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March 18, 2019

Leoni reports sweeping changes in response to woes in Mexico, elsewhere

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Citing a weaker market and persistent problems at their plant in Merida, Mexico, Leoni AG reported significant organizational changes that it deemed necessary to stabilize the business and prepare it for its future.

A March 18 press release said that the company will no longer maintain its prior stated financial projections for sales of 5.2 billion for 2019. It also plans a headcount reduction of up to 2,000 "indirect" employees worldwide, meaning those not working production, such as "white collar" staff. Those cuts include "500... in high-wage countries, particularly in indirect functions." Other cited personnel-related measures include a group-wide hiring freeze and a freeze on raises for non-tariff employees and managers.

The largest single problem was related to the company’s plant that opened two years ago in Merida. Part of the Wiring Systems Division (WSD), the site has experienced ramp-up problems that persisted "to an unexpected extent" the first two months of 2019, the release said. There were high personnel and freight costs that impact division earnings by about 50 million. Other WSD plants in Hermosillo and Durango did not achieve "anticipated performance improvements," but the Merida plant was the source of the biggest loss.

In the Feb. 7 press release, Leoni AG CEO Aldo Kamper said that he and CFO Karl Gadesmann would actively engage in the operations of WSD. "We are immediately implementing a stricter cost discipline at the company," he said, with the focus being to stabilize the company, "with a particular focus on Mexico." A dedicated team of experts is on site to further this goal. The problems, it said, extend beyond Mexico, as the market, especially in China, remains challenging, as some OEMs have cut back on expected orders for the coming months.

In the March 18 release, Kamper said that the situation had worsened, and that "developments… have made it clear that we must act even faster and more decisively to bring Leoni back on track." Personnel changes included the resignation of Gadesmann, whose duties Kamper assumed on an interim basis. Martin Stüttem will assume the responsibilities of WSD COO. The division’s current CFO will be leaving his function and the head of operations has already left. Staffing changes at Merida are also part of the changes.

Kamper said in the release that Leoni has "a clear roadmap" to address its problems. He observed that it was important for Leoni to develop into a systems provider and that its products and services to be aligned with viable and profitable markets as well as technologies involving a high degree of integration. Leoni is using outside experts to help assess "the most important project ramp ups."

"Leoni will focus more on cash generation as well as profitability and intends to restrict organic growth in its Wiring System Division to the level of market growth," the release said. The corporate structure will be changed "into a financial holding company that is lean and geared to functions relevant to the capital market with two divisions that operate entrepreneurially and are managed on a stand-alone basis. ... The divisions will take on full direct cost responsibility for their own businesses."

The release also said that a range of initiatives, part of the company’s VALUE 21 program, is expected to have an impact. "As of 2022, (it) is expected to deliver full-run rate structural savings of around EUR 500 million annually compared with 2018." Savings will be offset some by factors such as wage cost increases and price reductions. Restructuring costs are likely to amount to about EUR 120 million, half of it related to headcount, most of which will incur in the 2019 and 2020 financial years."

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