Deep cuts ahead for Edscha

Despite stable profits, supplier is expected to cut 1,000 employees and close factories.

Remscheid, Germany. The Edscha Group is increasingly under pressure.

The supplier raised its debt level last spring to give its equity shareholder the Carlyle Group a loan of more than 60 million euros, or $74.2 million at current exchange rates. But the company had difficulty meeting its debt obligations for June.

So management is intensifying cost cutting.

“We have too many factories, so we have to reduce our capacity as quickly as possible,” Chairman Manfred Puhlmann said.

The company’s hinge and control-system areas are affected the most.

“We will have cut about 1,000 of our approximately 6,900 employees by the start of 2006 at the latest,” Puhlmann said.

Deep cutbacks are imminent for four of the 15 assembly plants in these divisions.

“We will close factories in England, France, Portugal and Canada or relocate capacity from them,” said Puhlmann, who took over as CEO from Horst Kuschetski, who is now a board member, in November 2004.

In Germany, Puhlmann wants to “save more than 10 million euros in labor costs in the short term.”

In the Hengersberg and Hauzenberg factories, labor expenses should “fall more than 10 percent,” and up to 20 percent at Remscheid.

The company is examining extending working hours without compensatory pay increases, transfers or pay reductions. The results of negotiations are expected in September.

Puhlmann is only planning “selective” staffing adjustments at Edscha’s development unit, IVM.

The divisions handling the company’s convertible roof systems and sliding truck roof business are being spared.

According to preliminary figures, Edscha revenue for the fiscal year ending June 30 fell about 5 percent to 934 million euros, or $1.15 billion at current exchange rates. Earnings before interest, taxes, depreciation and amortization were 99 million euros, or about $122.5 million at current exchange rates, only slightly less than the 102 million earned the previous year.

Edscha ranked No. 93 on the Automotive News Europe list of top 100 global original-equipment suppliers with original-equipment sales of $1.19 billion in 2004.

Because of the financial results, employee discontent is high.

“Carlyle is causing massive chaos and meddling with business operations to appease the banks and prepare for a sale,” an Edscha source said.

Managers who didn’t fall in line were fired. That included Peter Mazzucco, head of finance, and divisional board chief Hagen Wiesner.

“I have taken over both functions on an interim basis,” Puhlmann said. As second-in-command on the board, Axel Schulmeyer is in charge of convertible roof systems, truck roofs and development.

“We have taken the functional organization and reconfigured it into a divisional organization, transferring more entrepreneurial responsibility to the divisions in the process,” Puhlmann said.

But a company source said Puhlmann is acting “as a Carlyle handmaiden, to accelerate the exit.” The new partitioning of the company facilitates its sale, the source said.

“We are not under any pressure. On average, we sell our stake after five years,” said Heiner Rutt, head of Carlyle Germany. The private equity company took over the supplier at the end of 2002. Carlyle had Edscha carry the debt that the equity firm took on for the purchase.

“Edscha’s indebtedness stands at just over four times earnings before interest, taxes, depreciation and amortization,” Rutt said. Even seven times earnings is considered normal, Rutt said, “So Edscha is not overleveraged.”

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