Article

Diebold struggles to realize its potential

Company reports Q2 losses, revises guidance downward, restates confidence in a turnaround.

August 6, 2013 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

On Tuesday morning, Andy Mattes took up the unenviable task of reporting continued disappointing returns during his first quarterly earnings call as president and CEO of Diebold Inc.

Mattes noted that the company has "significantly reduced" its outlook for 2013, adjusting downward an earnings forecast too dependent on major tenders in Brazil that may not yield revenue until 2014, and on an uptick in demand in the U.S. regional bank market that has failed to materialize in the first half of the year.

"Clearly, the results we announce today are not in line with our capabilities and potential as a company," Mattes said.

Since taking on the top leadership role at Diebold on June 6, Mattes has worked quickly, visiting three of the company's five geographic locations — which account for 70 percent of employees and 75 percent of revenues — and meeting with more than 30 of its top customers.

"I came away from these meetings knowing that we have a strong base of customers who are looking for us to help them solve a lot of their business challenges," Mattes said. This while Diebold addresses its own challenges, including three years of negatively trending cash flow.

Mattes was deliberate in discussing the hurdles Diebold faces in a return to profitability, but he was also encouraging — judiciously and without overstatement — about strengths the company can draw on for this effort.

"There's a great deal of value here," he said. "We have many strong assets, especially in our service portfolio, and have a very recognized brand in the market. While we have a lot of work ahead of us, my overall assessment is that we have a great turnaround opportunity here."

Working toward a competitive, profitable path

Mattes listed a number of steps Diebold is now taking to redirect itself onto a competitive and profitable path. He said the company would do the following:

• get "crisper" regarding decisions, actions and execution;
• close out legal issues that have created a burden on the management team's focus (including a settlement with the Justice Department of alleged violations of the Foreign Corrupt Practices Act committed by the company's Russian management);
• pay closer attention to reducing cost structure and become better aligned with industry peers;
• sharpen the focus on cash generation;
• upgrade service operations from a service delivery to a service business approach, leveraging core capabilities to better capture their value;
• implement a major overhaul to IT infrastructure to lay the foundation for solid growth and performance — an effort that will take at least 2 to 3 years and will put additional pressure on near-term P&L, but that is critical to long-term growth, Mattes said.

As cost saving measures, Diebold will freeze its U.S. pension plan and offer early retirement to approximately 1,200 employees within the next seven weeks. The company also plans to repatriate $250 million of cash back to the U.S. and place approximately $100 million of debt in foreign jurisdictions.

Importantly, Mattes said, management would work to instill "an execution-oriented culture" within Diebold.

"It is important for us to act decisively and address the issues that have been distracting us and get on with the business of growing Diebold," Mattes told earnings call listeners. "This will help us to reestablish a winning spirit within the company. Much of our success lies in our own hands. We have a lot of work in front of us, but I feel deeply confident about our future."

Final Q2 numbers TBD

According to EVP and CFO Brad Richardson, Diebold is continuing to evaluate the impact of a previously disclosed issue with Brazil tax assessment.

The company has undertaken a review of overall compliance with Brazil indirect tax regulations, and as part of this review, Richardson said, has identified an adjustment with an impact of approximately $23 million to product cost of sales between 2008 and 2012. He said the company will revise prior period financial statements and continue to assess tax exposure in Brazil.

The tax situation in Brazil could require further revision and restatement of financial results, Richardson said. Consequently, the company said that Q2 SEC filings will be delayed and earnings reported during the call should be considered preliminary.

"We have a lot of work in front of us," Richardson said. "We are also working to restructure the balance sheet, improve free cash flow and address our underlying cost structure, all of which are critical to positioning the company for growth."

Read more about manufacturers.

Map graphic: Diebold

Photo: postscapes

About Suzanne Cluckey

---

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.

Included In This Story

---

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.

Request Info

Learn More