CMD 2019

Nov 21, 2019

Slides

Good morning, everybody. I'm excited to see so many faces. Of course, many of you I know and you know me. Pleased to have you here today. I hope you enjoy this place here at the airport. It may be easier to travel. And I assume that most of you have been in Flamat. Have seen Comet before. And if you have to wish to see once Comet, there's another opportunity, of course, to do that at another time. So I'm happy to give you first indications on our strategic road map as well as our plenty of initiatives that we have started to make this company more successful. I'm now in come here for 6 months. So I made my first statement after 100 years 100 days, sorry. And now it's almost 200 years, so it's a good timing to give you my impression. So I know much about this industry. I know somewhat about Comet. But people here, especially my division heads, they know much more about the company because they have been with the company for several years. So don't forgive me if I cannot answer all the questions, but we will have the division heads here after my introduction. And you can ask them questions and make a short introduction just with 1 or 2 slides, not more. So we are not covering you with slides today. It's very limited. But I really ask you to ask questions. So we did not include certain things where you may have questions because you should ask the question yourself. You see here that picture visualizes actually what we are doing. We are in the data management regardless for what it is being used, data, data, data, this is what counts for us. And in the past have seen that ComEd was always connected to the memory business. I cannot understand why that is. We are semiconductors, and semiconductors has 9 different 9 to 11 different segments. So there's memory, there's logic, there's RF, there's communication. There's so many different things and all need our technologies, not only memory. So that's why this picture has been chosen. I also do not have to convince you anymore on the long term development of the data economy. This is continuing regardless on cycles or whatever happens between China and the United States, if the chips cannot be produced in China, then they go somewhere else. It's easy to these days to move manufacturing somewhere. So regardless of the geopolitical issues, we are convinced this market is poised to grow. Might be interrupted a little bit because of surprises what we had with these tariffs. But after a while, it continues the way, and we are back on track. So we believe in that long term development, there's no end in sight, and that's our playing field here. That's the playing field to, I would say, and I come back to those numbers again, to 70% of our business is going to be in this area. So the procedure of today, I'll make the introduction, as I said and afterwards, showing you also the initiatives that we have started to make the company more effective are growing. After that, as I said, the division heads will be here and give a short introduction, and they are open to questions and then to conclusion. So it's a straightforward way how we go through the day. Just to start with, what we did and we are not doing anymore and we do in the future is on this picture. You see on the left side where we come from. We had 9 different, let's say, segments markets, market segments, so to say, and we had the 3 different technologies, RF Power, X-ray and e beam. And this has radically changed that you can see on the right side, e beam is not part of the portfolio anymore, although it's still in the company, and we still are negotiating, and we may play a part even in the future, but it's not the core anymore. You should also know that, of course, e beam has a technical relationship with X-ray. It's not X-ray, but it's not totally offline. So it's not a technology that's totally different. So it's still the e beam technology is part of our thinking as well in maybe totally different ways. So don't see that as a technology break from what we have been doing in the past, but we are not following up this business model that we had up to now because it was not successful. 15 years of investing much money that was missing somewhere else cannot be continued. You see the 70% in the middle. 70% simply means that in RF Power as well as X-ray, and this refers to X Ray modules as well as systems, is going to be in semiconductors, by far the biggest market, by far. So we're going to be focusing on semiconductors, but do not neglect, of course, other interesting markets. Thomas from Hamburg, he always says it's bycatch. We do that business, but it's not the real core. Our ambition is very clear. Trust, partners, our stakeholders, stakeholders, of course, customer, employees, shareholders. But most important factor is the customer. The customer needs trust. Trust is something you cannot make a contract from tomorrow on. We are trustful. You have to earn trust. And this is an extremely important factor. I can give you a little anecdote. We were 2 weeks ago in the Silicon Valley with the whole Board, Board of Comet. We visited our customers. And it was a great experience for most of the board members, but also for our customers. 1 customer, we had about 7, 8 people from the top management with us for 1.5 hours. And at the end, the guys said, listen, usually we spend 10 minutes for a supplier. You're very exceptional. We spend with you 1.5 hours. That says everything. Does not mean that we have we cannot improve, but they believe that we are a company that is worthwhile to be supported and working with. Technology leader is clear we have leadership, but the leadership can be expanded. And collaborate with our customers is extremely important because what we discuss with them today it's going to be a product maybe in 3 to 5 years. So if we miss that kind of collaboration at the very early stage of a new product from our customer. We miss the revenue for 10 years because once you're not in, you lose. Once you're in, you win. So this is an extremely important point. And then finally, we have to grow faster than the market. Sustainability is very important. Sustainability, of course, is the catch of the day, if you want. But it's really rushing into the semiconductor industry. So to be sustainable, to be conscious to the environment and all what being discussed at the moment with climate change, we believe we are a solution to the problem and not the problem itself because without data, you cannot become more effective in the world. You cannot effectively manage electricity, for instance, or any other things. Just think about cars, electrical cars. So this is our ambition. We are, of course, already a global company with facilities in Europe with Flammat as the center of the activities. Although we do not have much manufacturing in FLAM ART even these days, we have we do specialties, we do new product introduction, we do a lot in R and D certainly, but production happens already in the United States, in San Jose as well as in Germany, we have a company in Denmark. We have a production facility in China, in Shanghai. We have technical sent us in Korea. And now we have to expand there. I will come back to that a little bit later in Asia because 70% of all the products we produce are finally used in Asia. Although they go first to the United States, they're going to be built into the systems. The systems then are moved to Asia. So we have to be more engaged in Asia for many reasons. Here you see the again, the pure semiconductor industry. This is these are semiconductor devices, what you see here as a market. And this the average growth rate is 7%. We say 7.3%, but give and take, 7%, maybe 8%, it's continuing. Now what you cannot see here are the cycles because it's an average. It's a Kaggle, and the Kaggle does not show a cycle. So the cycles, actually, I don't care. I don't care on the cycles. Of course, you care. That's clear. And the problem is that when the cycle goes down, everybody sees the end of the semiconductor business. That's not the case. So we have to manage it. And here, we have to really improve because the first half twenty nineteen had a sales reduction, same as, for instance, VAT, but the bottom line was hit very, very hard from at Comet compared to VAT, it is something we have to correct. But there's no reason not to make money when you're in a downturn. You see here the 2019 2018 to 2019 what happened with this drop of sales simply because there was too much inventory in memories. You see the I'm not sure where this works. So you see the upturn here. So this was capacity built and products produced, and there were then finally inventory. And what happened here is the inventory correction, only in memories. All the other devices, they were okay. And they actually triggered the crash that we had in the industry. Therefore, it's going the whole thing is going down, but it was just memory. Now it looks like that inventories are going to be corrected, and average sales prices of 3 d NAND are increasing again. So the indicators are going into the right direction. Also interesting to see that the RF power subsystems, so the subsystems is everything that's below the equipment. So Infikon and VAT and Tifers and Edwards and ComEd, belong to the category of subsystems. You may know that. But it's interesting to see that the growth rate when you compare electronics electronics, dollars 2,200,000,000,000 market. So all the smartphones and whatever device you have, TVs, electrical cars are in here. Then semiconductor devices, wafer fab equipment. You know that the critical subsystems where we belong and then the RF power supplies. You see that the growth rate of RF systems is the highest with the exception of 2 years or 3 years. But mostly the growth of the plasma RF plasma is growing fast. The reason is because it's a critical process. There are 2 main critical processes to make semiconductors is lithography and plasma. See, these are the real critical things because plasma it's so difficult to keep in keep under control. I always compare that with a balloon. If you hold a balloon with a helium field and you try to keep it quiet, it does not move at all. You will never do that. It's always moving a little bit in the draft and then it's moving. But in plasma, in a system, it has to be absolutely stable. That's the trick and that's the know how that we can provide. It's absolutely critical for yield and performance of the devices. The market is large, is really large. You can see here top down, it starts with electronics. Sorry, I cannot do that everywhere here. But you see on top, it's electronics, 2,100,000,000,000 dollars is the entire semiconductor market. Whatever has chips inside smartphones, GPS, engine controls, whatever, is in here, TVs, etcetera. Semiconductors are the devices, the semiconductor devices only. There's nothing else in there. It's SEK 407,000,000,000. The front and back end equipment market is SEK 68,000,000,000. So we just talk about 1,000,000,000,000,000,000. It's huge. The critical subsystems, again, VIT, Comet, Inficorn and so forth, SEK 13,600,000,000 And our market here in RF power supply and X-ray modules, not the systems, only the modules, is SEK 1,200,000,000. So if you want to go from SEK 300,000,000 or SEK 400,000,000 up we can go up to SEK 1,200,000,000 based on this year. And of course, it's then growing by approximately 10% per year. So in the front end, in the equipment here, we also have the X-ray systems from Hamburg, they're placed here, whereas the subcomponents are placed here, just to give you a feeling. So this is 70% of the total market when we compare that also with the non semiconductor business, which is mainly aerospace, automotive and security, we try to find out the number, but it's very difficult to get a number that is trustworthy see how big this market is. So the number I can give you is between $2,000,000,000,000 $2,000,000,000,000 and $4,000,000,000,000 So I do not put a number that we cannot confirm. That's why I do that voiceover. And you can see that also in this market, ComEd, of course, is a very has a very, very strong market potential with SEK 2,200,000,000 aren't the X-ray modules as well of SEK 250,000,000. So this is the market they can get outside the semiconductor space. That's why we said we should not give them up because we have technology. We have a lot of ideas what we can do in this area. So we should keep that. Would be stupid to give that up because there's a lot of synergy on the system side between the 2. So again, you see 70% of the potential is in semiconductor, 30% in nondestructive testing and similar things. Maybe I do not have to explain to you the function of our products in RF Power Solutions. Basically, the products are consisting of generator. Actually, here, we have a lot to catch up. It's a new product. As you know, everybody may know the name da Vinci, and Michael Kamer will tell you more about that. Then we have the matchboxes and then the capacities. And in all the in those two areas, we are number 1. And here, we are catching up, as I said. These work in a coating system or etching system. They always look similar. You have a transfer chamber here and you have the process chambers. Here, they are open. This is closed. You have the match boxes on top. And inside there are also the capacities. And inside here, the plasma is ignited and controlled and tuned in order to get a fantastic yield and also structures on the wafer with all the chips, relatively simply explained. In case of RX, we have 2 business models. As you know, we are the module makers maker for the generator as well as the X-ray tube. I mean, they are shipped to people who make the X-ray systems. Of course, it's Exelon, but also others. And we have a very high market share in this segment, and Stefan Hafen will show you the moneymaker on that to be more detailed. They're built into systems for quality control, whatever, and they are part of production lines. We are coming back to that in the discussion on what we do on artificial intelligence and machine learning. So this technology plays a major role in future in the that industry because you cannot look inside the packages anymore without X-ray. It's a huge market to come, and Thomas Wenzel from Exelon will explain you more about that. This is what I said. Just in case of Exelon, they are not in the components. The components are delivered from Flamat and built into the systems, and the systems are then part of the production line. And of course, they also ship to other companies, not only to X London and have a high market share and the market leader in this field. This will continue. Coming to the market position. We are already number 1 in plasma control at Matchboxes. Although our market share is still not where it should be. We are market leader on a lower level, but we have clear intentions to increase our market share in the next couple of years with new products to come and the collaboration with our customers. In X-ray Systems, we are among the top 3, and you will also see from Thomas later, how fragmented this market is. So we see a potential. I'm not talking about M and A at the moment, but we try to, of course, to increase our market share in this area, because they're so much fragmented, we have a better chance than to attack a bigger company. And finally, in X-ray Tubes, our market position is very strong. You will see that later. But we still have room to improve our sales and our portfolio to gain market share. So our position in the market is still very healthy, and we built on that. That's why we say this is the call, and we push the call first before we do anything else. So divestment is not a discussion anymore. The diversification is not a discussion anymore. To make that picture even more clear, you see here the addressable market. This where we really can play, where we can sell something, what we do. You have to the left side the semiconductor industry or semiconductor devices. And on the right side, you have the rest with aerospace, automotive and security. So the market for RF supplies in this industry is approximately SEK 1,200,000,000. So if you would have 100% market share, we would have SEK 1,200,000,000 sales. And of course, that is what Michael wants to do. There's also a growth into 2025 of additional SEK 800,000,000. So together by 2025, of course, with all the uncertainties that such a prediction contains, will be SEK 2,000,000,000. So we could actually get this market if you would have 100%. 50% is still enough. And when you look at VAT, VAT is 50 end of the market, so why should we comment with all the strengths and the technology not achieve that goal as well? Do not see any reason. And then you see the markets in aerospace, automotive and security also grow, but of course, not to the extent as we see that in the semiconductor industry. That's why this market is, for us, the biggest one, the market we know. We have not many customers, so it's quite easy to treat this market. There's no other single market in the ComEd universe that offers you more opportunities than this one. So if you go away from this, it's just weakening this part and going somewhere where you don't know what is happening. But these items here, we discussed this in details. We looked into all the data that were available. We talked to customers and other partners. It makes sense to continue here. We think we can really do something here to have a better market position and to grow the company together with semiconductors. Now coming back to the geographical side of the discussion. I mentioned before that 70% of our plasma and x-ray sources X-ray systems are located in Asia once they are in production. They might be assembled somewhere else, I said for maybe in the United States, maybe in Europe, but they're going to be shipped to 70% into the Asian market, and this will not change. You see the recent study from PVC, how Asia Pacific is growing compared to Americas and Europe. That's one of the reasons why we have to expand our activities in Asia. That's why we decided to have another expansion in Malaysia, in Penang, actually very close to VAT, where we have plan to set up a company that is CapEx light. So we are not going to build a building. We're going to use an existing building, it's a new one, very nicely constructed. We're going to use suppliers in Malaysia and also around in other countries, we already have a supplier base based on China where we have production so we can use the same suppliers. That is speeding up the process. And of course, as I said, we do not have to invest much into CapEx and still can produce a high number of products and making a substantial revenue increase. Also cost wise, it will help us to reduce the costs, of course. Here you can see what I said before. I do not read you through, but in San Jose, we will have mainly R and D and new product introduction because our main customers are in the U. S, and they want us to be there because of the proximity to them. They are 20 minutes away from our company. But they also want to have us expand in place of the world. So it's not a contradiction what we are doing. There's not much change in FLAMAT. So we are not reducing, for instance, employment in FLAMAT. FLAMAT is also a technology center. And in Penang, we mainly go for new products with the customer, not to shift products to Asia, that's usually quite cumbersome. We have seen that with VAT, where customers have no time for requalification. You need very early qualification of the products when you shift them somewhere. And we just evaded because we do it with new products. And we keep Shanghai. Of course, Shanghai needs to be adjusted depending on the tariffs. See the tariffs go away and we have no problems if the tariffs will stay or even be stiffened, and we have to think what we are doing with the production here. But the place actually I mean, China will come sooner or later. Be sure it will come, but it will take a while. And of course, we have a technical center in Korea because Korea is still absolutely important market for us to have relations with the chipmakers like Samsung, Hynix and so forth. Good. So this is the strategy that we want to do. So it's not radically new. It's maybe a little bit more concrete. And I'm sure that my division heads, they will become even more concrete. I'm not sure how far we can go. But you can see what is our destination, so to say. Now the whole thing doesn't make sense without in implementation strategy is good, but you have to make it work. And I think the history of COMEK was not too good in that sense that there were a lot of ideas, but never turned out beside that what they did all the time based on PCT and modules. We want to change that and can only be changed if we have clear initiatives and also initiatives for growth, but also for efficiency increase that are tracked. So we have a system built up that is called Boost. Boost contains all the initiatives that we want to do to implement what I've just said. And even you would be able to, from year to year or maybe in between, see the progress of these steps. You can see it here. Maybe this first, the boost is based on 3 pillars. 1 is, of course, growth. You see, we want to grow clearly. The second one is, at the same time, we want to become more efficient. There's a lot of room for improvement, I tell you, really. And we just made an employee survey. Maybe it's not the right word, we are doing a health check-in the company. And as a part of this health check, we made a survey with 90 questions to all employees, and the return rate was 81%. I've never seen such a return rate before in a company. That means the engagement of the people is very high, but their expectations is also high that things are going to be changed. They came with a lot of ideas and duplications and responsibilities that is not clear and isn't that. Actually, all problems can be solved relatively quickly and easily if we talk to the people, if we solve the problem and we get on. Then, of course, the efficiency in terms of lean management, when we move to Malaysia, we're going to have a better costing base. All that is part of it. And then the culture, mostly forgotten, extremely important, extremely important. If the culture does not fit, all the rest will not work. So here in more details, boost growth, how we do that. And we see the first time a very important sentence here, a linear. This is Saxon, artificial intelligence and machine learning. I cannot stress that enough, and you will hear more about that from the divisions. Our customers are clearly going in that direction. I'll give you an example. 1 of the customers, a big customer told us, listen, in the past when we made a new machine, we made prototypes. We asked you to build a new plasma source, whatever. And it has to be built, invented, built and then tested and then returned, changed and all that, that takes forever. I can only say from VAT, a new product development at VAT in the past took 7 years. 7 years, that's too long. So they want to radically shorten the development time. And to shorten it, it needs actually virtual world. So the machine is going to be built 1st in a virtual world with artificial intelligence and machine learning. Big data. All the data that we know from the components, we have a lot of data. And artificial intelligence is just to use the data. You know what is the difference between artificial intelligence and algorithm. Maybe you know it, maybe not. I tell you, the algorithm has rules. And the rules are always kept, always the same rules, whether it's wrong or it's correct. Artificial intelligence starts with a rule, but then the machine is learning and is changing the rule over time, automatically based on big data. So the plan is actually to have a machine virtually built together with us, so we are responsible for the sub components. And of course, our customer does the whole system. And once it is tested virtually, before one screw has been manufactured, then you start manufacturing the parts. This should, and we are convinced, our customers are convinced, and it's not rocket science at the moment. Many companies are doing that already. We can shorten the development time and the go to market much, much in other factors. So this is one of the key. So now you may ask, do we have these capabilities? Yes and no. We have some people who understand what it is, but we do not have enough people doing such a work. So what we will do, we will buy brains. You don't need a company to buy or maybe the company is just 90% brains. So this is if you talk about M and A, then we talk about brains are not to buy a competitor with everything that we already have. So this is one of the major, major growth drivers and also competitive drivers in the future. And I must say, unfortunately, it's very difficult to find such people in Europe. And if they are good people in Europe, they usually they go to the big companies, to Nestle, to Roche, to Novartis and maybe not to Comet. So we have to recruit them worldwide regardless where they are sitting. They also do not have to be put into a rigid organization, these are think tanks, these are artists, if you want, to provide us the necessary know how. Okay. Then the rest is also clear. We mentioned that the ready portfolio has to be enlarged with new products, which are in the pipeline, then the presence in Asia expand digital services. That's digitalization altogether, but also includes AI and ML. Business efficiency adopt operational models. So we are changing the operational model over the next couple of months to make it more efficient, make or buy decisions. One, what I said already, is Malaysia, where we work together with a partner. We don't do everything ourselves. At the partner is a very famous and confirmed manufacturer of electronic devices, also the big American companies. Automation, digitalization, modular standardization is also important. So there are a couple of learnings from this industry. I'm now 30 years in this industry. I've seen hundreds of companies. And it's absolutely critical if you want to be successful in semiconductors and related, you have to have volume. Without volume, you cannot do anything because you have to invest so much into development, you need the volume. You need standardization. You can say modular standardization. You have like when you buy a car, you have the basic car and then you have options. These options are all clearly defined. This is what we do here as well. And of course, you have to gain market share. When you have market share, high volume, standardization, then you have a good bottom line. And as I said, boost culture, collaboration and speed. We are still too slow. So we have to make the organization faster. And everybody agrees. And the customers, they want us to be faster, cannot be fast enough. We have to have a digital mindset are not of course, we still have mechanical parts, and they need to be designed and manufactured in a proper way. But it needs this mindset. I'm not pessimistic on that. The company is pretty much already in the digital area, just not as deep as we want, but it's coming. Then we have talent and succession planning, extremely important. We have to educate the talents by yourself to some extent, you sent them maybe somewhere else to be trained. But a lot of the talents that we have, we need to direct into the new age succession planning. You have seen the changes in the past, so we'll be much more careful by changing people. And I really hope that the future leaders are coming from inside and not from external sources, although they might be good guys, but too far away from the business. We need a healthy mix, maybe seventythirty, but my wish would be that 70% the future management is coming from inside. But for that, you need the succession planning. And I already mentioned sustainability for us, important very important to help solving the problems to be at least are supportive of solving the problems we see right now in the world by doing our processes more climate oriented, so to say, but also help to produce products that help again attacking the problems that we see we all see today every day in the news. So this is the program. We have approximately 20 initiatives. We have more than 20, but 20 initiatives which have a high impact on top line and bottom line. And the problem you know the problem in the company is mostly that you have good ideas and you tell everybody. And then if you ask 6 months later what happened and so what you're talking about, it's not it's gone. It will not happen here. We have a PMO, Programme Manager's Office, that is tracking the whole thing together with the divisions. The divisions, of course, support that very much. And they report maybe monthly or quarterly on the success of the initiatives. Maybe those are familiar with VAT. You can remember VAT Motion is a similar project. Where we put more emphasis here is culture. Be it emotion, it was really technical. It was from deficiency point of view, but we believe that the culture is extremely important. And here, we have taken a lot to do and will help us to speed up the process. Saw when you come when we come together again, maybe next conference that will happen in, I think, in March next year, then we can show you more results on the initiatives, getting more deeply into what we do and what we achieved and what maybe not. So if something doesn't work, we take it out. Sometimes we have an initiative that does not work out, okay, then we take it out. Maybe a new one comes in, but it has to be conscious, discussed, agreed, and then we continue the work. With all that. I personally am convinced that we have a huge potential to improve our numbers. ComEd has such a potential that I do not see why we should be less profitable than an Inficon or VAT or whatever. All the talents are here. The technology is here. We just have to manage the company in that direction. That's why we firmly believe in the management board that we can achieve CAGR of 15%, which is above the market growth. 25% for me is the minimum, bill is the minimum again in a CAGR, so to say, so in average, maybe 3% for average. And the ROCE of 30% return of capital invested employed should also be achieved. It's not it's really not rocket science. It's just doing what we say and say what we do. So I recapitulate a little bit. The focus strategy is important. We have to be focused. If we move away again from the focus, then you damage the core, we don't want to do that anymore. We will go for high volume markets. We go for standardization. Semiconductor technology is in the core. We do not neglect the others as well, but the big growth is coming from the semiconductor industry, front end and back end, by the way. Boost strategy is overdue. We have a lot to do. I said we have about 20 projects. Actually, we would have 100, but some of the projects we have moved back or that being done in the lines, they're aware of that, the people engaged. So I'm pretty sure that this will have a big impact on the bottom line. And I still believe that these numbers here, they are absolutely possible. So we are highly motivated. Might be that you say it's you have to deliver that. Of course, we have to deliver. This is the starting point. It's not the end point. And we will deliver, maybe not everything will be as we expected. But in average, I think the company is going forward getting out of this valley that we have seen in the last year and making our shareholders happy. Okay with that. Of course, I confirm this again. As I said, it's pretty safe. Yes, thank you very much for being here. Thanks.