CMD 2020

Nov 26, 2020

Slides

I would like to hand over to our CEO, Kevin. Kevin, the floor is yours. Thanks very much, Uli, and hi, everybody. It's really great to be here. It's nice to see you. I recognize some faces, not everybody. I guess I would have to say for the Americans that might be on the line, Happy Thanksgiving. Hope you have a great turkey planned and all that sort of stuff. Let me just kind of say for those of you that don't know me that I haven't met yet, I have to apologize to you upfront. First of all, I speak fast, so I know I need to slow myself down a little bit. Also, I tend to mix Americanisms with Britishisms and you never know what might come out. So bear with me. It might be interesting. It might be a laugh. Who knows? We'll see how that goes. Okay. So first of all, let me just talk a little bit about what I hope we can accomplish today. And I know that most of you have already seen our press release, And hopefully, you're quite pleased with that result. My objective here today is actually talk to you a little bit about our strategic focus, And I want to confirm to you and hopefully prove to you or show you demonstrate to you that we're on schedule, on track to the program that we put in place in So relative to the macro environmental situations that are going on. And then I do want to take credit for the team for what they've been able to accomplish in 2020, I've only been here 3 months, and it's been a drink from the fire hose, but it's been a real pleasure, and I'm happy to be able to the results on 2020 or at least the way we think 2020 will turn around. And then I do want to set the stage about what 2021 and what it might look like beyond for the company. And then I'll wrap up with 20 20 year end results. So that's kind of the flow of the presentation. My To start on this is really going to be to remind you what our core competencies are as a company and then maybe take a little bit of time to talk about our markets. So first of all, I have to say that we need to recognize that this company, Comet, In a very unique or relatively unique situation, we have the privilege and the fortune to be In a situation we have diversified products in diversified end markets with very diversified and loyal customers, And it's because of those three things we actually are quite resilient to what's been going on in the macro environments of industry. Now I'll talk a little bit about that later, but it's quite fundamental to how well we've been able to weather The current pandemic and the downturns that are quite historic relative to the automotive and the aerospace sector. So I want to remind you, basically, if you think about what is common, what's our takeaway, well, we're an RF power company and we're an X-ray company. That's our core competence. That's what we leverage. That's what we take to the marketplace. Yes, we have 3 divisions, 3 pillars to the company. And as I already mentioned, we have 4 primary end markets. The biggest one at this point is the semiconductor and the electronic space, But of course, we do participate in the automotive, the aerospace and the security sector. So I think those are the areas that we can leverage upon and we should make sure that Focus on as a company going forward. Now our biggest I've been asked by You and many others, what are the real challenges at Comet? What are you really concerned about? And I usually answer at a bit of a macro view of things. Our biggest challenge is to turn this company from a good company to a great company, To a high performing organization, now in the center of this slide, you can see the boost initiatives that we Put in place in 2019, so boost growth initiatives, boost culture initiatives, Boost efficiency initiatives. These were all the things that we said that we're going to go embark on as an organization and as a team. But surrounding this, what I've tried to do is kind of maybe bring that a little bit to a little bit more importance. And if you look at the upper right hand portion of this slide, The outside in view. This is one thing that we as a company must really focus on. In other words, outside in, what do our customers want? What do our customers need? How do we help them be successful? Not what we believe they need, not what we think they want, but we need to actually understand exactly what they need from A company like Comet to be successful. And it's that customer intimacy that is extremely important. And we've been spending quite a bit of time internally talking about that concept. In the lower left Of this slide, you can see this whole concept of being faster, increasing our sense of urgency, Approaching every situation like it has to be addressed today, and maybe I can make that A little bit more interesting and say perfection in products isn't necessary. What's good enough to get into the marketplace is. And so sometimes we spend more time trying to develop perfection as opposed to getting into the market. And so we've got quite an interesting challenge to be talking about how do we get to market faster. And then in the lower right of the This whole concept of empowerment. And what we need to encourage our team to do is to take risks At the lowest level possible, make decisions at the lowest level possible. We need to empower our team to make those decisions. And we have to be willing to live with the risks associated with that and to recover if there's an issue, But then treat that as a learning experience. This is all a part about growing up as an overall organization. And I have to say the company is well on track to accomplishing these primary growth areas. But it's what we're going to be concentrating on over the next multiple years. So that kind of gives you a fabric about what I see is happening in the company and where I think we're really trying to spend our Management time and effort. But now let's kind of take a step back and let's switch to and talk about Our markets and what they mean to us overall, and I hope you find it a bit interesting. Now first of all, there's no doubt that the pandemic, the COVID-nineteen pandemic has accelerated the digital transformation of society, And that's what's on the headline of this particular slide. But let's put it into reality. We can't travel. We're having meetings like this in 2 d, which by the way is interesting, but I missed that whole 3 d interaction for sure. But if you think on the left hand side of the slide, moving to the right, the sheer amount of Data that's being transferred because of ultrafast broadband demands, videoconferencing, the rise of the data centers, Gaming, online gaming, all of those areas drive the use of silicon. And if you go across this page, even to the far right, the use of remote health care, doing diagnostics Literally, in a 2 d environment, has been growing in an incredible way. And what that ends up meaning is that there's more dye, there's more packaged dye, meaning the use of silicon It's becoming more and more pervasive to help underscore these industry transits. But it means also then that there's going to be more demand for plasma based processes, Which drives our team in the PCT, the Plasma Control Technology division, But it also increases the demand for inspection processes. So that means IXS, the industrial X-ray systems team, As well as iXM, the Industrial X-ray Modules division, are also going to see demand for enhanced inspection processes, All driven by this demand, this absolute thirst for silicon. And that then translates into wafer fab equipment spending. So if you're having more dye, more packaged dye, more silicon, then by definition, there's going to be a higher and higher demand for Plasma Based Capital Equipment. And on the left hand side of this slide, you could see oops, is my pointer working? Oops, let's go this way. Try that. All right. Sorry, how do I go back here? There we go. So on sorry, guys. On the left hand side of this slide, basically, you could see that in 2020, most of the industry experts I believe that the wafer fab equipment spending is going to grow anywhere from 4% to 10%, depending upon which market soothsayer you talk to. In 2021, those same market analysts are saying that the industry is going to grow, wafer Fab equipment spending is going to grow anywhere from 5% to 8%. Now I would say disregard 'twenty two and 'twenty three because the honest answer is we don't know, But you can see that the momentum and that the feeling is that there's going to be continued growth in wafer fab equipment spending through 2023, We're seeing drives different scenarios for us as comment for 2021. So this is the first I'm going to give you the hints of what we're thinking about 2021. And we basically are driving 3 different scenarios. One is that 2021 wafer fab equipment is going to grow by about 5%, and probably the biggest driver on that is Going to be China continuing its investment in sovereign capability and the demand for high performance computing. Our downside scenario right now for wafer fab equipment is that it's going to perhaps going to be flat to 2020 or off By as much as 5%. And really, that's only going to be driven by whether we've got a worldwide economic problem or the China investment stalls. And then, of course, we have an upside, which is, for 2021, approximately a 10% increase in wafer fab equipment spending. And I have to say there's not a whole lot of rocket science here. If you look at the results that have been reported from the big capital equipment Companies in the industry, they're all projecting something that's in this range for 2021. So that then drives what we think is going to happen. On the left hand side of this slide basically shows you on the red Is RF power subsystem spending. And you can see that, that line directly overlays pretty much Exactly with wafer fab equipment spending. There's nothing scientific about that either. You'd expect it to be the case. But the important thing from a comment perspective is this slide that's on the right or the chart that's on the right hand side. And you can see that historically, the spending for RF power Subsystems was roughly 1% of wafer fab equipment spending. And then you can see that starting in 2011 That ratio started to increase to the point that in 2014 or 2015, the actual spending In RF power subsystems has increased from 1% to a net range of about 1.6%, A 60% growth in RF frequency subsystem spending. Probably, that is being driven by the adoption of NAND memory in the industry, and it pretty much correlates to that exact inflection So that kind of tells you that we're expecting a higher spend in RF Power, And that, of course, drives primarily our PCT organization revenue lines. Now turning to our traditional markets, some of our traditional markets, primarily the automotive space and the aerospace sector. Look, there's no question these have been challenged sectors, but I do have to emphasize there are some bright spots. There are some areas of growth, and I probably should have put it in a bigger in bigger font, but you can see That we're in the automotive space, we're already starting to see spending in China in the automotive sector, whether or not it's passenger cars Or for trucks or for light vehicles, we can see that, that is spending is actually coming back almost to norms. So we expect that we'll see business coming from China, particularly for IXS and for IXM. But the other bright spot is over here on the left hand side. There is still pervasive spending and development and sales of EV Vehicles. And to a lesser extent, more investment in autonomous drive vehicles. Again, those are, of course, more silicon, but it's also for inspection of tires and wheels and other applications like that. In the aerospace sector, I have to say that it's a bit more depressed. We Don't expect a massive change in the industry in 2021 or 2022. Perhaps the high point for this will be In space, space services, space exploration and perhaps in the defense arena. So the way we think about these sectors is that 2020, we've reached the bottom. If you think about a bathtub curve on what the shape of this business looks like, We probably have reached the bottom of that curve. And so the businesses are going to Continue to maybe bounce along that bottom for a little while, and we'll start to see it slowly recover late in 2021. So we think that we've understand the sector. We think we understand what our opportunities are, And they are numerous, and we'll capitalize on them as well. So hopefully, that gives you a bit of a flavor for what we see right now is So now I'm going to take a breath, and I'm going to Change a bit and let's talk about what's happened in 2020. And I'd like to do a deeper dive in that for you so you can really get a fabric for a sense of the fabric for what the team has done. And I have to say that they've accomplished what we've accomplished despite COVID. And a lot of you all have asked me, how has COVID impacted Our business. And other than the macroeconomic issues with automotive and aerospace, I can say that our supply chain has been robust. We've been able to capitalize on our sectors, and we've been driven by the semiconductor space. So this slide is a very busy slide. I get it. And I don't expect you to read it, and I'm not going to present it in its entirety, but there are certain points that I think it's really important that I bring out. First of all, it's the top line under the Comet Group, this whole idea of divestment of the e beam business line. And I remember that was a very hot topic when I first came on board, a lot of questions about e beam. And of course, you all have seen the announcement that we've signed A deal to sell e beam to our long term partner, and you will have seen from the press release, we expect that to close this month. So we will have sold this business off as we've anticipated. The second thing that I want to point out is that the company has done Extremely well in limiting the COVID impact to the company. We've moderated our business lines for financial success, And we've made sure that we protected the health of our staff and, of course, the health of our customers, but we've been really, really driven to make sure that We stay safe across the board. Under X-ray Systems, the lower left hand portion of this box, I'm going to talk a bit about optical research systems. So I'll just say, yes, we have signed a deal to purchase ORS. I want to tell you about why that's Important to us in a minute. But more importantly, probably is that this division has not just Transformed its business to adapt to this current market environment, but they've also been able to launch new products In this downturn, and one of the things that's most important in the industry or in any industry is that in a downturn, you want to launch your new products. You want to get them out into the field. You want to get them proven. You want to get the customers pulling them. You want to know that they're qualified so that when the ramp comes and it will come ultimately, you're now positioned with market share And a new product that's been proven out. And I can say that IXS and IXM here in the lower right have done exactly that. In a downturn, they've launched brand new products. And for a company of our size to do that, I think, is Quite impressive. And I also would say that I think our competition in these areas probably have had some challenges in making that happen as well. So if we play our cards right, we will be expanding our market share position because of these new product launches. And then lastly, up here in the top box with the PCT organization, I think there's been so much Influence and so much interest in making sure that we have the production capability to satisfy our customers, and I'll show you a few points on that in just a minute. Okay. Talking about comment at the group level for just a minute. I already mentioned that, yes, We have managed to divest the e beam business. It will be closing this month. So this is your formal announcement that it's definitely happening. In the lower left, it's old news now, I know, But in the lower left, you can see that the team delivered very good first half results ahead of Our own expectations at least that we set in the marketplace. So good growth in sales, good EBITDA margin, not great EBITDA margin, Good EBITDA margin versus where we were in half one of twenty nineteen and very good free cash flow and equity ratios. And as I've told all of you all in all of my meetings with you, this trend was going to continue. And of course, you've seen the You've seen the projection that we've given you for 2020 year end, and it definitely has supported that, that trend was going to continue. As a company, we're investing in our people. This is all about the cultural change. We have a program going with IMD In Lausanne, and I can say there's 60 people that are charged up. They're going to be our ambassadors to change being change agents in the company, And it's quite exhilarating to see that happening for the team. And then lastly, in the lower right, It's a privilege to have hired Lisa Pataki as our CFO. You all have seen her. Many of you have met her already. She's a great addition to the team, and I feel very fortunate to have her as my CFO, and I should thank her openly for joining the team. Now coming to maybe some division specific comments, and then I'll be approaching a wrap up here in a minute. So PCT. PCT has done an outstanding job expanding its production facilities. And It's irrespective of whether or not we're talking about the new facility in Aachen, Germany, which is a highly automated facility to produce RF generators, expanding our overall vacuum capacitor production here in Vermont, Very critical to our biggest customers for sure. And we've had several strategic wins in the United States, And we've been growing market share in China for our RF Matchboxes. And lastly, as most of you all know, we have invested and have actually successfully Started to deliver products out of Penang, Malaysia, only 10 months after the decision to go to Malaysia. And this particular facility is within a walking distance of our primary Tier 1 Customer, so what I thought I'd do is I'd take a quick deviation here and hopefully show you a video Of the Penang facility, so that you can actually see that it's real and not vaporware. Looks great. And we actually had our largest customer come and visit that site, and They were very quick to praise this facility and to praise what they see as the opportunity to partner together even more fully. So I think it's a great accomplishment, and the team in Malaysia and the PC team should be quite pleased with this. And I'm excited to finally go there one day and get a chance to see it myself. Now in terms of the Industrial X-ray Systems This has probably been the most difficult time for that division because They've been facing an absolute historic downturn in the overall market that they serve. And as a result of that, this team has had to go through a significant realignment and to transform that business to be The business that it is, not the business that we want it to be. In other words, we had to put in place A significant cost reduction program to make it put it in a position to be profitable for the foreseeable future. And I have to say the team has done an outstanding job executing to that plan. It's been painful, but they've done an extraordinarily Good effort there. On the other hand, what I have to say is that The team has done a great job in terms of a new market launch. We've seen our first revenue coming from the UX20, Which is used for X-ray inspection in multiple sectors and also for the FF85 for computed tomography Inspection, so we've seen new products get launched out of this organization even while going through a redesign of their overall business. Now I already mentioned ORS, and I probably should take a few minutes to talk about that. ORS is a really significant opportunity for our business, Because it's our first foray into AI, machine learning and actually deep learning applications. And I'll talk a little bit more about this later, but it's essential that you understand that this product or this division Will contribute to us in several different ways. It's important for IXS, yes, but it's also going to be important for the PCT and the IXM team, And I'll talk about that in just a few minutes. In IXM, I think probably the biggest thing I Say here is that this team launched 3 brand new products during the course of the last 12 months or so, the Ion module for security application, The meso focus for non destructive tests and the Pluto product, which is really for the electronics space. And they've accomplished this, again, during a downturn and has positioned, I think, us to be quite successful. And when I talk about Our total available market and our served available market, these product lines actually factor into that quite substantially. And I can also say that we're expecting to see reasonable revenue from these product lines in 2021. So first adoption, we've got 10 customers for the ION. We've had multiple sales of the Mesa focus, And we're already seeing Pluto units being pulled into the electronic space as well. So great early results there. Now I mentioned what I think is going to happen or I Pretend of what's going to happen for 2021. And I thought what we try to do is put this in numbers. And This is probably the most complex slide that I'll show today, but I'll try and make it as simple as I possibly can. On the top of this slide is Comet's total available market. In 2019, it was roughly $4,100,000,000 And by 2025, most of the estimates would indicate that The TAM for comments businesses would be approximately $5,100,000,000 with the biggest growth in that sector coming from the semi and electronic space. Going from about 30% to nearly 40% of that $5,000,000,000 So roughly $800,000,000 or 900,000,000 In growth, in TAM between 2019 25%, 3%, you look at and say, well, that's kind of sleepy, isn't it? Well, I think it's more important to think about our the compounded annual growth rate for our served available market And really how the shape of our served available markets is changing. And you can see that our served available market in 2019 was something less than $800,000,000 And we expect that it actually is going to be, by 2025, almost $2,000,000,000 in size. And that growth is primarily going to come from the semi and electronic space, and it's going to be roughly 40 And growing to nearly 2 thirds of our potential served available market. That's not just coming from the launch of The new RF generator from PCT, of course, that's part of it. It's not all of it. We're also seeing growth and expect to achieve growth in our sort of available market because of the products that came out from IXS and from IXM. And this really reaffirms a strategy that we've been focusing on for the last year and a half. A year and a half ago, we announced that we're going to do a Student body left view and start concentrating on the semi and electronic space because those are really the growth Sectors that we want to be involved in, to the point where we are going to be quite conservative on R and D investment In anything that has to do with aerospace and automotive, it has to be a great business case to go after that. And these bullet slides that you or bull's eye slides that you see here really reinforce that. And you can see how the business is going to be changing because of it. We're going to be predominantly a semiconductor focused company We're somewhere around 70% of our revenue coming from that end market, while the rest of it, 30% or so, is going to be coming from automotive, Aerospace and even security for the future. So that's how the business is being shaped, and it should give you a high degree of confidence that Assuming we execute, assuming we do what we say we're going to do, then we will be ultimately successful In achieving our growth rates. So let me just do 2 or 3 more comments Around that around those opportunities. The first primary opportunity, of course, is in PCT. And this is a scenario where we must get Our RF generator out into the marketplace this year. And I've told many of you before that we expect first revenue is going to occur For these products in 2021, with a ramp in revenue in 2022, the way that happens is that we have to get Qualified in a Tier 1 and into several of the Tier 2 equipment manufacturers. And hopefully, on the left, you can see the reason why. There's one company that spends primarily nearly 50% of all spending In RF applications in the industry, but if you aggregate all of the Tier 2 companies together, And there's not that many that are relevant. The Tier 2s are bigger than the other 2 large capital equipment providers. And I think all of you all can name who number 1, who number 3 and who number 4 is. But the Tier 2s tend to be smaller companies. They're early adopters. They qualify quickly. They have a need. They get ignored by the competition, And they would tend to be companies that want to do business with companies like Comet. Also, the worldwide environment, Particularly what's going on in China offers an opportunity. There's a lot of Tier 2 companies in China that want to get away from using American based technology. We're a Swiss company. We're a Swiss European company. We can easily sell into those marketplace and Be shy about it. So this is not a change in strategy, but this is enhancement to the strategy that we've had in place. Now there is a qualification period, takes 9 to 15 months to get qualified in the Tier 1s, 6 to 9 months in the Tier 2s. That's how we've got to figure out and plan for our ramp in this business. In terms of IXM, Well, I've already mentioned the new products that they've come out with, the Maser Focus, the Ion, the Pluto products. But what this does is this actually opens up a full product portfolio that covers the range from semiconductor and Perhaps electronics inspection all the way through the security sector. We have a complete product portfolio to address Most of those industry sector needs. That's a big win for us. The second one that's going to happen is we're going to start also looking at transferring At least one product line to Panang, the same facility that I showed you the video of earlier, we're going to capitalize on that as well and move products We'll move some products to be manufactured there. We'll get a lot of benefit from a cost of goods sold perspective, and it's the right thing for us To go do as an organization. Now to IXS, The team is in the process to be through their transformation of the business. It will be profitable in 2021. We're confident of that. We know that it's going to be successful in that respect. The product portfolio itself has been reduced. We're actually doing focusing on our core, focusing on where we can be successful. We've gone from something like 7 platforms down to 3 major platforms, and I think we've reduced our product portfolio in general from 20 7 down to honestly don't remember the actual number. You can ask Thomas that question when we get to the panel. But That team has done everything to do to skinny down to focus on higher volume opportunities where we can actually generate A reasonably good gross margin. And then I've mentioned ORS at least 2 times already, maybe 3 times in this presentation, And I need to kind of give you a vision on this. And for those of you all that have been in the industry for a while, By the way, I just said y'all. I don't think I said it the whole rest of the day. Y'all is you all. That's Southern Virginia talking. Anyway, so the ORS acquisition, I need to share a story. Some of you all know this story from your experience in the industry. Many of you may not. There's a company out there called KLA 10 Core. And 25 or 30 years ago, KLA Tencor came out with a product that was used to do inspection of dye. It's metrology and inspection. And at the time when that came out, Really, we didn't know how to use the data. We didn't know what that data could be used for. Our customers didn't know what it could be used for. All we knew is that the KLA product was seeing a potential problem and then the 4 plasma guys had to go figure out how to fix it. And We used to sit there and hope it wasn't our product that was causing whatever that defect is. And it took years years to get of use case work To get to a point where KLA is not a metrology company. They're a company that uses Data, big data to reveal yield compromising problems. ORS, this acquisition has the same fundamental possibility for us in IXS. We can now look for packaging problems, process yield problems, Areas where our customers are not able to actually achieve yield, and we can perhaps predict these problems And predict the advent of these problems and steer a change. In other words, ultimately, we could be selling yield improvement. That's like the grand vision of this ORS opportunity for our customers. For comment, We can use the same sort of data analytics, big data to assess our own production environment, or we can use it as a package of services That we sell on the PCT division, for example, to its customers. So this is the first big step that we've taken Into the real big data arena. Now that's a long program. That's a long runway for us to go after. But it's the vision of where we think ORS can be the fundamental building block to make that happen. So hopefully that gives you a taste of What is ORS and why did we do it? Right. I'm coming to the end of my Comments. And basically, what I want to say is 2020 is going to be a very good year. It's been a year of really good progress, And we're going to continue that progress. It's all going to be about execution in 2021, 2022, 2023. And I can firmly say that the strategy that we have in place is absolutely spot on, and we're on track to it. And I already mentioned that what we accomplished in the first half of this year has continued into the second half as Lisa and I promised that it would. Yes, we've had great demand in the semiconductor space. Fortunately, that's been able to offset some of the softer markets, But there are some areas where we'll see growth. We will see growth in China, and we'll take advantage of that. And before I finish that last statement there, let me turn to the right here. Our guidance for the end of the year is that we will generate Between CHF 385,000,000 CHF 395,000,000. Definitively, we will do that. Our EBITDA margin, we are expecting is going to be between 13% 14%, so going from 4.8% to 10% in the first half to somewhere between 13% 14%. Lisa and I have been Taking a conservative approach on this, we think that this is a reasonable range to project at this point, And I'm very confident that this is where we'll end up in the at the end of the year. And of course, we will be publishing our results In February of 2021. Okay. For 2025, We're still confirming our ambitions that we announced in 2019. We're going to achieve an approximate 15% Per year CAGR or CAGR over the period, our EBITDA margin will be At least 25%, perhaps in excess of that, at least it better be in excess of that, and a return on capital employed of approximately 30%. And I can comfortably say that we're well on track to achieving those goals. Hopefully, that gives you a big taste What's happening, a comment and gives you a feeling for what I see for the business and where I think the team sits.