The FINANCIAL -- On presenting its results for the first half of the current fiscal year 2014/2015, Wincor Nixdorf AG outlined details of the restructuring program launched by the company.
Prior to this, the company had already announced that it would fail to meet its original guidance issued for the current fiscal year. In the first half of fiscal 2014/2015 net sales fell by 2% to €1,208 million (previous year: €1,230 million), while operating profit (EBITA) declined by 31% to €47 million (€68 million). The EBITA margin fell by 1.6 percentage points to 3.9% (5.5%). Profit for the first six months of the fiscal year amounted to €31 million (€45 million), down 31% on the previous year's figure for the first half. The year-on-year contraction is attributable primarily to a 12% decline in net sales from the company's Hardware business; growth generated by Software and IT Services was not sufficiently strong to offset the aforementioned downturn. Spanning a period of several years, the restructuring measures to be implemented by Wincor Nixdorf are aimed at counteracting these developments. The aim is to achieve an additional positive annual earnings effect of €120 million in fiscal 2017/2018, which will take shape in the coming two fiscal years. In parallel, expenses are also expected to amount to €120 million in total. In implementing the program, Wincor Nixdorf will reduce its current headcount by around 1,100 (12%) over the next three years. As regards the current fiscal year 2014/2015, Wincor Nixdorf now anticipates that net sales will be 3-5% down on the prior-year figure. EBITA before restructuring measures is expected to total €100 million. As the company will additionally incur costs of €80 million, Wincor Nixdorf anticipates that EBITA after restructuring expenses will stand at €20 million, according to Wincor Nixdorf.
In initiating the fundamental realignment of its activities during the second quarter of fiscal 2014/2015, Wincor Nixdorf is addressing the issue of deteriorating business conditions in key emerging markets such as Russia and China as well as the sluggish recovery in investment spending throughout Europe. Another factor necessitating realignment is the continuing erosion of prices in the company's Hardware business. This can no longer be offset in the long term, due in part to insufficient economies of scale. At the same time, the trend towards digitization embraced by both banks and retailers has added to the momentum of change, with software and high-end service solutions playing a prominent role and opening up opportunities for growth at Wincor Nixdorf. "We are looking to exploit the market potential of Software and IT Services to an even greater extent, as well as making our Hardware business more cost-effective," emphasized CEO & President Eckard Heidloff.
Following up on this, the strategic objective of measures initiated as part of a seven-point program is to accelerate Wincor Nixdorf's transition to a software and IT services company with attractive profit margins. At the same time, the Hardware business, which remains important to the company, is to be redimensioned with regard to the vertical range of development activities within the value chain as well as in respect of global production and supply chains; this will be accompanied by significant adjustments to capacity levels. The guiding maxim is to achieve sufficient margins even on the basis of lower unit sales.
The aim of these restructuring activities is to achieve a positive effect on earnings equivalent to €120 million as from fiscal 2017/2018. For the next two fiscal years, the earnings effects are expected to be €40-50 million (2015/2016) and €80-100 million (2016/2017). By contrast, expenses are expected to total €120 million, of which €80 million will be attributable to fiscal 2014/2015 and €40 million to 2016/2017.
Strategic Levers for Company Restructuring.
Fast-track expansion of the Software business is to be achieved principally through a combination of additional investment and restructuring of existing capacities at a staffing and operational level. Additionally, the company will be aiming to make acquisitions within the Software business. Overall, Wincor Nixdorf reaffirms its goal of doubling net sales from Software within a period of five years (€600 million in 2017/2018). The Services business is to be taken forward to the next level, with an emphasis on improved cost-effectiveness as well as significant growth in Managed Services and Outsourcing.
The company’s Hardware business will remain an important pillar. However, capacity levels in this area are to be scaled back.
As a further strategic measure, the successful Cashless Payment business unit, which is expected to increase its net sales to €50 million in fiscal 2014/2015, will be carved out to become an independent operation. The intention is to position the fledgling company in the form of a start-up with all the associated freedom of maneuver. This may serve, for example, as a platform for partnerships or collaborative activities in the payment market or to facilitate investment opportunities.
Significant Reduction in Existing Workforce – Staff Upsizing in Other Areas.
In implementing the program, Wincor Nixdorf will reduce its current headcount by around 1,100 (12%) over the next three years. This will affect around 500 employees in Germany and 250 in other European countries. The company is planning redundancies as well as a transfer to outsourcing-based employment structures.
The Group-wide reduction in personnel levels will contrast, in the coming years, with staff upsizing in the growth areas of Software and IT Services. Thus, the net outcome of these measures will be a reorganized personnel structure for Wincor Nixdorf.
In summary, the strategic repositioning of Wincor Nixdorf will encompass the following seven points (1): - Considerable acceleration of growth in the Software business and associated Professional Services - Expansion of high-end IT Services for operations management such as Managed Services and Outsourcing - Fundamental realignment of Hardware strategy - Carve-out of business unit for Cashless Payment - Program for price optimization - Streamlining of administration costs - Organizational support to implement changes
Change at the Helm of Banking.
Member of the Board of Directors Jens Bohlen will leave the company effective from April 30, 2015. For the time being, the Board of Directors of Wincor Nixdorf AG will thus be reduced to three members. With Jens Bohlen leaving the company, responsibility for the global Banking business at Wincor Nixdorf will change hands. As from May 1, 2015, responsibility for the company's global Banking business will be transferred to Christian Weißer, who has been appointed as Senior Vice President. In his most recent position, he headed the company's Banking business in Europe.
Slight Growth in Banking After First Six Months; Downturn in Retail.
Net sales in the Banking segment rose slightly by 1% to €783 million (€778 million) in the first half of fiscal 2014/2015. In the second quarter, net sales were down by 4% year on year. EBITA for the Banking segment totaled €29 million (€51 million), which was 43% down on the figure posted for the same period a year ago. Net sales generated in the Retail segment fell by 6% in the first six months of the fiscal year and stood at €425 million (€452 million). In the second quarter, net sales were 4% lower compared to the previous year. EBITA generated in the Retail segment rose by 6% to €18 million (€17 million) in the reporting period.
Growth in Asia/Pacific/Africa – Downturn in Germany and Europe.
In Germany, net sales fell by 4% to €277 million (€290 million) in the first six months, thus accounting for 23% (24%) of the Group's total net sales. In the second quarter, net sales in Germany stood at €138 million (€140 million), which corresponds to a downturn of 1%.
At €553 million (€577 million), Europe (excluding Germany) saw a year-on-year decline in net sales of 4% in the first six months of the current fiscal year. In the first half of the fiscal year, Europe (excluding Germany) contributed the largest part of total net sales for the Group at 46% (47%). In the second quarter of the fiscal year, net sales in Europe (excluding Germany) were 7% lower at €254 million (€273 million).
In Asia/Pacific/Africa, the Group managed to lift net sales to €234 million (€216 million) in the first six months of the current fiscal year. This corresponds to an 8% increase on the prior-year figure. Asia/Pacific/Africa contributed a share of 19% (17%) to total net sales for the Group. Second-quarter net sales in Asia/Pacific/Africa rose by 14% to €115 million (€101 million).
In local currencies, the Americas recorded a 12% decline in net sales in the first half of the fiscal year. Translated into euros, this corresponded to a downturn in net sales by 2% to €144 million (€147 million). On this basis, the proportion of total net sales generated by the Americas was unchanged year on year at 12%. In the second quarter of the fiscal year, net sales in the region were down 22% at €61 million (€78 million).
Increase in proportion of net sales from Software/Services.
In the first half, net sales attributable to the Hardware business declined by 12% year on year to €504 million (€575 million). In the Software/Services business, by contrast, net sales rose by 7% to €704 million (€655 million). The share of total net sales generated by the Hardware business fell to 42% (47%) in the period under review. Correspondingly, the proportion of total net sales derived from Software/Services rose to 58% (53%).