Machine Maker Voith Risks Radical Revamp

The German machinery and equipment manufacturer is attempting to radically overhaul its business by cutting 1,600 jobs and selling its industrial services unit.
As the turbine turns.

The tension in Hubert Lienhard’s voice was clear on the telephone conference call this week. The head of Voith, a family firm founded in 1867, had just announced the gravest changes in the machine maker’s history.

Based in the southwestern German state of Baden-Württemberg, the producer of paper machinery, hydroelectric turbines and turbo machinery plans to slash 1,600 jobs in its paper division and administration worldwide.

Some 870 of these positions will be lost in Germany, as Mr. Lienhard, a former ABB executive, shutters facilities in the towns of Neuwied, Ravensburg and Heidenheim.

“We haven’t sold a large paper machine in three years,” Mr. Lienhard said.

The company is suffering from the slow decline of the newspaper industry; the rise of the Internet has caused a precipitous drop in demand for large printing paper machinery. Voith has already cut 1,200 jobs in its paper division since 2012. The company is setting aside hundreds of millions for redundancy costs in the current financial year.

Mr. Lienhard is also pursuing even more radical restructuring by unloading its industrial services unit.

“Our leadership has agreed to a number of measures today, which are cutting and to a degree painful, but also necessary,” he said.

The sale of the industrial services division affects 18,000 workers worldwide, half of them employed directly by Voith.

Industrial services such as maintenance and assembly of equipment for automotive, energy and chemical companies, as well as engineering services for aircraft and trains, accounted for roughly a fifth of the firm’s €1.17 billion, or $1.32 billion, turnover. Operating profit dropped to €20 million.

Important know-how is being irreplaceably lost. Lienhard’s era is no success story for Voith. Ralf Willeck, Union representative

“These are activities where we are easily replaced,” said Mr. Lienhard.

They also don’t fit into his plans to turn Voith into an industrial concern of the future, by completely networking its production.

To that end, Mr. Lienhard recently bought a 25-percent stake in robot maker Kuka to help facilitate the industrial company's digital and automated transformation. “We have a list of interesting companies. If the opportunity presents itself, we will take action,” he said at the time.

Voith wasn’t able to develop the necessary knowhow fast enough on its own. Mr. Lienhard has been trying to overhaul the firm for a while now – last year he sold the industrial maintenance division DIW. At the time, he said Voith wanted to concentrate on industrial services for the automotive and petrochemicals sectors.

Toward the end of 2014, Mr. Lienhard announced that the company could not avoid job cuts and that negotiations with worker representatives had already started.

He said he wanted to cut costs by €250 million by the company’s 150th anniversary in 2017, adding that employees had taken the news well.

That’s not to say that everything will go smoothly: the powerful IG-Metall trade union isn’t prepared to swallow Mr. Lienhard’s decisions.

“It’s unacceptable. Important know-how is being irreplaceably lost,” said union representative Ralf Willeck. "Lienhard’s era is no success story for Voith."

In the previous financial year, sales dropped by a disappointing 6.6 percent to around €5.3 billion and operating income sank 27 percent to €270 million. The company has already had to set aside €111 million for previous job cuts, but Mr. Lienhard said Voith was strong enough to finance the restructuring on its own.

 

The author is Handelsblatt’s correspondent in Baden-Württemberg. To contact the author: [email protected]