ODS Business Service Group, Europe’s largest CD/DVD replicator, has restructured its operations in the wake of the insolvency of its flagship Dassow plant in Northwest Mecklenburg, Germany.

The district court of Schwerin province named an administrator to oversee the insolvency proceedings that left the plant’s 1,200 employees without pay in September. The local government employment agency will provide the entire staff with three months of wages totalling €5.4 million.

ODS Optical Disc Service GmbH was established in 1997 in Dassow, in a deprived area of former East Germany, helped by German government development grants, estimated at €48 million, and European Union subsidies. Total investment in the Dassow operation is reported by the German press to exceed €130 million.

In March 2006, ODS was at the centre of fraud allegations regarding utilization of these subsidies which led the Finance ministry to withhold some €12 million of tax refunds to the company while waiting for the findings of an investigation.

An ODS statement attributes the Dassow plant insolvency to cash flow problems resulting from this on-going investigation that has now come to an end. While the government has yet to confirm it, ODS says it is cleared of any wrongdoing or other criminal activities. The Finance ministry has closed the case and the tax authorities have proceeded with repayment. “The most difficult chapter in the history of the company is over,” says the company.

While ODS is keen to insist that jobs of the Dassow staff are secure, union representatives from IG Metall for Lübeck-Wismar are more cautious. They note that all the staff has been placed on a reduced work schedule. Also, part of the Dassow production has been moved to ODS’s plant in Poland where costs are lower.

Critically, job security depends on a convoluted restructuring of the ODS Group. Earlier this year, the group – with corporate headquarters now relocated in Hamburg – divested its ODS Optical Disc Service GmbH, renaming it Vermoegensgesellschaft DVD Dassow GmbH (VDD). While the managing director has tended his resignation, most staff are still employed by VDD, which keeps machinery, equipment and "related financing."

ODS says it instigated this divestiture to protect the other activities of the group from adverse consequences resulting from the various claims of grants and subsidy fraud as well as legal battles related to licensing and royalties issues. The company underlines that the insolvency relates only to VDD "which is not part of the new ODS Business Services Group." "All other manufacturing companies within the group, in particular the Dassow-based ODS Optical Disc Service Europe GmbH and the ODS Optical Disc Replication GmbH are not subject to the insolvency procedure."

Under the protection granted by the district court of Schwerin and the supervision by court-appointed law firm Brinkmann & Partner, VDD assets are to be taken over by and the personnel transferred to the other companies of the group. “That is if everything goes according to plan,” insists the IG Metall union.

"With this, a very complex restructuring will be successfully concluded despite the difficult background of investigations, licence disputes and tax audits," says ODS CEO Wilhelm F. Mittrich. "At the same time ODS has adapted to radically changing markets with new products such as HD DVD and EcoDisc. CD orders are declining and customers now demand complete supply chain solutions including international distribution rather than just manufacturing of discs."

ODS boosts overflowing order books. "Despite working 24/7, the company still has to subcontract substantial quantities to five competitors in Europe and the US. Manufacturing orders for customers who do not have fixed volume contracts with ODS are presently being turned away," says the company.

DVD Intelligence has learned that a French replicator has received a "sudden and unexpected" multi-million DVD unit order from Universal. In November 2006, ODS Optical Disc Service GmbH (now VDD) acquired Universal Pictures International’s pan European DVD manufacturing and distribution business from Technicolor. It is unclear whether this Universal contract in France is the result of the disruption at the insolvent Dassow plant.

The ODS Group boasts the largest CD capacity in Europe with 1.7m units per day and the third largest DVD capacity with 1.25m discs per day. The group operates in the United Kingdom, France, the Netherlands, Italy, Spain, Portugal, Poland, Hungary, Denmark, Sweden and Romania. The number of employees has grown from 1,500 to almost 3,000 this year alone. The company started with a staff of 40 back in 1998. 2007 turnover is expected to exceed €300 million. It was €195 million in 2006.

Lately, ODS has introduced the environmentally-friendly EcoDisc, developed and patented by its in-house R&D facility. Produced at the Dassow plant, the EcoDisc will be cover-mounted on a national newspaper in the UK this month for the first time.

ODS has also invested €9 million to set up next-generation HD DVD production lines, already put to use for a large Hollywood studio hidef disc contract.

Story filed 19.10.07