Oerlikon Chief Vows ‘Clear’ Decisions If Units Fail on Targets
OC Oerlikon Corp AG (OERL) Chief Executive Officer Michael Buscher said he’d take decisive action on units that fall short of profit targets, as he shifts his focus to the engineering portfolio after renegotiating a credit facility.
Oerlikon’s textile, drives systems, vacuum, coating and advanced technologies segments all were given individual performance measures and deadlines. Some of the goals are based on the performance of competitors and companies which serve similar markets, said Buscher, without disclosing the targets.
“If the return on net assets numbers cannot be achieved over a certain period of time, then we will make clear decisions,” Buscher said in an interview yesterday at company headquarters in Pfaeffikon, Switzerland.
Buscher is working to shake off the legacy of Oerlikon’s 2010 restructuring, which included a 1.48 billion Swiss franc ($1.55 billion) debt facility. Oerlikon is now seeking to reach a “solid platform” from which it can look at potential acquisitions in the medium to long term, Buscher said.
Among businesses that Oerlikon has disposed of is the carding machinery subsidiary, a part of the textile unit, which it agreed to sell to China’s Hi-tech Group Corp. about a year ago. The company announced the sale of its solar unit to Tokyo Electron for 250 million francs in March.
Oerlikon reduced its net debt to 86 million francs, or 0.14 times its earnings before interest, tax, depreciation and amortization at the end of 2011, from 274 million francs, or 0.99 times leverage in 2010, the company said March 5.
‘Not the Slowest’
“You cannot transform a business in a month’s time frame,” said Buscher, a German national who joined Oerlikon from Bombardier Transportation two years ago. “I think we have proven we are not the slowest ones in moving things around.”
Oerlikon’s drive systems and textile units, which together made up 68 percent of group revenue last year, reported operating margins of 6 percent and 9 percent, compared with 14 percent and 20 percent for the smaller vacuum and coating units. Oerlikon engineers goods ranging from precision textile machinery to gears and tools to coat car engines.
The Swiss engineering group has gained 61 percent this year after profit jumped to 224 million Swiss francs in 2011 from 5 million francs a year. Oerlikon said in April that results this year may exceed earlier guidance. The company’s biggest shareholder is Russian billionaire Viktor Vekselberg.
The previous debt facility, which averaged 850 basis points over the benchmark, was closed at a time when it was “quite clear” that Oerlikon couldn’t repay 600 million francs of debt, Buscher said.
The 30 investors who took part in the old facility included a number of hedge funds, Buscher said. In addition to pledging security such as real estate, Oerlikon had to report figures to the investor group every month and later quarterly, Buscher said.
Hedge funds are not part of the new facility, which consists of seven banks and is unsecured. The re-negotiated facility pays an average interest rate of 250 basis points over Libor, and will be supplemented by a bond issuance.
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