September 06, 2016

Vossloh goes back to basics

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Vossloh is nearing the conclusion of its transition from a broad rail solutions provider to a supplier focused on infrastructure. Executive board member Volker Schenk outlines the changes that have taken place in the past two years and the German company’s new strategy to Kevin Smith.

WITH seven vehicles on display and an extensive indoor exhibit, Vossloh had a highly visible presence at InnoTrans 2014, reflecting its status as a major player in light rail vehicles, locomotives, traction equipment, track infrastructure and infrastructure services.

However, Vossloh’s financial figures told a different story. While orders were consistent, issues in several of its business units meant that it was on course for a negative Ebit that year. And with debts mounting, after nearly two decades of steady expansion in the rail sector, it seemed the company had bitten off more than it could chew.

By mid-2014 the situation had come to a head. Following a boardroom struggle, the Vossloh family sold 22% of its shares to institutional investors in November 2013, reducing its holding to less than 10% as it relinquished its influence in the future direction of the company.

This left Vossloh’s supervisory board chairman, and owner of Knorr-Bremse, Mr Heinz Hermann Thiele as the lead shareholder. Thiele replaced the entire executive board in spring 2014, and the new board, which included Mr Volker Schenk, immediately started to analyse the group’s activities. By the end of that year, they concluded that the company should focus on what it does best: infrastructure.

“If you are juggling three balls, that is hard enough. But when you are juggling four, five or six balls, it becomes almost impossible,” Schenk says.

Under a restructuring announced in December 2014, the company plans to sell its Transportation division by the end of 2017. This includes Rail Vehicles based in Albuixech, near Valencia, Spain, which it had acquired from Alstom in 2004, the Locomotives division based in Kiel, and Vossloh Kiepe, a supplier of electrical systems for road and rail vehicles. The company also restructured its infrastructure offerings into three divisions: core components, customised modules and lifecycle solutions.

Albuixech was subsequently sold to Stadler in December 2015 in a deal which Schenk says “suited both parties.”

“We wanted to identify a company which would continue to build locomotives in Valencia, and that would grow and expand the business in a stable environment,” Schenk says. “We found a partner in Stadler which we believe will do this. They already have quite a big presence and have a better chance of growing the business so that it is sustainable. My feedback from former colleagues is that they are happy with the changes that have taken place.”

New factory

Schenk says that Vossloh is actively seeking a suitable partner to purchase its Locomotives division. This is set to be boosted by the opening of a new modern 18,000m2 rented factory at Kiel-Suchsdorf by the end of the year. The plant will replace the existing facility in nearby Kiel-Friedrichsort, and Schenk says will make the business more attractive to potential investors.

“By the end of the year, Kiel will be in a completely different situation,” Schenk says. “It will be one of the most modern railway manufacturing facilities in Europe, which is an unprecedented improvement. We recently secured a €140m locomotive order from Akiem in France, which has several options and will provide the factory with a good work load for the next five to seven years.”

Vossloh’s renewed focus on infrastructure, where it is a market leader in the supply of track fastenings and turnouts and an increasing presence in rail infrastructure services, is reflected in improving half year results for 2016, but Schenk says its true performance won’t be completely noticeable until 2017.

As it strives for further growth, Schenk says the company is reinvesting a major part of the €124m influx from a share capital increase in June 2016 to enhance its position, whether this is through organic growth or strategic acquisitions to acquire new technologies or provide it with an advantage in a specific geographic market.

For example, Schenk says the United States is a “very attractive market” despite a recent slowdown in Class 1 infrastructure investment and renewal which he does not believe is a long-term trend. It is a similar situation in Europe, South America and the Middle East, where new projects may have slowed, but demand for renewal of old infrastructure is a reason for optimism. Germany’s proposed €230bn infrastructure renewal programme up to 2030 is considered a major opportunity.

China’s latest five-year plan, which proposes doubling the 19,000km high-speed network, is similarly promising in a market where Vossloh is already strong. And despite recent political difficulties, Russia is another huge market in which it is eyeing expansion.

Vossloh is returning to InnoTrans this month and will again have many of its locomotives on display. The emphasis may now be on selling the complete business rather than individual units, but Schenk says that visitors can still expect “exciting exhibits” from its infrastructure sectors including several new products.

Nearly two years on from its restructuring announcement, Schenk says that the company is on the right path, and he is convinced that it made the right decision to restructure.

“We have had time to reflect and refocus on what we want to do, and there is an emphasis of providing support from the board room to the workshop,” Schenk says. “We have realigned things and are following our new strategy as quickly as we can which we believe will put Vossloh in a profitable environment.”

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