Vossloh submits details of its strategic repositioning
- Focus on rail infrastructure and rail vehicle components
- Internationalization of core business through growth outside Europe
- Strategic alliances targeted for the Locomotives business unit
- Sale of Vossloh Information Technologies planned
- Downscaling of the annual cost base by €25 million
- Sustainable rise in ROCE through concentration on profitable growth
The Executive Board of Vossloh AG, on completion of its GO 2010! strategy project has now submitted details of the strategic repositioning of the Group. Through consistent extension of core businesses, the Group will focus in future on rail infrastructure (e.g. rail fastening systems, switches), as well as on rail vehicle components. According to the new strategy, these two divisions are set to grow organically above all outside of Europe and, moreover, be strengthened through judicious acquisitions. For the Locomotives business unit, strategic allies will be sought for the efficient further development of the business. The Information Technologies division is to be sold in the course of the portfolio refocus. A sustainable rise in ROCE by concentrating on profitable growth is the most important objective of the strategic repositioning. Vossloh AG’s CEO, Dr. Gerhard Eschenröder, emphasizes: "We intend to center in future on our core competencies and, in particular, exploit the attractive growth potentials outside of Europe. We will target defined returns and profit levels and prioritize profitability over size.”
GO 2010!: sustained value enhancement takes front seat
The submitted details are the result of the GO 2010! strategy project, which lasted approximately four months, a period in which the fit-for-the-future capability of the current Vossloh portfolio in particular was examined. The project is the Vossloh Executive Board’s response to years of sinking operating profits and lack of internationalization, as well as a growth strategy hitherto not clearly defined. Therefore, growth markets were identified and checked for their attraction to Vossloh. In the course of what-if scenarios and their analysis, strategic options were examined in relation to each other, their viability weighed and measured against clearly determined profitability benchmarks, all with a view to achieving a sustained shareholder value enhancement.
Rail Infrastructure: core business with large international growth potential
As a result of the portfolio analysis, the Rail Infrastructure division was confirmed to be a core business. The business units Vossloh Fastening Systems as well as Vossloh Switch Systems, in particular, with their leading international market positions and high level of attractiveness, at present already exceed the Vossloh Group’s profitability benchmarks and offer further vast growth potential. A central role will be played in this case by the consistent internationalization of business in promising markets, such as the USA, China, and India. Plans are for business to grow both organically and through judicious acquisitions. At the same time, the potentials identified for additional efficiency increases would be applied in order to boost profitability.
Components for rail vehicles developable as a core business
Rail vehicle components business was defined as a second core area of Vossloh. Components business is presently represented by the Vossloh Electric Systems business unit, leader in the Western European and North American markets for trolleybus electrics and one of the biggest suppliers of tram electrics. By buttressing these operations, Vossloh aims to profitably diversify its portfolio. Just like the Infrastructure division, the components business will, according to the strategy, be expanded internationally, both through organic growth and acquisitions.
Locomotive business with value appreciation potential through strategic alliances
The Locomotives business unit, with the two production locations in Kiel and Valencia, will, according to the project deliverables, be developed through strategic alliances. The strategic analysis confirms that, following the integration of the Spanish operations and the restructuring in Kiel, the business unit is, as European market leader, very well positioned for sustained profitability. Despite this fundamentally favorable situation, it has become evident that Vossloh alone can only inadequately exploit the existing value enhancement potential and growth opportunities of its Locomotives business unit. Accordingly, the financial benchmarks set for Vossloh’s core businesses are unachievable within the foreseeable future. Efforts are now being undertaken to realize growth and value enhancement potentials in the company of strategic partners and hence further sharpen the competitive edge enjoyed by Vossloh Locomotives.
Vossloh Information Technologies: destined for divestment
The portfolio analysis has indicated that Vossloh's smallest division Information Technologies, due to a lack of synergies with the remaining operations and its focus on Germany, is of minor strategic relevance to Vossloh’s overall portfolio. Further, the outlook for this division will, within the foreseeable future, not meet the criteria benchmarked for Vossloh’s core businesses. Given this situation, Vossloh’s Executive Board has resolved to sell this division to a best owner that is able to better exploit and develop the know-how and potentials inherent in this division.
Vossloh FIT!: €25 million savings through rigorous cost management
The Vossloh FIT! efficiency enhancement program was launched back in early May. Numerous specific cost reduction measures were identified and are being implemented. Vossloh FIT! will take full effect as from 2008. It is envisaged to downscale the annual cost base by €25 million, especially within Purchasing and Production.
Clear emphasis on profitable growth and added value
The main target of GO 2010! is to position Vossloh in the best way possible for addressing future challenges. Apart from the strategic components it is above all the financial benchmarks that enjoy high priority—ROCE to stay above 15 percent in core business and for the EBIT margin, a sustained double-digit figure. Vossloh will continue its stockholder-friendly dividend policy whereby stockholders share in the rising performance of the Group through higher dividends. CEO Eschenröder emphasizes: “The new Vossloh Group will not only be a leading supplier in selected rail infrastructure and component market segments, it will also be one of the most efficient enterprises in its sector. In this way, we are sowing the seeds for sustained value enhancement and a commensurate rate of return for our stockholders.”
Werdohl, September 7, 2006
Contact:
Nikolai Juchem
Hering Schuppener Consulting
Phone: +49 (0) 174 1 84 14 65
Email: njuchem@heringschuppener.com