New Orga CEO Plans Aggressive Expansion

Germany-based smart card supplier Orga Kartensysteme has again made a change at the top, replacing both its CEO and board chairman. Taking the reins as new chief executive is Oliver Jaster, 34, son of Orga's principal owner and scion of a family that runs one of Germany's largest national lottery operations. Jaster was also Orga's former chief financial officer.

Jaster says he intends to aggressively expand Orga, which last year ranked as the fifth-largest smart card vendor worldwide. In fact, he repeated the brash prediction made by his predecessor that Orga would regain the position it held several years ago as the No. 3 vendor of smart cards by 2007, surpassing fellow German card vendor Giesecke & Devrient.

In order to accomplish that, Orga would have to nearly triple last year's revenue of 180 million euros (US$202 million), while G&D remained stagnant. Among other things, Jaster says Orga must get bigger in order to wield more purchasing power in its negotiations with suppliers of smart card chips.

That will require rapid expansion, and Jaster says he sees growth in Asia as key to the strategy. This will include "external growth," either through acquisitions or joint ventures. "I strongly believe by the end of this year we will take some steps in the Asian market from internal growth but also external growth," he says.

Turnover At The Top
Jaster replaces Juan Carlos Garcia, who had been Orga's chief executive for just over a year. Orga also replaced board chairman Winfried Gottwald, himself a former chief executive of the vendor and a man who played a key role in setting strategy. Gottwald is replaced by German banking industry director Jens-Uwe Flach.

The change makes Jaster at least the seventh chief executive for Orga in the past seven years. The vendor nearly went under during the more than two-year industry downturn beginning in 2001 that hit sales of SIM cards-Orga's stock-in trade-especially hard. The vendor lost 50 million euros in 2002.

GW Card Holding of Germany early last year bought the debt-ridden vendor for 1 euro. Just a couple of years earlier, Orga was considered the prized asset within the German federal printing office, the Bundesdrueckerei, which the government privatized to the tune of 1 billion euros. Venture capital firm Apax Partners bought Orga and the rest of the printing office, but the deal was heavily financed by German bank Helaba, which later had to eat hundreds of millions in losses.

GW Card Holding, is principally owned by Jaster's father, Walter Guenther, head of the Guenther Group, which controls about 30% of Germany's lottery business.

Gunther also owns most of GHP Holding, a sister company based in Bamberg that produces direct mail pieces and low-cost cards, such as magnetic-stripe and chip loyalty and phone cards. The company employs more than 2,000 and brought in about 300 million euros last year.

Combining Skillsets
Besides growth in Asia, Jaster says an important part of his strategy is to combine Orga's technological know-how with GHP's expertise in printing, direct marketing and fulfillment, that is, handling the distribution of cards for its customers. Among others, Jaster says he hopes this strategy will appeal to German banks, which have not traditionally placed their smart card orders with Orga.

Despite the so-called "synergies," the Guenther family hopes to achieve between Orga and GHP, the companies remain separate. When the family took over Orga in February of 2003, it set up GW Card Holding "to make sure the business of GHP was not affected by acquiring Orga," says Jaster. That includes any liabilities burdening Orga that the family's due diligence didn't turn up.

Keeping the companies separate could also limit the amount of capital available to Orga, although Jaster says the family is fully committed to funding the vendor, including its expansion plans.

Financial Strength
At the same time, he says the return of growth to the smart card industry and restructuring that slashed about 17% of Orga's workforce, down to 1,000 employees, has returned the vendor to financial health. It will likely turn a profit this year, and in 2005, he predicts.

But he reveals little in the way of financial data about the privately held company. He says Orga has little debt and cash on hand of about 10 million euros. That's on top of additional cash reserves of GW Card Holding, which he declined to disclose. The Guenther family also closely guards its own finances, and Jaster declines to release details on the Guenther Group.

Jaster is also vague about the reasons for the departures of Garcia and Gottwald, the former board chairman. In a statement, Jaster credited Gottwald with "restoring Orga to health." In an interview, he characterized Gottwald's role as an interim one, to help lead the restructuring and stabilization of the company.

As for Garcia, whom Jaster credits with stabilizing the company and restoring trust, the new CEO says Garcia, who was not a shareholder, was not the right person to lead a rapid expansion of the company.

"Is Mr. Garcia bringing the right ability into the company in order to drive the company at the (proper) speed?" Jaster says. "If you want to grow fast, it's a clear understanding what (is needed) is the commitment of the shareholders."

Employee Optimism
Despite the job cuts the past 18 months, Jaster and the family have been able to restore at least some confidence and enthusiasm among employees, according to one former executive, who asked not to be identified. Employees see advantages to the Guenther family's interest in Orga compared with the vendor's past owners, the German federal government and a venture capital firm.

"That's his (Jaster's) message he always gives to employees: We are looking for a long-term investment in this company, and we want to build up a big smart card manufacturer and solid smart card manufacturer. We are not looking for selling."

Orga has tried to stay on top of research and development and plans to come out with a 256-kilobyte SIM card later this year, the largest on the market. It is also among the first to have demonstrated applications for popular Java-based handsets that make use of high-end SIMs.

Jaster, however, emphasizes the importance of selling fulfillment services in addition to SIMs or other smart cards. "Get the card to the customer, make sure the customer gets the card, we will manage that for you."

Orga will need to get many millions more of its cards to customers around the world and perhaps make an acquisition or two if it ever wants to reach its goal of climbing to No. 3 in 2007.

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