked out well. This seems to push the
valuation of the company upwards.

Balanced product offering
Iittala has a balanced product offering including both traditional and modern Scandinavian design.
This balanced offering may be seen as an advantage in situations where it helps Iittala to lengthen
the lifecycles of its products and product groups. By doing this the risks associated to one product
group are lowered as the incoming cash flows for that product will be longer. This has been, for
example, done successfully with the old and nowadays renewed Teema-products.

Valued brands and good brand management
Big part of Iittala’s value is in the brand names such as Iittala, Arabia, Hackmann and in the
successful brand management capability that has been developed over the years. Here it is worth
noting for that Iittala’s brands are only seen valuable in Finland, Sweden and Norway: Iittala has
not been able to launch a single international luxury-brand. However, Arabia was named as
Finland’s most valued brand in 2005 and 2006 in an independent consumer study. Therefore brands
and brand management may be seen as a strength in the context of domestic and Scandinavian
markets. If much of Iittala’s value is supposed to be in the future international expansions of the
company, brands and brand management might not yet be as big of a strength as Iittala is supposing
it to be.

Retail business expertise
Iittala has a long experience in Finnish and also Scandinavian retail business. This may be seen as a
big strength if Iittala is able to use this experience in its future expansions. At the same time it is
questionable whether Finnish retail business is at all the same than, for example, retail business in
Middle Europe or the US. The retail business expertise may therefore be seen as a valuable strength
in Finland and plausible strength in international context. This pushes the value of the company up
moderately.

Capability to implement strategies
Although capability to implement strategies is mentioned as strength in the offering prospectus
(Offering 2007) we do not see it as the same way. All in all, this “strength” sounds more like
marketing language and advertisement trick than a real strength of the company: every company has
a capability to implement (good or bad) strategies. Thus, this has no effect on the price of the
company and it should be excluded from the valuation.

1.4.2 Possible Risks of Iittala
Iittala (Offering 2007) also recognizes certain weaknesses and risks in its future business. These
include fluctuating demand, seasonal demand, supply chain difficulties, difficulties due outsourcing
and new costs due expanding to overseas. These risks are analyzed below and their impact on
Iittala’s value is evaluated.

Fluctuating and seasonal demand


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TU-91.2009 Entrepreneurial Finance                                                         Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

One of the biggest risks of Iittala is definitely the fluctuating and also seasonal demand. If the
general economic situation should be weak, Iittala’s performance would suffer fast: luxury house
ware ceramics is surely one of the first things customers are cutting off during a supposed
depression.

Seasonal demand bears also big risks: In the current situation the performance of the company is
heavily based on the performance of the last quarter. This means that the success in the holiday
season sales is crucial. Get this last quarter wrong and the company is in trouble. This risk is a very
real one and should be countered by widening the overall sales window from the last quarter to the
three other quarters. Though, this is not an easy task to do.

Difficulties in supply chain and outsourcing
Iittala relies critically on its supply chain: problems here have and straight effect on the
performance of the retail business. This supply chain risk is getting more probable because of the
continued outsourcing of manufacturing operations. Because Iittala has still only moderate
experience on outsourcing, its supply chain accuracy and certainly is becoming more risky.
Outsourcing also raises the costs of quality and risks of under-quality products.

New costs due expanding overseas
Overseas expanding bears always big risks. When company is heading for new business
environment there might be many unexpected problems and also unexpected costs. The
internationalization of the company may be much more expensive than projected. This is a very big
risk for the company.

2 Used Valuation Methods
Iittala is valued by using two valuation methods, DCF-valuation and Peer-company based valuation.
These valuation methods were chosen because they both represent a different view of the company
and the market. With DCF, the aim is to value the company based on only the current and estimated
future cash flows at their present value. With peer company multiples Iittala is valued according to
the current market situation and its competitors.

2.1 DCF-valuation
The goal in Discounted Cash Flow valuation is to determine the company based on its future cash
flows. They are adjusted with items that are not related to company’s core businesses and those that
don’t have a cash effect. The aim is to reflect the generated cash as well as possible.

DCF is calculated by projecting EBIT growth in to the future and subtracting Tax, yearly
investments that are needed to sustain the growth and the change in working capital. These values
as well as the terminal growth at the end of the prediction are then discounted to current values.
This gives the total enterprise value of the company. When current debts are subtracted from this
figure, the final Fair Value is acquired. We used a simplified version of the DCF calculation to give
a good enough view on the company. When extrapolating current situation the margin of error is
large, and because Iittala’s future performance will be determined by growth in the foreign markets,
rather than the current sales and their margins, the benefit of a full-blown DCF valuation would be
minimal.

If the predictions used in DCF calculations are correct, the method is superior to multiple-based
valuation and comparison between companies. This is because market value that is the basis of the
other indicators is always affected by the current market sentiment, that varies between companies.
If the predictions in DCF were correct it will give a correct mathematical value of the company.

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TU-91.2009 Entrepreneurial Finance                                                       Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

As stated before, DCF is based on the assumption, that cash flows can be predicted in the future.
This is almost always impossible, and it sould be kept in mind, that even the best DCF valuation
will be a rough estimate, which should only be used as a support for the investment decision.

2.2 Peer-company Based Valuation
The motivation behind peer-company based valuation is to get a reference point where Iittala’s
offering value range can be compared to. We’ve chosen six most similar companies around the
Europe, though some of them are very large compared ot Iittala. They were selected to represent the
industry in general, because smaller companies’ appreciations tend to be affected by market
sentiment thereby distorting the outcome of our calculations. This balance between small and larger
peers, should lead to a smaller error margins and better results. So the main goal is to compare the
value to the market in general, not individual companies and their individual situations.

To get a view of the market, thee key multiples were selected to represent the valuation of the peer
companies. Enterprise Value is used in two of them to give a more in depth look into the capital
structure. All market Caps are calculated using the end of December stock prices of the
corresponding fiscal year in question.

P/E
             Price divided by Earnings is the most common way of comparing different
             companies’ market values. The indicator basically shows how many years would it
             take for the company to earn it’s market value. P/E is widely used to compare
             companies against their peers or industry sectors. It’s a quick and dirty way of
             valuation, and doesn’t take in account many important factors such as debts. Price is
             the market capitalization of the company and Earnings is the profit attributable to
             shareholders, meaning earnings after interest, tax, and everything else.

EV
             Enterprise Value is a representation of the entire economic value of the company.
             Basically it measures the total takeover price that has to be paid in order to aquire a
             company with it’s assets and liabilities. In general shows how much money is needed
             to buy a company and it’s debts.

             It’s calculated my adding up market capitalization of the company, market value of
             current debt financing (such as bonds and bank loans), minority interest at market
             value and preferred equity at market value and subtracting cash and other liquid
             assets. The problem with using EV with listed companies is that it’s hard or
             impossible to get the market values of debts. When using just book values, all changes
             in market environments is not taken into account which leads to some distortion. EV
             was still chosen as the basis, due to it’s ability to take into consideration the whole
             capital structure of these companies.

             For our calculations a simplified method of calculating EV is used, it’s Market Cap +
             Debts – Liquid assets.

EV/EBIT
             Very similar to P/E, but calculated from enterprise value and earnings before interest
             and tax, so for example differences between countries tax-policies doesn’t affect the
             ratio. The main advantage with EV/EBIT and EV/EBITDA is that they are not
             affected by the capital structure of the company. So they compare the free of debt
             value of the business to earnings before interest.
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TU-91.2009 Entrepreneurial Finance                                                       Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


EV/EBITDA
         This is on of the most widely used ratios to compare companies. Compared to EBIT,
         EBITDA also removes out the effects of depreciation and amortisation. Cash flows
         are the main interest for investors so these non-cash items are just in a way. As with
         EV/EBIT calculation book values had to be used, but still it’s a fairly accurate
         indicator how a company is appreciated in a market.

    Following the calculation of these multiples, a price range is calculated for Iittala from the
    mean values. Weighted average was not used, due to the unique nature of Iittala’s and its peer
    companies businesses’. This price range gives a solid foundation to evaluating the initial public
    offering.


3 DCF-valuation of Iittala
The discounted cash flow –valuation of Iittala Group is given here. First we go through the basic
assumptions we have made for the valuation. We also introduce the base for these assumptions.
Then we present the actual DCF-valuation accompanied with appropriate sensitivity analysis.

3.1 Assumptions of DCF-valuation
The assumptions for the DCF-valuation are given below.

Base growth
The theoretical minimum for the growth rate of earnings is set by the general economic growth rate,
which is now just above 3 % in Finland. In year 2006 Iittala’s revenues grew 13%, which was in
particular due to the very strong economic situation of 2006. In the future growth rates will
probably be lower than this, although Boston Consulting Group projected 10-15 % growth rates for
the whole industry. In the medium term time we predict a moderate 6% growth rate for Iittala’s
revenues before interest and taxes. Iittala itself uses growth rates from 3%-6% in its predictions.

WACC
Iittala’s corporate waged average cost of capital (corporate WACC) was 9,4% in the year 2006.
(Iittala 2006.) This is taken for the basic cost of capital, by which the main DCF-valuation is
discounted with.

Terminal growth rate
Terminal growth rate after year 2011 is projected to be the current GDP growth rate of 3%.

Investment ratio
We predict that Iittala is investing back 20% of its NOPAT.

3.2 Discounted Cash Flow Valuation
The discounted cash flow valuation is given below. Here we assume that WACC is the corporate
WACC 9,4% and the annual growth of EBIT is assumed to be 6%.

Base-growth:                     0,06
WACC:                           0,094
Corporate tax:                   0,26
Terminal growth rate:            0,03
Investment ratio                   0,2

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TU-91.2009 Entrepreneurial Finance                                                              Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


1000 euros
Year                                   0             1        2        3        4        5       5
                                    2006        2007E    2008E    2009E    2010E    2011E Terminal
EBIT                              17 400        18444 19550,64 20723,68 21967,1 23285,13
Tax                                 4524       4795,44 5083,166 5388,156 5711,446 6054,133
NOPAT                             12 876        13 649   14 467   15 336   16 256   17 231
Net Invested capital               2 575         2 730    2 893    3 067    3 251    3 446
Change in working capital            100         1 777    1 884    1 997    2 116    2 243
Cumulative working
capital                       29617    31 394              33 278   35 274   37 391   39 634
FCF                          10 201     9 142               9 690   10 272   10 888   11 541 180 334
Discounted FCF              10200,8 8356,3327             8096,63 7844,998 7601,186 7364,952 115077,4
Value of Equity           164542,27
All corporate debt          72417,6
Value of the company      92 124,67

With these assumptions we conclude, that the value for the company according to the DCF-
valuation is 92 124 670 euros.

The sensitivity analysis of the DFC-valuation is given below. The maximum price for the company
with 7,4% WACC and 13% yearly EBIT growth is 180 036 320 euros. The minimum value with
11,4% WACC and 2% yearly EBIT growth is 49 847 491 euros.

Sensitivity analysis for the value of equity

                                                        WACC
                             0,074            0,084             0,094           0,104           0,114
               0,13   180 036 320,33   134 037 757,01    102 445 592,22   79 418 222,01   61 895 810,94
               0,12   178 052 126,06   132 546 793,62    101 289 796,71   78 503 772,26   61 162 526,71
               0,11   175 891 002,81   130 913 922,85    100 016 119,92   77 488 931,07   60 342 140,37
                0,1   173 564 064,46   129 147 936,14     98 631 765,42   76 379 750,53   59 439 832,72
EBIT growth    0,09   171 082 112,21   127 257 378,78     97 143 736,00   75 182 114,79   58 460 641,50
               0,08   168 455 638,45   125 250 552,86     95 558 836,13   73 901 742,17   57 409 463,08
               0,07   165 694 830,58   123 135 520,36     93 883 674,39   72 544 187,16   56 291 054,28
               0,06   162 809 574,85   120 920 106,11     92 124 665,96   71 114 842,51   55 110 034,05
               0,05   159 809 460,26   118 611 900,86     90 288 035,08   69 618 941,23   53 870 885,26
               0,04   156 703 782,34   116 218 264,26     88 379 817,48   68 061 558,71   52 577 956,41
               0,03   153 501 547,06   113 746 327,94     86 405 862,87   66 447 614,73   51 235 463,38
               0,02   150 211 474,65   111 202 998,49     84 371 837,37   64 781 875,50   49 847 491,20




4 Peer-company Based Valuation of Iittala
Peer-company based valuation is given here. First we introduce the chosen peer-companies and why
they were considered comparable with Iittala. After that peer-companies’ multiples are presented
and compared with Iittala’s corresponding values to define Iittala’s peer-company based market
value.

4.1 Chosen Peer-companies
For the peer-company based valuation of Iittala we chose six peer-companies. These are Fiskars,
Marimekko, Villeroy Boch, WMF Group, Waterford Wedgwood, Groupe SEB. The peer-
companies are shortly introduced below and also motivation for their selection is given.

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TU-91.2009 Entrepreneurial Finance                                                        Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


Fiskars
Fiskars Oyj Abp is a Finnish based consumer products company that operates today in 20 countries.
Fiskars operates through three subsidiaries: Fiskars Brands, Inha Works and the Real Estate Group.
From these the Fiskars Brands forms the core business by offering branded consumer products in
the areas of craft, garden, housewares and outdoor recreation. Fiskars Brands also counts for over
90% of the Fiskars’ whole sales. Most famous product of Fiskars is surely the orange-handled
scissors that can be held for one of the cornerstones of Scandinavian design. 870 000 000 of these
scissors were sold worldwide in the year 2006. (Fiskars 2006.)

Fiskars Oyj Abp is chosen for Iittala’s peer-company because Fiskars is also a Finnish houseware
company with an international presence. As Iittala, Fiskars’ products are relying heavily on design
and brand. Although Fiskars has about seven times more sales and over twice as much personnel
than Iittala, it can be held for a suitable company for our peer-valuation.

Marimekko
Marimekko is a Finnish textile and clothing design company established in 1961. It has one brand,
Marimekko, under which its products are sold both in Finland and abroad. Marimekko’s product
range consists of interior decoration textiles, clothing, bags and other accessories. In 2006
Marimekko Corporation’s total sales were 70,8 million euros and its net profit 7,7 million euros.
Marimekko went public 1999. (Marimekko 2007)

Marimekko and Iittala are both considered leading Finnish design companies with strong brands.
Although Iittala’s turnover in 2006 was more than Marimekko’s their profits were roughly the
same. Although they do not compete in the exactly same market, they are in a fairly similar
situation as cornerstones of modern Finnish design.

Villeroy & Boch
Villeroy & Boch is a high-quality ceramic products company that is more and more positioning
itself as an overall lifestyle and design company. The company was originally based in Luxemburg
but it has today a very strong international presence with operations in 125 countries. Villeroy &
Boch is formed of three divisions that are tableware, bathroom and wellness and tiles. All of these
divisions are operating around the company’s core competence: design. The activities of Villeroy &
Boch are tied to only one brand that is the company name. This brand has been strengthened over
the years to mean design, quality and lifestyle to mention a few. Total sales of the company were
964 million euros in the year 2006. (Villeroy & Boch 2007.)

Villeroy & Boch is naturally chosen for Iittala’s peer-company, because it is one of the market
leaders in the area of houseware ceramics. Villeroy & Boch is concentrated strongly on design and
brand, which are also important to Iittala. It is worth noting for that although Iittala has a strong
brand in Scandinavia, Villeroy & Boch’s brand is much more appreciated wordwide. Also,
Villeroy & Boch is one magnitude bigger company than Iittala both in sales and number of
personnel.

WMF Group
WMF Group is a Germany based company that manufactures table and kitchenware such as cutlery,
cookware and coffee machines. The company has product groups for consumer goods and
institutional products. It also owns retail stores in Germany, Switzerland and Austria. WMF’s
brands include WMF, Silit, Alfi, Auerhahn, Kaiser Backform, Hepp and Schaerer. WMF Group’s
total sales in 2005 were 577.7 million euros. During the last years the company has maintained the
level of sales the same but annual net income has decreased slightly. (WMF AG 2007)

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 TU-91.2009 Entrepreneurial Finance                                                                    Spring 2007
 Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


 WMF is a direct competitor to Iittala in cutlery and cookware. The company operates in the same
 market as Iittala and even though it is bigger than Iittala when measured in sales it can be used as a
 peer-company.

 Groupe SEB
 Groupe SEB manufactures small domestic equipment. It has a multibrand strategy with some 17
 brands. Its internationally known brands are Tefal, Rowenta, Krups, Moulinex and Lagostina.
 (Groupe SEB, 2007) In 2005 Groupe SEB’s total sales were 2,463 million euros. (Groupe SEB,
 2006)

 Groupe SEB and Iittala operate in the same market although Groupe SEB has extended its business
 activities in other markets as well. Groupe SEB’s total sales are also considerably higher than
 Iittala’s. However, Groupe SEB offers a meaningful point of comparison since it represents a larger
 company in the same market.


 4.2 Peer-companies’ multiples
 The following table lists the key multiples of the peer companies and Iittala at the offering price
 points. The price for Iittala is calculated with 16,6 to 18,4 million shares according to the offering
 prospectus and from the lower to the top end of the stock price spread.

Company                            Fiscal year Market Cap           Enterprise Value (EV) P/E        EV/EBIT EV/EBITDA
Ittala Group Oyj (8,5€/stock)           2006       141 199 535 €           200 452 535 €    19,161    11,520          8,678
Ittala Group Oyj (9,5€/stock)           2006       167 135 742 €           226 388 742 €    22,681    13,011          9,800
Ittala Group Oyj (10,5€/stock)          2006       192 952 358 €           252 205 358 €    26,184    14,495         10,918


Marimekko Oyj                           2006       117 786 000 €           103 870 211 €    14,742     9,561          8,640

Fiskars Corporation Oyj (A+K
shares)                                 2006       948 538 531 €           933 038 531 €    14,178    10,875          9,739
Villeroy & Boch                         2005       165 733 242 €           204 309 242 €    12,676     8,396          2,966
WMF Group                               2005       227 190 000 €           207 423 000 €    26,957    17,520          6,593
Groupe SEB                              2006     1 837 039 951 €         2 113 539 951 €    20,971    13,760          8,669


Peer Average                                       659 257 545 €           712 436 187 €    17,905    12,022          7,321

 It’s clearly visible, that different companies vary significantly in the key figures, even though they
 are basically operating in the same sector. As seen on the chart, Iittala is quite expensive compared
 to the other companies.


 4.3 Iittala’s Peer-based Value
 When Iittala’s value is derived from the average multiples of the peer companies, the following
 market caps are calculated. It’s interesting to see, that P/E gives the lowest valuation, an the capital
 structure corrected multiples give a higher value. This is because Iittala is highly indebted
 company, and eliminating the cost of external capital shows that the company has the potential to
 become highly profitable in the long run.

  Average multiple              Value           Ittala's value
  P/E                                   17,90       131 939 089 €

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TU-91.2009 Entrepreneurial Finance                                                        Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

EV/EBIT                          12,02     209 188 245 €
EV/EBITDA                         7,32     169 125 376 €



5 Comparing Our Valuations to the Ones Given in the Offering
  Prospectus




MAANANTAI: Compare the prices we got to the ones in the offering prospectus.
tähän se iso kiva juttu 

6 Why Did the Initial Public Offering Fail?
ABN AMRO’s AA Capital Nordic Fund called off the IPO 27.3.2007 after starting it 12.3.2007
and prolonging the IPO from 22.3.2007 until the day it was called off. Official main reason was that
AA Capital Nordic Fund considered the secondary market development possibly unhealthy i.e.
decline in rate of exchange (Rantanen, 2007). However, there are a few basic reasons why this IPO
failed. The fundamental reason is that individual investors became aware of the real motives behind
this offering. It’s quite clear, that ABN AMRO tried to cash out it’s 100 million investment in 2004,
not to expand the company. The second one is the greed of the owners. Price was set at 9,5euros
and the offering extended, even though it would have been oversubscribed at 9,00 euros. Even
though the IPO was overbooked at the set price of 9,5€, the demand was still too low for decent
activity at those levels after the listing. It’s been suggested by Iittala’s CEO Tero Vähäkylä, that at
the price of 9 euros would have resulted in a large enough demand. But they wanted 9,5euros,
which in comparison would have still been too high a price for the company and the offering was
cancelled.



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TU-91.2009 Entrepreneurial Finance                                                        Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

The market sentiment was also bearish at the time and definitely affected the demand for Iittala’s
stock. IPO activity in Finland has been slow in the recent years, and this was a kind of offering that
didn’t have all the required aspects to inspire investors. Quite frankly, Iittala is a bit of a boring
company with decent future prospects. Add this with a high price and you end up with a failure.

7 Concluding Remarks
MAANANTAI: Case wrap-up here.

-valuaatiomenetelmät ovat käsienheiluttelua.
All in all Iittala’s IPO was received poorly. Highly indebted company with an average growth rate
did not interest investors especially as its shares were greatly overvalued. It will be interesting to
see the future development of the enterprise since ABN AMRO Capital is interested to remain main
equity share for only 3-5 years and selling it after that. Obviously another IPO or an industrial
investor are remaining options. However, a foreign industrial investor is bad publicity in Finland
with country’s strong national feelings. In such case strong established position in international
markets is necessary to ensure revenue and interest buyers. In this scenario a new IPO would be a
conceivable solution if managed to do more adequately.




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TU-91.2009 Entrepreneurial Finance                                                    Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka

References
Fiskars, 2006. The Annual Report of Fiskars for the year 2006.
http://www.fiskars.fi/vuosikertomus2006

Groupe SEB, 2007. Our Brands.
http://www.groupeseb.com/redirect/en/home/our_group/groupe_seb_profile/our_brands/presentatio
n/front.aspx 27.5.2007

Groupe SEB, 2006. Annual Report, Sustainable Development Report, Summary, 2005.
http://www.groupeseb.com/UploadFiles/publications/740/RAAbregeSEB%20uk.pdf.V5.aspx
27.5.2007

Iittala, 2006. The Annual Report of Iittala Group for the year 2006.
http://www.iittalagroup.fi/web/iittalagroupwww.nsf/pages/103DF7D2177D8544C225720A002B1D
26/$FILE/Iittala_Group_Annual_Report_2006.pdf

Iittala Company Presentation, 2007.
http://www.iittalagroup.fi/web/iittalanews.nsf/0/A5D47D6D00918090C225720C003A46BB/$File/I
ittala_Group_Presentation_2007.pdf

Kankare, 2007. Listautuminen jättää Iittalan köyhäksi. Talouselämä. 15.3.2007
http://www.talouselama.fi/docview.do?f_id=1133767

Marimekko, 2007. Annual Report 2006. http://www.marimekko.fi/NR/rdonlyres/A93541CB-
529C-4D07-BD6C-7F140088B5C5/0/MarimekkoAnnualReport2006.pdf 26.5.2007

Offering, 2007. The Offering Prospectus for Iittala’s Initial Public Offering 2007.
http://www.iittalagroup.fi/web/iittalagroupwww.nsf/pages/ACAD4836F75B0111C2257299004E65
FD/$FILE/Iittala_Group_listalleottoesite_2007.pdf

Rantanen, 2007. Iittala kompastui fiksuihin sijoittajiin. Talouselämä 27.3.2007.
http://www.talouselama.fi/docview.do?f_id=1142573

Salo & Lilius, 2004. Iittala on toistaiseksi hollantilainen. Talouselämä 16.8.2004.
http://www.talouselama.fi/docview.do?f_id=604364

Villeroy & Boch, 2006. The Annual Report of Villeroy & Boch for the year 2006.
http://www.villeroy-boch.com/en/de/home/the-company/press/latest-news/single-
news.html?tx_ttnews%5Btt_news%5D=1244&tx_ttnews%5BbackPid%5D=764&cHash=456320a9
be

Villeroy & Boch, 2007. The investor relations section of the www-pages of Villeroy & Boch.
http://www.villeroy-boch.com/en/de/home/the-company/investor-relations.html, 5.5.2007.

WMF AG, 2007. WMF Investor Relations.
http://www.wmf.com/themen_startseiten.asp?nv_id=510&se_id=439&sp_id=11&sid={57D6A563-
4F76-4450-92FE-F8AC2C3DB473} 27.5.2007




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TU-91.2009 Entrepreneurial Finance                            Spring 2007
Lauri Eloranta, Kaarina Kaste, Lasse Korpela & Hanna Toikka


Appendices




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