By Jeffrey Green (@epaymentsguy)
Diebold, a major supplier of ATMs to financial institutions, continues to make progress in its “Diebold 2.0” turnaround strategy, but the process is one that is going to take more time to see through to fruition, the company’s top executive told analysts on April 29 while discussing first-quarter earnings.
“We are no different from any other turnaround story. The low-hanging fruit is typically sought after and realized first, resulting in increased savings upfront,” Andreas W. Mattes, Diebold president and CEO, said on the call. “This is usually followed by more transformational investments, a slowdown in the rate of cost improvements in the near term, and culminates in measured sustainable savings over the long term. Needless to say, throughout the remainder of 2014, these investments will offset some of the profitability improvements we're making in our business.”
Mattes, formerly from Hewlett-Packard, joined Diebold last year, replacing Thomas Swidarski. Diebold’s board felt it needed a leadership change to support a turnaround initiative after the company faced a slowdown in bank spending.
During the quarter, the company delivered on a $150 million cost-reduction program, which will enable it to make various reinvestments over the next six to eight quarters, Mattes noted. Included in that is a major, multi-year business-outsourcing agreement with Accenture that the company announced April 29.
Under the agreement, Accenture will provide finance and accounting, human resources, and procurement business process outsourcing services to support Diebold's broader transformation strategy.
Regarding the Accenture deal, Mattes said he expects many benefits, including “a more variable cost structure, simplified and standardized processes, as well as streamlining a number of transactional functions across our global infrastructure.”
However, he also acknowledged that such transformation initiatives can be challenging. “My previous experience with a project of this nature, the first 18 to 24 months require a lot of heavy lifting and investments before one can begin to realize the benefits,” he said.
Diebold initially intended to implement the process in house, but it saw several benefits by teaming with an experienced transformation partner,” Mattes said. “ In working with Accenture, we are strengthening our business controls and processes to help execute our multiyear Diebold 2.0 transformation,” he said. While our agreement with Accenture requires substantial upfront investments in 2014 and 2015, it increases our degree of confidence in meeting our business objectives and provides us flexibility to add scale as Diebold grows.”
Diebold reported total first-quarter revenue of $688.3 million, up 8.7 percent from $633.5 million a year earlier. Net income attributable to the company was $9.8 million, which included $7.9 million in tax restructuring and other tax-related expenses. The company reported a $14.4 million loss a year earlier.
Mattes noted on the call that devaluation of the Venezuela bolivar adversely affected the quarter’s earnings, posing a risk for the company.
Financial Self-Service, which includes ATMs, generated total revenues of $466.5 million, down 4.1 percent from $486.4 million. Services revenue was up 1.7 percent, to $285 million from $280.3 million, while Product revenues dropped 11.9 percent, to $181.6 million from $206.1 million.
Security Solutions generated total revenue of $142.4 million, up 3.7 percent from $137.3 million. Services revenue totaled $98.4 million, down 3.4 percent from $101.9 million. Products revenue was $44 million, up 24.6 percent from $35.3 million. Brazil Other revenue rose 702 percent, to $79.4 million from $9.9 million.
By market, in North America, revenue fell 4 percent, to $317.5 million from $330.9 million; Asia Pacific revenues dropped 4.5 percent, to $107.1 million from $112.2 million; Europe, Middle East and Africa revenue rose 27.2 percent, to $84.1 million from $66.1 million; Latin America revenues rose 7.2 percent, to $49 million from $45.7 million; and Brazil revenue rose 65.9 percent, to $130.6 million from $78.7 million.
In North America, total orders during the quarter decreased 9%, while for Financial Self-Service in North America, total orders for product and services declined 14%, Mattes said on the call.
“As we've previously indicated, total-order activity in the regional business in North America continues to steadily improve,” he said. “In the National Account space, orders were down compared with the first quarter 2013, and we won a very large deal. Nevertheless, we expect total North America orders for the full year to grow in the mid-single digits, aided by a ramp of Windows 7 upgrade activity.”