Germany’s Leoni announced that it is considering plans to either sell or float a stock market listing for its Wire and Cables Solutions (WCS) business, based on a broad review of the company’s group structure, and a decision to focus on its Wiring Systems Division (WSD).
A press release said that the company had considered the optimal future ownership structure of both the WCS and its Wiring Systems Division (WSD) to determine how both divisions could achieve their full potential.
The WCS serves a wide range of growing end markets, such as healthcare, factory automation, transportation and automotive. The release noted that with its LEONiQ technology, "WCS is well positioned to become the front runner for intelligent cable solutions."
The WSD, which supplies engineered cables and interconnect solutions, and is anchored by the automotive field, "is on the way to sell not only products, but increasingly provide services in engineering, architectural design and simulation," the release said.
Leoni’s Board of Directors found very limited synergies between both divisions, and intends to increase their operational independence, the release said. In this context, corporate support functions will transfer from the holding company to the divisions.
"We believe that both divisions will benefit from a separation," said Leoni Chief Executive Aldo Kamper. "This creates two clearly focused businesses, whose individual market and technological developments as well as investments can be better and more quickly implemented."
The decision to separate WCS from the group and focus resources on WSD will strengthen our ability to further strategically develop this business, Kamper said. "This would create two clearly focused businesses, whose individual market and technological developments as well as investments can be better and more quickly
With its focus on WSD, Leoni expects to be in a better position to focus on operational improvements and continue to build on its leading position in automotive wiring systems. It could concentrate its resources on being a global solutions provider for the automotive sector while seeking emerging opportunities on the energy and data side. With its WSD becoming a systems supplier and development partner to its customers, Leoni is on the way to sell not only products, but increasingly provide services in engineering, architectural design and simulation.
Bruno Fankhauser, a member of the Board of Directors of Leoni with responsibility for the WCS division, agreed that the split made sense. "We have shown strong growth in recent years and have maintained a leading position as a provider of intelligent cable solutions and services. With today’s decision, we want to put the WCS division in a position to realize its full potential more quickly with a different ownership structure."
While either a sale or stock market exit is envisioned, a partial sale is also possible, the release said. "To date, no final decision has been taken in this regard. However, following a potential separation, Leoni’s primary focus would be on the development of its WSD division. To this end, Leoni has begun to mandate respective advisors."
The company notes that implementation of its VALUE 21 program is on track to achieve sustainable gross cost savings targets of €500 million per year by 2022, with 75% of the savings expected to be realized in WSD.
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."