Varta CEO: ‘We wanted too much in too short a time’

pv magazine: Mr. Ostermann, how did Varta AG almost become insolvent?

Michael Ostermann: The reasons were clear: At the beginning of the 2020s, Varta AG invested almost half a billion euros in anticipation of market developments that never materialized. The company was, previously, virtually debt-free but then became heavily indebted while the market collapsed in some of the areas it invested in. Profitability declined, interest burdens rose, and research and development could no longer be financed. In an innovative market like the battery business, this is a threat to the company’s existence.

In which specific markets was investment made?

Firstly, in coin-power cells for true-wireless headsets – compact, wireless, in-ear headphones without connecting cables. This market boomed during the coronavirus pandemic – but growth didn’t last long. It declined sharply as early as 2022. Secondly, in lithium-ion high-performance cells, special round cells developed for use in high-performance vehicles from selected models of German sports car manufacturers. Here, too, the complexity of industrialization was underestimated. In both segments, the company overextended itself financially.

Especially with button cells, there was criticism that the company was too dependent on Apple.

You mentioned the name, not me. But it’s well known that we made a significant contribution to the miniaturization of a large technology group with a strong brand’s leading, true-wireless headphones. This made the more compact design possible, which is now a market-defining feature. In this product segment – small lithium-ion cells – Varta AG operates in a truly competitive shark tank. Numerous manufacturers, including those from China and Samsung SDI, are active here. There is no exclusive supply agreement with the aforementioned large technology group. We also supply our CoinPower cells to other customers, such as [headphone brand] Sennheiser.

How do you assess the role of your predecessors?

Hindsight is always 20/20, of course. That’s easy to say. So I don’t want to get too caught up in it. In retrospect, though, one has to admit that there were misjudgments. Whether they were careless or under pressure at the time – that’s not for me to judge. I don’t believe in criticizing from the sidelines, using hindsight. One thing is also clear, though: Looking back, some decisions wouldn’t be made the same way.

Why did you choose the StaRUG (German Act on the Stabilization and Restructuring Framework for Companies) procedure – and not a traditional insolvency approach?

Varta AG had maneuvered itself into a situation where the company was effectively over-indebted. Had this situation occurred in 2020, i.e., before the introduction of the StaRUG, we would have had to file for insolvency. The StaRUG allows for the restructuring of debt without going into full insolvency. Employment contracts or pension obligations cannot be adjusted with it – so it is not a “light insolvency.” But for our situation, it was a faster and less invasive – and therefore better – instrument. We were able to reduce our debt from €485 million ($554 million) to €230 million and are now able to refinance again.

Nevertheless, many private investors lost their shares.

First of all, I would like to say that I deeply regret the losses suffered by private investors and can fully understand their resentment. However, in Germany, the interests of debt providers, i.e., creditors, are generally given greater weight than those of shareholders. In Germany, creditors’ rights are more strongly protected by law than capital rights. And I believe this is correct. This means: If creditors are to accept a debt haircut, a capital reduction must generally take place beforehand. Anyone who wants a debt haircut must first repay equity. Large shareholders like [Austrian entrepreneur] Michael Tojner also lost everything but later had the opportunity to reinvest as institutional investors. Small investors would have needed audited financial statements for this. We could only obtain this with an IDW S6 report [assessing a company’s viability and ability to restructure], and that, in turn, only if debt was reduced and €100 million in fresh capital was provided. It was a chain of conditions that left us little room for maneuver.

How do you want to regain trust now?

As a company, we want to rebuild trust: in the financial market, with our customers, our suppliers, our employees, and potential capital providers, whether banks or future investors. The reporting in recent months hasn’t always been positive. This has cost trust. We have to be honest about that. Now it’s about actively regaining that trust. And that can only be achieved through serious, sound business practices. In the past, we wanted too much in too short a time and sometimes acted with too little care. We’ve learned from that.

How will the success of the restructuring be measured in the coming years?

We completed the formal legal process at the end of January. An important part of this was the spin-off of the automotive business, specifically the high-performance cell [unit]. Porsche now holds 76% of those shares while Varta AG holds a junior stake of 24%. At the same time, we raised fresh capital: Porsche acquired a stake in Varta AG at the AG [joint-stock company] level, which was part of the financing. And yes, this is a point that is frequently discussed: Michael Tojner also participated again. The restructuring period will last three years. The goal is to achieve so-called exit financing on the market by 2027. This would mark the formal end of the restructuring process.

You are exiting the automotive sector. Which business areas do you intend to restructure Varta AG with?

Today, we essentially operate on five pillars. The best known is certainly our alkaline batteries, which we produce entirely in Germany. This remains our largest and most successful business unit. We are also the global market leader in hearing-aid batteries and medical technology. We produce around one billion cells per year in this segment. In addition, we produce small cells for wireless headphones and battery packs for industrial customers such as Miele and Bosch. We also offer energy storage solutions, from home [energy] storage systems up to 750 kWh systems.

Price pressure has been particularly high in the latter two areas. How do you plan to compete with Asian suppliers?

We also face intense competition, particularly from China, when it comes to alkaline batteries, small lithium-ion button cells, and hearing-aid batteries. We’re used to that. While we’re not the cheapest on the market in the home [energy] storage segment, there are still some large, well-known Chinese companies that currently sell at higher prices than we will. Of course, our prices aren’t as low as those of the most aggressive providers but that’s not our strategy. We aim to be the most reliable provider. And our customers appreciate that. We offer genuine technical support, not an outsourced call center. Security is also a consideration. Recently, the debate surrounding foreign inverter manufacturers has heated up – the keyword being “ghost devices.” With the Varta.wall [energy storage product], we made sure from the outset that all data was stored on certified servers in Germany or Europe; no data was transferred to the USA or other regions. We also primarily rely on German inverter manufacturers, for compatibility. Furthermore, all our [energy] storage solutions are offline-capable.

What share of your revenue comes from energy storage systems like Varta.wall or commercial batteries? Aside from service, how do you plan to grow in this segment?

The Energy Storage Systems division, which includes home [energy] storage solutions such as the Varta.wall and commercial battery [energy] storage systems, contributes approximately 15% to Varta AG’s total revenue. Varta AG sees stationary storage solutions as a strategic growth area. With modern product platforms and targeted development work, combined with our battery cell expertise, the company is strengthening its position as a European provider of leading energy storage solutions. Growth will be achieved primarily through technological differentiation – for example, with the Varta.wall platform – as well as through targeted expansion into additional European markets and a clear focus on ecosystems and energy networking.

Fast forward a few months: The company Christmas party is coming up. What speech would you give your employees?

If I had to give a Christmas speech today, I would say: ‘We haven’t made it yet but the worst is behind us.’ During the StaRUG proceedings, we were controlled by external parties. We needed the banks’ approval, we had to find investors who were willing to provide us with capital. Now it’s back in our hands. And if I didn’t believe in Varta AG, this traditional European technology leader, I wouldn’t be here. I am convinced: We can do it! I have never put the German locations up for discussion. Not out of naivety, quite the opposite. In previous roles, I have been responsible for plants in over 80 countries and I have also closed and relocated plants. But with what we are doing with our brand and our products, I am convinced that we can, want to, and will produce competitively in Germany.

From pv magazine Deutschland.