Business Game St.Gallen | Dufourstrasse 50, 9000 St.Gallen | www.businessgamestgallen.

com

Pitch Case

GENERAL INFORMATION
Office Co. Ltd. [hereafter OFCOL], was founded in 1963. They have been active in the office
furniture market since the beginning. They deliver their furniture to large companies as well
as smaller companies and practitioners. They are not cheap, but their furniture is of top
quality and lasts long. OFCOL is proud of their support services. They guarantee 20 years of
full service on their furniture.

In 2010 the founding family sold the business to a private investor, who is now not only the
owner, but also president of the board and CEO. The deal was largely financed using bank
credits, which forced the owner to distribute close to all net income in the form of divi-
dends. At the same time the new owner pursued an aggressive growth strategy, which,
though successful, has led to a further tightening of the cash situation. Today OFCOL has a
workforce of 120 FTEs in Muri, Switzerland. The factory in Muri operates at 90% of its capac-
ity.

In 2012 OFCOL bought 100% of an office furniture company in Hungary. This company has
a workforce of 60 employees. It operates at 60% of its capacity. Though costs of production
in Hungary are 40% lower than in Switzerland, their level of quality is also somewhat lower.
80% of the goods produced in Hungary are sold in Germany, and only 20% is sold in Swit-
zerland, however under a separate brand. Prices for products built in Hungary are 20% be-
low those sold under the main brand.

PRODUCTION
Production in Muri
The production facility in Muri is very modern. The new owner invested as much as he
could into the machinery park, given the tight cash situation. However, not all workers make
use of the technical possibilities as well as they could. Too many things are still done manu-
ally, because "it has always been done like this".

Production in Debrecen
The production facility in Debrecen is not modern. To increase both productivity and quali-
ty, an investment ranging from EUR 3 to 3.5 Mio. would be necessary. If this investment
were incurred, the additional output could be sold in Germany and Austria at prices which
are 10% above the current prices.

SALES
OFCOL sells office tables, chairs, sideboards, closets, wall closets, reception desks, and
since 2013 also lounge furniture. Its main rivals in Switzerland are USM, giroflex, Witzig,
Alpnach (closets only) and others. Competition is hard and price pressure is increasing due
to furniture being imported from Germany and Italy.

9. April 2015 – Pitch Case

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Business Game St.Gallen | Dufourstrasse 50, 9000 St.Gallen | www.businessgamestgallen.com

There are various sales activities. To date, exhibitions still play an important role. Apart from
that, personal relations and exceptional client services are key activities. Large submissions
are increasingly done under WTO and GATT rules, which increases administrative efforts for
the sellers. Also, over the last two to three years, serving smaller clients over the internet has
become more and more important.

INNOVATION
Innovation is not a key element in the office furniture market. Nevertheless, an increasing
number of clients use open-space floors instead of small offices, which has an influence on
the structure of the furniture the clients wish for. New elements such as removable or
noise-reducing walls and surfaces on furniture are in demand. Therefore, this area requires
some innovative solutions.

FINANCES
After the owner bought the operation in 2010 he had to use dividends to write off his bank
credits. The acquisition of the Hungarian entity was financed with an increase in the loan
that is secured with the building. In addition, the investments in the machinery park required
a lot of money.

As turnover increased significantly, so did inventory and receivables, and this required addi-
tional funds as well.

Nevertheless, the banks have been supportive and co-operative up until now. They appreci-
ate and therefore support the openness and the entrepreneurial spirit of the owner.

FACTS AND TRENDS IN THE OFFICE FURNITURE MARKET

The European office furniture market is under pressure. Growth rates are generally low as
cost awareness is increasing. In 2013, there was a decrease of 2.2%, in 2014 there was in
increase in the area of around 3%. For 2015, the increase is expected to be at 1-2%. Market
volume for Western Europe is around CHF 7 Bn. In Switzerland, costs for office furniture are
at CHF 150/employee whereas in Germany these costs are at CHF 50. In Italy, France and
Spain it is even below this figure. In the service industry (banks, consultants, lawyers, audi-
tors) cost for the equipment is generally higher than in the producing industry or with the
government. For these less cost-sensitive areas the expectations are positive with the gen-
eral trend from industry to services.

The trend to larger offices has an impact as well. Less desks, less chairs on the one side,
more meeting rooms, waiting rooms, dividing walls, noise-reduction elements and even
lounges on the other side. Today chairs and desks account for ¼ of turnover each. Dividing
walls and lounge chairs are at 5% each. The trend towards desk-sharing has and will contin-
ue to have a negative impact on sales of desks and chairs.

Today, in general 60% of turnover is generated via re-sellers, while the producers sell only
the remaining 40% directly. In Nordic countries direct sales account for 70% and more, re-
sellers only for 30%. Both channels rely on fairs and shows, as well as travelling representa-
tives. But new elements are coming into the play - such as IKEA with a market share of more

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Business Game St.Gallen | Dufourstrasse 50, 9000 St.Gallen | www.businessgamestgallen.com

than 5% (and increasing) and sales over the Internet. Also, cheap import products from Chi-
na are playing a more and more important role. Today this segment accounts for less than
2% of the market, but the Chinese share is on the rise. It is expected that it will match the
one of IKEA in approximately five years.

The economic pressure is pushing producers to sell more goods directly, and to get rid of
the "middle man" in order to avoid losing margin to him.

9. April 2015 – Pitch Case