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Is Diebold's glass half empty ... or half full?

The company's full-year results tell a story of trials and turning points — including a planned Wincor buyout that's looking better and better to Diebold CEO Andy Mattes.

February 16, 2016 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

" ... 2015 was a challenging year in many respects." 

It's a summation that might have been made by any number of ATM industry executives after the bumpy 12-month ride that was 2015. But it was Andy Mattes, president, CEO, and director of Diebold Inc. who said as much in his opening remarks during the company's earnings call last Thursday.

For a company in the midst of a major transformation and turnaround effort, 2015 full-year results were a mixed bag. 

For example, Mattes said, "In China, the impact of the government's buy-local initiative intensified dramatically as the year progressed, bringing new product activity for multinational players essentially to a halt."

On the other hand, he said, the situation in China prompted an in-country partnership that included the purchase of a minority stake in Inspur, a manufacturer and provider of IT products and services headquartered in China's Shandong province.

"We clearly needed a new approach, and we are proud to be the first company in our industry to announce a potential solution to this challenge," Mattes said. "This [joint venture] puts Diebold in a much better position to compete for product business in the second half of 2016 and continues the momentum we're building in growing services in China, where revenue increased in the mid-single digits in 2015."

Then there was Brazil, where a "worsening political and business climate" and a declining real overshadowed a once-promising emerging market for Diebold products.

But on the plus side, Diebold won its way back into Banco Bradesco, Brazil's second largest private bank, and managed to eke out mid-single digit growth in constant currency.

In the U.S., Diebold lost ground with a 6 percent decline in financial self-service orders in Q4, but won a branch transformation contract with one of the nation's top three banks and racked up a 7 percent product order backlog.

And while product orders were down 12 percent for the year overall, Diebold boosted its service revenue by 4 percent, a positive step toward the company's goal of transforming itself from a product-driven business into a "service driven, software enabled" enterprise.

On the plus side of that transition, SVP and CFO Chris Chapman said, "service margin increased 240 basis points to 34.9 percent, as we continue to improve productivity and utilization, while shifting our mix towards higher-value services."

Above all, there were those persistent currency headwinds that, to one degree or another, buffeted all U.S.-based industry players operating in overseas markets during 2015.

Diebold felt an impact of 7–8 percent from unfavorable FX in 2015, which turned a 3 percent drop in year-over-year revenue into an 11 percent decline.

Additionally, Chapman said, free cash flow performance "fell well short of our expectations" and contributed to an increase in net debt. However, he assured analysts on the call that he is "very confident" that the company will correct the situation in 2016.

As for full-year guidance through 2016, Mattes said it will be difficult to provide, due to mergers and acquisition pieces that are either pending or in progress.

The major "acquisition piece" would be the company's bid to take over its competitor, Wincor Nixdorf AG. Diebold launched its offer to Wincor shareholders last week with the blessing of the German company's board members.

In addition, Mattes said, Diebold continues to make progress toward the required regulatory approvals, and just as importantly, toward winning customer approval on both sides of the deal. If all goes as planned, the transaction should conclude this summer.

As described by Mattes, the combination presents nothing but upside:

"Of course, we still have to be competitors in the market, and we definitely adhere to that. But by the same token, the collaborative spirit in which we did the business combination agreement has even grown to new heights ever since."

Mattes said that even he was not allowed to be privy to all of the details, but that the companies have set up a "clean room," where teams from both sides are working together to plan the business model and operational processes,  figure out synergies and roadmaps, and hammer out the details of corporate responsibilities and customer support.

Hit or miss it might have been in some respects, but for Mattes, Diebold performance in 2015 succeeded in setting up the company for growing opportunities and success in 2016:

We advanced our services-led, software-enabled strategy with measurable results in 2015. We introduced new, innovative solutions to the marketplace and made key strategic decisions that will dramatically change our profile moving forward.

While we still have a lot of heavy lifting in front of us as we transform the company, our outlook benefits from a solid book of business and continued growth in services and software globally. We're driving our industry transformation through collaborate innovation, and we are creating a runway for growth moving forward.

For a closer look at Diebold Inc. results for Q4 2015 and the full year financial overview, download the Investment Community Conference Call slide presentation.

photo istock

About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.

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Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

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