Handelsblatt Online, 3 June 2019. Christoph Schlautmann, Diana Fröhlich Happy Diana; Schlautmann, Christoph
PDF of original article (German)
Mountain of debt and sale of shares; The situation of the prosthesis manufacturer Ottobock is precarious. The prosthesis king Hans Georg Näder recently had positive things spread about his company. But the reality doesn’t look very glamorous.
The ‘Bild’ newspaper recently wrote of the ‘Steve Jobs of high-tech prostheses’, Chancellor Angela Merkel praised him at the company headquarters in Duderstadt, Lower Saxony, as ‘a prime example of German medium-sized companies’, and national football coach Joachim Löw values him for his ‘high level of social competence’: Hans Georg Näder, third generation owner of the medical technology manufacturer Ottobock , extroverted and self-confident, likes to bask in the glamour of the public.
So there was no shortage of celebrities on the company’s 100th anniversary in February. Ex-Federal President Christian Wulff was there to congratulate, as did Nobel Prize laureate in chemistry, Stefan Hell. They all admire Näder for what he has achieved. From a small company he has created a global company with around 7,000 employees.
The 57-year-old also occasionally provides the necessary fame himself. Last Thursday, he sent a press release to announce : ’ In 2018, the international medical technology company Ottobock created considerable added value for users, employees and owners.’ Thanks to ‘clear progress in efficiency’, adjusted operating profit before special items rose to a record high.
Prohibited acquisition
What the cheers hide: The reality in the company looks, unlike Näder’s glamorous appearances, cloudy. And not only because the US competition authority FTC recently retroactively prohibited the acquisition of the American competitor Freedom Innovations , which now costs Ottobock 78 million euros in provisions.
The prosthesis manufacturer, founded after the First World War in the face of millions of war invalids, secured its survival mainly through the sale of company shares, as the recently published group annual report for 2017 shows was canceled, seems illusory from today’s perspective. The group figures for 2017 - newer ones are not yet publicly available - testify to a precarious situation, which the sale of company parts alone has painstakingly whitewashed. The group parted with part of its plastics business, and a fifth of the group’s dominant healthcare division also turned Näder into money.
The buyer for the latter was a subsidiary of the Swedish financial investor EQT. According to the annual report, the sale of shares flushed well over half a billion euros in cash into the company’s coffers. In addition, the sales brought a net book profit of 339 million euros, which, according to the company, was ‘mostly tax-free’. Worrying: Without this, the annual net result would have slipped into the red. At the end of 2017 , Ottobock reported a consolidated net profit of just 268 million euros - a sum that was 71 million euros below the special income from the sales.
In February 2019, Näder told the ‘Börsen-Zeitung’ that he had decided to sell part of it to EQT in order to prescribe a ‘fitness program’ for his company for the potential IPO. In truth, however, everything points to a distress sale. This is not only supported by the fact that in 2017 Ottobock felt compelled to sell receivables amounting to 28 million euros to a factoring company, which companies usually use to secure liquidity. Debt rescheduling, as undertaken by the group in August 2017, would probably hardly have happened without the sale of investments.
The mountain of debt was undoubtedly too high for that at first. Adjusted operating income (Ebitda) of 91 million euros would have been offset by net financial debt of 946 million euros at the end of the 2017 financial year if the deals had not taken place. As it is, however, the EQT entry pushed the excessive net debt to 395 million euros, which paved the way for a new syndicated loan agreement for 510 million euros.
At the same time, the company was able to obtain 200 million euros through a promissory note that has fewer publication obligations to fulfill than a bond, for example - but which usually requires higher interest payments. Admittedly, this reduced net financial debt to 4.4 times operating profit at the end of 2017. In other companies, however, even that would have been enough to put management in a mood of alarm. Companies with similar indebtedness, such as the Hamburg container shipping company Hapag-Lloyd, are currently giving Standard & Poor’s a credit rating of ‘B +’, four points away from a solid investment.
In the following twelve months, the debt in the Otto Bock Group rose again. To 442 million euros, as it says there on request. The operating result has also increased, justifies a company spokesman. The group debt had thus decreased to 2.6 times Ebitda by the end of 2018. It is more than questionable whether this would be enough for the ‘investment grade framework’ that Näder recently declared as its goal.
Problems with wheelchairs
The medical technology manufacturer, which describes itself as the world market leader for prostheses, has been struggling with income for a long time. The wheelchair division in particular was the problem child in Duderstadt for years. Company experts speak of a money destruction machine. Too much individuality in the models - which are simply too expensive to manufacture. The division is said to have left losses in the double-digit millions in the 2017 financial year.
In order to stop the outflow of money from the wheelchair business, employees were dismissed for operational reasons, and locations in the USA and Sweden had to be closed. In 2018, the group announced on request, the earnings before interest, depreciation and taxes (Ebitda) adjusted for special factors increased accordingly from 90.6 to 168 million euros. But the bottom line is that even this is unlikely to have been enough for more than a black zero. To put it into perspective: In the previous year, depreciation, taxes and interest burdened the result with 166 million euros, in 2016 it was 157 million. Ottobock was now placing its hopes in a VW cooperation.
To make it easier for car workers to work overhead, Näder supplies the Wolfsburg-based company with so-called exoskeletons. The brackets attached to the outside of the body were invented to enable paraplegics to walk again. Experts think the idea is good, but start-ups, especially in Silicon Valley, are simply a lot further. Apple and Google are already working on cyborgs, a combination of physical organism and mechanical aids. The US competition has more capital.
Näder’s Responsibility
It is Näder, once appointed to the executive chair in Duderstadt at the age of only 28, on whose shoulders the responsibility for the figures rests - even if at the beginning of 2018 he swapped the post of CEO for that of the Chairman of the Board of Directors. After leaving the operational top, the patriarch first tried the biochemist Oliver Scheel, who came from the management consultancy AT Kearney and was to lead the company as the first non-family manager.
But what was grandly announced by Näder as ‘Generation Change 4.0’ came to an end after less than a year. The chemistry between the two was not right, it was said to explain at Ottobock - even though both had known each other for a long time. In the end it was probably Scheel’s pace and dynamism that Näder couldn’t cope with. Philipp Schulte-Noelle, the son of long-time Allianz CEO Henning SchulteNoelle, now runs the group in Duderstadt. In order to cover up the company’s weaknesses, at least it seems, Näder relies on confusion.
“Ottobock Holding has equity capital of one billion euros and is debt-free,” he recently announced in the “Börsen-Zeitung”. What the owner and chairman of the board of directors hid: After a whole aria of name changes, renaming and rescheduling, the financing has been with the subsidiary ’ Ottobock Healthcare’ since August 2017 . Since then, she has been liable for syndicated loans and promissory notes of up to 710 million euros.
With the result that hardly anyone can see through, Näder renamed this subsidiary, which was partially sold to EQT, in 2018. It is now called ’ Ottobock SE & Co. KGaA ‘, which gives the impression that it represents the entire group. It was Näder himself who reinforced the impression in the past few weeks by reporting on the annual general meeting and the annual financial statements in a press release. “That would be so,” says an observer, “as if the VW Group were reporting on the Volkswagen brand alone.”
In view of the high level of debt and poor earnings, it is remarkable that the shareholders, who, in addition to Hans Georg Näder, also include daughters Julia, 29, and Georgia, 22, indulged in lavish withdrawals. In 2017 alone they amounted to 86.1 million euros. “It has been shown that we would not need equity in the order of magnitude of the dividend to achieve our goals,” a group spokesman explains on request.
That was obviously the case in the previous six years. Between 2011 and 2016, the withdrawals added up to a further 335 million euros. This could be due to the patriarch’s lush lifestyle. Näder is not only a medical technology entrepreneur, he is also a publisher, art collector and hotelier. He owns a museum, a gallery and a brewery. ‘HGN’, as employees call it, owns a 54-meter-long yacht, the ‘Pink Gin’, as well as a private jet and a helicopter, which he travels around the globe for more than half a year. He makes no secret of his wealth.
When it comes to your own goals, Näder can hardly be stopped. He leaves the CDU and joins the FDP, builds living spaces for traumatized children, invites Muslim refugees to the company anniversary. On the site of a listed industrial ruin in Berlin, he is currently building a ‘future laboratory for medical technology’ for 40 million euros.
With his inventions, Näder professionalized disabled sports, which also pushed him into the limelight. During a medal ceremony at the Paralympics, he can congratulate the winners and give them gold, silver and bronze. And even carry the Olympic torch.
The billionaire who, according to the US magazine ‘Forbes’, is one of the 1,000 richest people in the world loves big performances like this one. At the end of the anniversary year, he wants to bring his friend, singer Peter Maffay, onto the stage in Duderstadt city center in September. In his old hit, the pop star may then trill, which is why Näder drew such large sums of money from the indebted corporate network: ‘You give everything when you give.’
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