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How will Diebold turn profits around?

Along with 'extremely disappointing' earnings news, ATM manufacturer lays out long-term realignment plan.

May 1, 2013 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

In its Q1 earnings call this week, Diebold Inc. reported numbers that came in much as expected — or as executive chairman Henry D. G. Wallace described them, "extremely disappointing to all of us."

Wallace reported a net loss of $13.4 million compared with Q1 2012. And then he introduced a multi-year realignment plan intended to cut as much as $150 million in costs by 2015 and return the company to growth, reversing a downward trajectory that began late last year.

"While the first quarter results we are announcing today are disappointing, they are in line with our internal forecasts," Wallace said. But on a positive note, he said the company had seen recent signs of improvement.

A need to 'significantly improve execution'

"Despite the expected slow start to the year, we have seen progress on several fronts," Wallace said. "This is evidenced by high-profile branch transformation solutions recently adopted by large bank customers, as well as encouraging new business in electronic security."

He said that the company was beginning to see "traction on key initiatives," but it needed to "significantly improve execution" to make the most of opportunities presented.

Diebold has already begun work in this respect. Wallace recounted moves the company has made in recent months:

Senior management changes

• In January, CEO Thomas J. Swidarski was forced out amid poor Q4 2012 earnings results; the company continues to look for his replacement.
• The post of Chief Operating Officer was created and executive vice president of global operations George Mayes was appointed to the role.

Accelerated cost reduction efforts

• Reorganized product development, service, and supply chain operations as global functions to drive operational excellence and lower cost;
• Took short-term actions to reduce personnel, cost and discretionary spending to counteract declining profitability;
• Developed transformational work streams to streamline company and provide the foundation for moving to a top performing company.

Wallace expressed confidence in the company's ability to improve its outlook thanks to experienced leadership, global scale, quality products and service and customer trust, in addition to a strong balance sheet and good liquidity.

"We expect 2013 to be a year of rebuilding, taking the necessary action and making the appropriate investments to improve our financial condition and profitability of the company and to position the company for future profitable growth."

The multi-year realignment plan

The company has already taken near-term steps toward that goal, Mayes said, letting go 700 employees, selling some manufacturing facilities, curtailing discretionary spending and flattening the management structure.

In the earnings call, Mayes outlined a multi-year realignment designed to return Diebold to profitability over the next two years.

Mayes said that Diebold management had identified four long-term transformation initiatives to drive savings and underpin future growth:

1. Globalize the service organization and processes to increase efficiencies, improve customer response times and reduce the company's cost to provide service;
2. Create a center-led global organization for research and development to eliminate duplication of effort, leverage regional solutions for global application, increase speed to market and decrease product costs;
3. Transform general and administrative cost structure by increasing use of existing shared services centers in low-cost regions, instituting common processes and leveraging industry best practices globally; and
4. Focus on commercial effectiveness, re-evaluating pricing strategies, reducing fixed costs within the sales organization, accelerating time to market and improving product-life cycle management.

A "Transformation Management Office" will provide governance, structure and the mechanisms required to ensure the execution of the initiatives, meeting semi-weekly to see that the plan remains on track, Mayes said.

"We have taken decisive action over the past 90 days. I want to emphasize strongly that this is just the beginning of our efforts. We still have more work ahead of us to reach our long-term cost reduction target and return the company to a more positive growth outlook ... we're very confident in our team's ability to live our goals moving forward."

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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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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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