Varta AG

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Varta AG

Am Leineufer 51
D-30419 Hannover
Germany
(49) (511) 790 36 60
Fax: (49) (511) 790 36 67
Web site: http://www.varta.com

Public Company
Incorporated: 1890
Employees: 10,186
Sales: DM1.98 billion (1996)
Stock Exchanges: Frankfurt
SICs: 3339 Primary Smelting and Refining of Non-Ferous Metals; 3691 Storage Batteries; 3692 Primary Batteries, Dry and Wet; 3711 Motor Vehicle and Passenger Car Bodies

Varta AG produces batteries, including storage batteries (such as automobile batteries), rechargeable batteries (such as batteries for camcorders), and primary batteries (which are discarded after the energy has been discharged). An industry leader in Europe, second only to Duracell in market share for consumer batteries, Varta is also the top battery supplier in Latin America. With headquarters in Germany, Varta maintains one factory for auto batteries in Hannover; three for portable batteries of all types in Hagen, Ellwangen, and Dischingen; a lead recycling plant in Krautscheid; a chemical factory in Hagen; and a factory for plastic components in Waechtersbach. In addition, the company has nine other factories in Europe, seven in North and South America, and one each in Asia and Australia. Following some fiscally disappointing years in the mid-1990s, attributed largely to economic recession in Europe and losses in the company’s industrial battery sector, Varta remained committed to economic turnaround via restructurings and efforts at improving productivity among its more successful business sectors.

The 19th-century: First Storage Batteries

Adolph Mueller founded the company which later became Varta AG in January 1888, calling his enterprise what translates into English as the Buesche and Mueller Tudor System Battery Factory. Having seen a demonstration of a new Accumulator—a rechargeable power cell—by the Brothers Tudor, Mueller realized immediately that the design functioned much better than others of the day and that furthermore it could be used to supply electric light to homes and businesses then just coming into vogue. With some 370,000 Gold Marks in capital, Mueller and partner Paul Buesche opened a small factory for the production of industrial batteries in the city of Hagen in Lower Saxony. It was the first such facility in Germany.

The first Buesche & Mueller batteries were used by power companies. These batteries stored energy produced by dynamos and assured customers a smooth flow of electrical current. A favorable evaluation of the company’s batteries by the Koenigliche Technische Hochschule Hannover enabled Buesche and Mueller to overcome general suspicion of batteries in the young electricity industry. By 1889, the company had 40 employees, annual sales of DM1 million, and a client base that included Deutsche Bank Hamburg, the Bremen Harbor Authority, and Norddeutscher Lloyd.

In October 1890, Mueller & Einbeck—Paul Buesche had left the previous year—formed a new joint stock company in association with Siemens AG and AEG AG: Accumulatoren -Fabrik AG or AFA for short. The market was lucrative, and by the turn of the century, AFA had provided batteries to more than 148 power plants. Competition was growing too. Between 1890 and 1896 alone, AFA brought 100 patent violation suits against using processes patented by AFA. AFA then frequently swallowed up the smaller firms after they had lost their cases. By 1909, the company had taken over 11 battery companies in Germany and 14 in Austria-Hungary, Russia, and Switzerland.

Mueller was always alert for new applications for AFA. Although he was unable to interest German industry in manufacturing electric cars and his own auto company, the Berliner-Elektro-Droschken AG, met with little interest from the buying public, he had better luck with trains. In 1895, a streetcar powered by AFA batteries—the first electric streetcar in Germany—was put into service in Hagen. Other cities followed suit, but by 1900 most urban streetcar lines switched over to power from overhead lines and that market had disappeared.

The railroads were a natural market. At the time, their cars were still lit by gas or oil lamps or candlelight, and electric light meant a vast improvement in convenience and safety. AFA’s first customer was the North Milan Railroad in 1889. In 1905, AFA, AEG, and Siemens jointly founded the Gesellschaft fuer elektrische Zugbeleuchtung (GEZ), a company intended specifically to produce electric lighting systems for trains. AEG and Siemens developed regulators and transformers, and AFA provided the batteries. A prime target of GEZ was the enormous German railroad system whose trains, by royal decree, were required to be lit after dark. Between 1905 and 1913, GEZ established offices in 20 countries and equipped about 1,000 rail cars with interior and exterior lights. AFA (then Varta) would remain a partner in GEZ until 1984, when it sold its shares in the company. AFA also produced batteries used in the complete powering of trains, typically smaller narrow gauge trains used to transport goods and materials at factories and harbors. AFA’s Hagen plant had such a battery-powered train system in 1890.

Early Diversification

In 1904 AFA’s first subsidiary, VARTA Accumulatoren Gesellschaft mbH, was founded in Berlin, where AFA management had maintained its offices since 1897. The name was an acronym created from the words Vertrieb, Aufladung, Reparatur, Transportabler Akkumulatoren, or Sales, Charging, and Repair of Portable Batteries. A state-of-the-art plant was built for Varta in Berlin at this time, and it remained the largest AFA factory to date. The new company manufactured small batteries for low-current applications, such as flashlights, house lights, telegraph and signal devices, and automobile lights. The automobile starter battery, which would make the Varta name famous, was not developed until an electric starter for autos was invented in 1914. Large industrial batteries and batteries for the railroads and public transportation continued to be manufactured by AFA in Hagen.

AFA grew rapidly during the first decade of the century. It acquired another major subsidiary in 1913, the Deutsche Edison Akkumulatoren Company GmbH (DEAC), a company licensed to produce a steel-alkali battery invented by Thomas Edison, as well as a number of foreign subsidiaries in Prague, Sweden, Russia, and Spain.

Beginning in 1914, sales of Varta’s auto starter batteries began slowly but steadily increasing. Germany’s catastrophic defeat in World War I, however, brought company progress to an abrupt halt. After the war AFA lost most of its foreign holdings as well as its work force; more than 500 workers were killed and a many others came home disabled and therefore unable to work.

AFA’s rebuilding efforts were assisted by the growing use of batteries in motor vehicles. The German postal system became a major Varta customer, having begun using electric vehicles powered by AFA batteries in 1909. After the war, in 1924, the Berlin Postal Delivery Office replaced 1,000 horses with 1,200 electric vans. Moreover, the Varta subsidiary was selling more starter batteries for automobiles as well, although that market in Germany was relatively small compared to that of the United States at the time.

AFA’s first big market success in the 1920s was a steel alkali battery produced by its subsidiary DEAC. The lightweight battery, which proved ideal for miner’s lamps, appeared on the market precisely when public attention was focused on the danger of mine explosions caused by gas lanterns. AFA strengthened its presence in the mining market in 1927 when it acquired Grubenlampenfabrik Dominit, a manufacturer of miner’s lamps. In 1927 about 30,000 Dominit miner’s lamps were using lead or alkali batteries. DEAC batteries were also used to power the mining cars that transported ore out of the earth.

Consumer interest in batteries got its first powerful stimulus with the introduction of radio as an entertainment medium in 1923. Pertrix Chemische Fabrik GmbH, founded in Hamburg in 1917, developed a small new dry-cell primary battery—that is, a disposable as opposed to a rechargeable battery—for flashlights, which proved ideal for radio as well. In 1925, AFA obtained a license from Pertrix to produce the dry-cells; the following year AFA bought the company outright and began producing batteries in Berlin under the Pertrix brand name. In 1928, with radio booming, the Pertrix subsidiary had 1,600 employees and was manufacturing 120 million batteries a year. The acquisition of Pertrix rounded out AFA’s line of batteries: AFA produced high-performance lead batteries for industrial use; Varta made starter batteries and other portable lead batteries; DEAC manufactured steel-alkali batteries; and Pertrix produced disposable dry-cells.

In all the 1920s were a period of expansion for AFA. The company’s battery plants in Berlin and Hagen were expanded, and it made great progress towards reestablishing its European and international network of subsidiaries, affiliates, and branch offices, while cultivating new markets at the same time. In 1923 Gunther Quandt became AFA’s majority shareholder, and control of the company passed to the Quandt family, where it would remain into the 1990s. Adolph Mueller passed away in 1925 at the age of 78.

Company Perspectives:

Batteries and their environment form the core around which our activities revolve. We are striving for technological leadership and international strength. We are aiming for consistent profitability in order to increase the value of the corporation and secure its future. The people who work in our company and the spirit in which they perform their work are decisive factors. Superior quality is our objective. Customer satisfaction is the benchmark for our achievements to this end. We regard partner ship with other corporations as a way to strengthen our position. We feel responsible for our locations and their environment. Assuming responsibility for the environment is second nature to Varía.

Like most German businesses, AFA was hit hard by the onset of the Great Depression. Pertrix though was hit doubly hard. In addition to the economic downturn, competition came in the form of an alternating current adapter for radios, which was developed in 1930 and eliminated much of the market for batteries. Only layoffs coupled with wage cuts, first of five percent and later 7.5 percent, saved the company.

New Inventions

To save the company, AFA directors focused the full energies of the firm on developing new products. Varta developed the sinterplate, a battery element formed by sintering nickel powder into a solid plate, a technology producing batteries in which an extremely high charge could be stored. The batteries could be used in applications in which reliability was of utmost importance, such as in aircraft take-offs. The battery remained among Varta’s top products for decades. Also during this time, the demand for batteries to power cars and trucks was increasing rapidly. In 1936 the company marketed the first standard-sized starter battery that would fit in any vehicle.

Pertrix bounced back from its problems early in the 1930s with batteries for flashlights, telephones, and signal devices, and later in the decade for portable radios, which were just becoming popular. More importantly, in 1932, the company developed an oxygen element, the Aerodyn, for the Volksempfaenger, the People’s Radio, an inexpensive radio which could be found in most German homes in the 1930s and 1940s. By the time World War II began in 1939, Pertrix was in solid financial shape and had established factories in many European countries, including England, Sweden, Austria, Hungary, and Czechoslovakia. AFA, and later DEAC, were given a vital infusion by the invention of the forklift in 1935. The battery-powered vehicle revolutionized the transport of raw materials, parts, and products.

Postwar Recovery

By 1937 demand for starter batteries had completely outstripped AFA’s production capacity. With no room to expand the plants in Berlin and Hagen, Gunther Quandt initiated a plan to build a new factory in Hannover. Ground was broken for a state-of-the-art production facility in July 1938. The new facility consisted of six ground floor production halls, a revolutionary idea at a time when most German factories were built upwards and production was split up over five to ten stories. Facilities at the new plant included areas for lead recycling, lead powder storage, rubber production, and a foundry. Quandt believed the design and location of the new facility to be so good that he considered giving up AFA’s factories in Berlin and Hagen in order to consolidate all production in Hannover, although construction would not be completed until 1943. The factory was meant to produce power supply batteries, such as those used for forklifts, and starter batteries for cars, trucks, and other vehicles. Shortly after production began in 1939, World War II started and all AFA plants were changed over to war production.

The war wreaked havoc on AFA. Air raids badly damaged most of its factories. The Hagen facility was hit especially hard, and what was not destroyed was confiscated. The Russians seized AFA’s two Berlin factories, both of which were in the eastern sector of the city, and equipment was dismantled and shipped to the Soviet Union. The British Army occupied the new Hannover plant, sending the best equipment to France and Yugoslavia. AFA holdings located in areas of Germany later ceded to Poland were lost forever, and most properties elsewhere in Europe and Eastern Germany were confiscated. In the Netherlands, the Varta brand name itself was confiscated and AFA/Varta was unable to market products in Holland under the Varta name until 1976.

While Gunther Quandt was held in an internment camp for 18 months, his son Herbert ran AFA. The Hannover plant was relatively undamaged, and by June 1945 was producing batteries once again, this time for the British. The factory produced nickel-formate for the Allies as well. Besides being used in batteries, nickel was a material required in the production of oil and fat. The Hagen factory, one-fifth of which was destroyed in air raids, was rebuilt by 1948. Expansion continued on land acquired from neighboring firms until the late 1960s.

In 1946, following the loss of its East Berlin factories, Pertrix was refounded as Pertrix Werke GmbH, in Hannover. In 1949, the company changed its name again to Pertrix Union GmbH and began production in a factory in Ellwangen Baden-Wuertemberg in southern Germany. The introduction of portable radios in the 1950s increased demand for Pertrix batteries, and before the decade’s end the Ellwangen plant was producing 15 cell sizes and 50 different types of batteries.

DEAC was helped enormously during this time by the commercialization of a new rechargeable alkali battery. The company had developed the completely sealed, airtight steel-alkali battery in 1933. The new battery did not have to be refilled regularly with water and ended perennial problems of leaking, electrolyte loss, and electrolyte exchange. The technology, developed in the early 1930s, proved highly adaptable. DEAC eventually began producing completely airtight, rechargeable nickel-cadmium batteries. The advent of the microelectronic revolution in the 1970s and 1980s later multiplied their applications a hundred times over, and by the 1990s millions of these batteries were sold for computers, cell phones, battery-powered hand tools, and even the power-regulating elements in satellites. In the 1950s, production at DEAC was split between traditional open batteries and the new sealed ones. Sales increased rapidly, until at the end of the 1960s when a new production facility was built.

Despite the hardships of the postwar years, AFA made great strides during the 1950s. Plants were modernized and expanded; mass manufacture of portable batteries on assembly lines began. The 1950s were a boom time for batteries in the Federal Republic, and the sales of automobile batteries rocketed as prosperity returned. In 1952 the German Railway put over 200 hundred trains powered by AFA batteries into service. New batteries were also developed during this time. Zinc cells were developed for motor devices, such as in tape recorders, that drew relatively high amounts of power. Pertrix introduced so-called “paperlined” cells in 1955. A steel-lined leak-proof battery was developed with the American battery manufacturer, Rayovac. Zinc chloride batteries were perfected in 1957, and towards decade’s end the transistor revolution began creating a huge market for batteries of an entirely different type—smaller, with higher performance and a longer shelf life. By the end of the 1950s, AFA was employing 2,000 workers at its Hannover plant alone.

In 1950 AFA acquired Robert’Schneider KG, a plastic company geared to the production of high quality technical plastics that could be used to house and insulate various battery products. The company, renamed Varta-Plastic GmbH, experimented with various new techniques in the 1950s, including a sinter process for producing plastic casing and new processes for making hollow bodies and tubing from plastic.

Between 1950 and 1960 AFA re-established its international network of branches and subsidiaries, founding or obtaining a financial interest in companies in Belgium, the Netherlands, France, Scandinavia, Britain, Spain, Argentina, Brazil, Canada, and the United States. By the end of the 1980s, subsidiary Varta AG had more than 25 different companies which employed 13,000 employees worldwide.

AFA continued to pursue research and development aggressively after the war. Having established its first industrial research laboratory at its Berlin factory in 1908, in the 1950s the company began a broad program of cooperative research with universities and other companies, such as the American company Rayovac. In 1955, AFA opened a central research and development facility at Frankfurt am Main. The lab was divided into research groups for lead batteries, alkali cells, primary cells, and general research. Within ten years, the facility had become too small and a new one had to be built in Kelkheim, the largest such facility in Europe at the time.

A New Company Name in the 1960s

In 1962, with automobiles one of the most important consumer products, Varta had become the leading name in auto batteries in the Federal Republic. The company’s reputation was so good that the AFA sales department began encouraging the company to use the Varta name for all the company’s batteries. Stockholders ratified the change at the 1962 annual meeting, and AFA’s name officially changed to Varta AG. The change affected the subsidiaries as well. Pertrix became Varta-Pertrix Union GmbH, DEAC became Varta DEAC, and before long the Varta name was incorporated into the names of foreign subsidiaries as well. Gradually AFA, DEAC, and Pertrix brand names were phased out.

In 1968, Varta built a large battery recycling facility at Krautscheid. During this time Varta researchers developed a process in which whole batteries could be recycled without first being torn apart. More than 95 percent of all old batteries could be recycled there, approximately 96 percent of the lead could be reclaimed, and the plant operated well within German air pollution parameters. Krautschied took over all Varta lead recycling and an older facility in Hagen was closed. In 1996, the recycling operation became an autonomous company, Varta Recycling GmbH, within Varta AG.

Further Reorganization

The 1970s were a time of reorganization and expansion for Varta. In 1973 Varta AG became a holding company, as battery production was consolidated from the old subsidiaries Varta Pertrix and Varta DEAC, into Varta Batterie AG. Varta Batterie was comprised of five divisions: Auto Batteries Europe, Industrial Batteries Europe, and three Dry Battery sections, Europe, Eastern Europe and Overseas. The reorganization was intended to streamline decision-making; Varta was responsible for strategic management, while the individual divisions made all day-to-day decisions.

Varta AG was further reorganized in 1977 to consolidate battery-making activities under one roof. Management of activities unrelated to batteries was divested, and Varta AG henceforth consisted only of Varta Batterie and battery-related areas like Varta-Plastic. A new conglomerate, CEAG AG, was formed to oversee Varta’s energy and air purification firms, as well as its mining companies, especially the CEAG Dominit subsidiary. Finally Altana AG assumed the various pharmaceutical, food, and cosmetic companies that Varta had acquired over the years.

In the 1980s, with the growing popularity of electronic cameras, calculators, Sony Walkman stereos, video and sound recorders, and later in the 1990s portable laptop computers, Varta portable battery sales doubled. In 1984 company sales reached DM1 billion for the first time in its history. In its 1991 annual report, Varta referred to the burgeoning popularity of notebook computers, cordless phones, video recorders and video games as the primary market stimulus. Automobile battery sales flattened out for Varta going into the 1990s, ironically because they had become so good in quality so as not to need replacement as often as in previous years.

Varta AG did not swallow up smaller competitors in the 1980s and 1990s as it had in earlier years. It tended instead to form partnerships with other large manufacturing firms. One controversial partnership was VB Autobatterie, an automobile battery producer which Varta and Bosch formed in 1992. The merger was approved by the European Commission over the objections of the German Cartel Office, which believed the merger was in violation of German antitrust laws. Varta controlled the company: it owned 65 percent of VB Autobatterie stock, a Varta board member was its chairman of the board, and the chairman of the VB Autobatterie Aufsichtsrat was Varta’s own chairman. By 1995 VB Autobatterie had about DM850 million in sales and employed about 3,500 people. At the end of 1996, however, it closed its factory in Berlin, electing to concentrate domestic production at its other German location in Hannover.

Varta, Duracell and Toshiba worked together often during the 1990s. In January 1992, they announced the formation of a company to produce metal hydride rechargeable batteries. In 1996, the three companies built a plant in Melbane, North Carolina, that employed 500 workers, although a year later that facility was jettisoned. The three companies were awarded research grants by the U.S. Advanced Battery Consortium (USABC) for the development of lithium-ion to be used in electric vehicles, and received a $14.5 million contract extension from the USABC in 1997.

Unexpected Declines in the 1990s

After strong performances at the beginning of the 1990s, including a 24 percent increase in earnings in 1991, Varta’s fortunes went into decline in the mid-1990s, years that proved to be among the worst in Varta history. During this time, automobile battery sales dropped by DM100 million while costs of lead rose steadily. Sales in industrial batteries plummeted so badly that Varta finally sold the division to a British group in 1996. In 1994 the company reported losses of DM56.4 million, followed by a loss of 56.4 million in 1995, the worst performance in company history. Some analysts noted that competition among battery manufacturers created a high degree of selectiveness among the consumer public, which demanded high quality at a low price; when lead prices jumped in the mid-1990s, it was harder for Varta to meet those demands.

Instead Varta focused its energies on consumer batteries. In 1996, it increased its holdings from 30 to 50 percent in the Brazilian battery producer, Microlite S.A, a company which had $250 million in sales that year. The purchase made Varta the largest supplier of consumer batteries in South America.

Varta recovered somewhat in 1996, and continued to consolidate its operations. The company closed its Singapore button cell production facility in late 1997 and transferred the work back to Ell wan gen Germany. High-speed machine production of batteries controlled by trained specialists was deemed more important than a inexpensive Asian work force. Manpower in the highly-automated environment was not at a premium, and it turned out that 500 Asian workers earning DM8 per hour cost just as much as 100 earning DM40 per hour. The company’s factory in Batam Indonesia across the strait from Singapore remained in service, however.

As 1997 ended, Varta’s financial picture was looking brighter. Worldwide sales increased from DM474 million to approximately DM2.5 billion, and continued international growth, particularly in Latin America, boded well for the battery maker. Moreover, the company saw an increase in domestic sales, particularly among its portable battery sector, which increased by 32 percent and broke the DM1 billion mark for the first time ever.