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Diebold plans a further $100m cost cuts

30 April 2008  |  5069 views  |  0 Tablet Computer

US ATM vendor Diebold has disclosed plans to eliminate an additional $100 million in costs by shutting down two of its four global Opteva ATM manufacturing facilities and restructuring its supply chain and distribution network.

The latest cost cutting measures are in addition to an ongoing, $100 million cost-reduction programme that Diebold introduced in January 2006.

Diebold says following a six-month assessment of its "global manufacturing and supply chain footprint", it has identified a number of additional areas where costs can be eliminated.

Part of the programme includes transitioning Opteva production from a four-plant global operation to two plants, which will Diebold says improve "plant capacity utilisation" and the return on assets.

As part of its original cost reduction programme, the vendor has already moved manufacturing to Hungary and closed plants in France and Argentina. In the US, the vendor has also shut down a facility in Virginia and has sold its plant South Carolina.

As part of the new programme, Diebold says it will also look to improve margins, reduce the cash conversion cycle and improve inventory turnover by moving from a "build-to-order" manufacturing model to a "just-in-time" pull system, and by building a global capability for post-production customisation.

The vendor will also "optimise procurement and supply chain functions" and "eliminate waste and inefficiency across global supply chain operations" with existing service providers Ariba and Menlo Worldwide Logistics.

Diebold says these new measures, along with the costs eliminated by the 800 jobs it axed in February, will help cut an additional $100 million in expenses, with approximately $70 million to be realised over the next 18 to 24 months.

Diebold disclosed details of the additional cost cuts in a statement outlining its estimated first quarter results. The vendor - which has been investigated by US Securities and Exchange Commission (SEC) over its revenue recognition practices - is not releasing complete financial results until it completes its review on the impact on revenue from its change in revenue recognition method for 2006 and 2007, which is expected in Q2.

In its statement Diebold estimates that its first-quarter revenue rose 8.1% to $700.2 million, compared to revised 2007 Q1 revenue estimates of $647.7 million.

Financial self-service revenue is estimated to be $495.9 million in Q1 2008, which is also up 8.1% compared to revised estimates of $458.9 million in Q1 2007.

Diebold says Financial self-service revenue increased significantly in Asia-Pacific, led by strong growth in China as the country prepares for the 2008 Summer Olympics. In the Americas, financial self-service revenue increased in the "mid single-digit range" with strong growth in Latin America partially offset by flat performance in North America.

But, due to a delay in the timing of expected orders from distributors, Diebold says financial self-service revenue in Emea declined in Q1 2008, compared to a strong first quarter of 2007.

Thomas Swidarski, Diebold president and CEO, says: "The revenue growth in the financial self-service business is promising, especially given the well-publicised challenges facing the financial industry."

Earlier this year Diebold's board of directors "unanimously rejected" an unsolicited cash takeover bid, worth around $3 billion, from US conglomerate United Technologies Corporation (UTC).

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