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The Rupp Report: OC Oerlikon Accelerates Restructuring Of Its Textile Machinery Unit

Jürg Rupp, Executive Editor

The Swiss technology group OC Oerlikon AG is accelerating the restructuring of its textile machinery business, not least because of the current financial crisis. According to OC Oerlikon, the Oerlikon Schlafhorst business unit has reorganized its three German locations, Mönchengladbach, Übach-Palenberg and Ebersbach, within the scope of a current restructuring program. The complete production of the three locations will be concentrated in Übach-Palenberg. Mönchengladbach will focus on marketing functions; Ebersbach will retain its central research and development tasks.

Job Reduction In Europe

In August 2008, the group announced the reduction of some 1,000 jobs in Europe up to 2010. Due to the ongoing weak market situation, the implementation of the restructuring program has been further accelerated. This realignment of the three Oerlikon Schlafhorst locations will affect 240 jobs by 2010. This is part of the already announced capacity adjustment of 1,000 jobs, of which 600 will be effected by the end of this year, OC Oerlikon said.

The target of these measurements is to reduce the break-even point by 300 million Swiss francs by the beginning of 2010. “The consolidation of the production plants and refocusing the locations will clearly increase the efficiency and flexibility within the business segment,” said Dr. Carsten Voigtländer, CEO, Oerlikon Textile GmbH. And Dr. Uwe Krüger, CEO, Oerlikon Group, commented that “the measures being executed are an important step in bringing Oerlikon’s textile business back into the profit zone.”

Restructuring Program

Despite the successful previous year and in anticipation of the economic slump, Oerlikon Textile had already initiated the global project “Simplify Oerlikon Textile.” Apart from the 1,000 jobs, the restructuring program consists of a reduction of the product range and implementation of a consistent platform strategy and the reduction of fixed costs by 20 percent compared to 2007. Furthermore, the number of production locations will be halved worldwide; a further development of the Chinese location in Suzhou is planned, as well as investments in research and development plus production modernization.

With these measures, Oerlikon Textile is sure to be positioned for the downturn, which is expected to continue up to the beginning of 2010.

Shareholders Into Difficulties

The financial crisis also gives troubles to OC Oerlikon’s big shareholder Viktor Vekselberg. He must negotiate new loans with the banks because his shares have strongly lost value. Since spring 2007, Oerlikon shares have lost more than 80 percent of their value. The depreciation has hit Vekselberg hard. As the Rupp Report already wrote in May, Vekselberg reported to the Swiss stock exchange in May 2008 the purchase of 2 million Oerlikon shares for 800 million Swiss francs. Today, the package is worth only 260 million Swiss francs.

Negotiations With The Banks

Vekselberg’s Swiss participations in OC Oerlikon, which have increased from 10 percent to 39 percent, were apparently bought substantially on credit, and have lost a large part of their value now. His investment company, Moscow-based Renova Group, was asked to place more money, Vekselberg said without mentioning details. Apparently, Renova is restructuring its credits. Vekselberg mentioned “constructive negotiations” with the banks. Renova already had to compensate for the depreciation with money. One bank wants to decouple the loans from the value of the shares deposited as a security.

Last June, Standard & Poor’s had put Renova “on the observation list for a downgrading.” It was reported that Renova bought Russian power companies for $2.8 billion and increased its shares in OC Oerlikon for about 800 million Swiss francs. Whether Renova can reach an agreement with the banks is still open. In September, Renova secured a loan of $350 million with Western banks. Recently, Standard & Poor’s has confirmed Renova’s “BB” rating after a check last week.

October 14, 2008