Investor Day 2018

Nov 13, 2018

Slides

Ladies and gentlemen, a very warm welcome to our Investor Day. A special welcome to our guest speakers, Thomas Huber, CEO from Skan and Christopher Anderson from PCC in the U. S. For coming all the way to provide us with the direct market insights. Also in the audience as every year is Hans Hess, our Chairman of the Board. Welcome, Hans. Where are you? Ah, up here. Okay. So here is our program for today. Hans Hess will comment today on several topics that have been brought up and give you the opportunity to ask Questions at the end of the sessions. I'm very glad that this year, we can hold this meeting in the new part of our building. We need this building because growth will come back, and then we are ready for that. The completion of this expansion also marks an important milestone for us. The space is required for further lean initiatives and optimizations to cope with further growth, which committee is best positioned to deliver. Play on strength, improve, perform is the catchphrase of our Investor Day this year. And I'm very confident that Comet will indeed perform and has a successful future ahead of it. Let me start briefly outlining my view of the strength of the COME Group, the improvement measures we are taking and why ComEd's future is bright. The group is on a stable footing with a strong balance sheet, a clear strategy and a clear business model. We are investing substantially in the future and have made important course adjustments so we can grow by leveraging our existing core technologies in established and new markets and generate value added. Important improvement measures this year will allow us to go into a 2019 more efficient and with a much leaner cost base, and we'll have even more impact in 2020. In the e beam and X-ray systems business, major cost items will be eliminated and the process Improvement will help to manufacture on a sustained, leaner and more cost effective basis. On top of this, in 2019 and on ongoing basis, We will manufacture more efficiently and economically in Flamat than before through lean processes and lower costs in purchasing and logistics made possible by our improved supply chain management, the new building and new technical facilities. For example, in 2019, we expect savings here in Flamat of about 1 percentage point at the level of gross margin. The new SmartLab in Flamat, which you can see afterwards, will enable our plasma control business to develop and test its generators and do this significantly faster. In addition, we have the capability to flexibly adjusts the size and structure of our organization in the plasma control and x-ray module divisions in line with the market demand. All of this makes us confident that we can raise profitability. We expect market successes in 2019 2020. We are convinced that COMET, operating in markets with strong drivers, will be able to generate value add with its core competencies well beyond 2020. You will be able to learn more on many of these points during the day today in the presentations on the divisions and in our breakout sessions. In the year of the company's 70th anniversary, allow me to take a very brief look back to the beginning when we started 1948 with X-ray, moved vacuum capacitors to the Matchboxes later on with the acquisitions that we did and the Strategy 2020. COMET is an impressive growth story. Our strategy 2020 based on our core competencies, high vacuum, high voltage and material sciences. It proved to be strong and very successful, and we achieved excellent results. 2018 proved itself as a year of consolidation after rapid growth over the last years and the record result in 2017. So what are our core competencies? All our Products and X-ray and RF Power as well as e beam based on high vacuum, High Voltage and Material Sciences. Our expertise in mastering and leveraging These core competencies in technology and in the application know how into various markets and applications establishes us as the preferred partner for many key customers. Vacuum capacitors, X-ray tubes and e beam lamps are similar and they share the same base technologies, the same supply chain, and we use the same prefabrication that is now in this house here. All this ensures unprecedented quality for our long lasting high end products and the most efficient production possible. But is that all? Digitalization of our products, processes and services will offer us new opportunities based on synergies. Data processing will create even more value in the interplay of the divisions. We can see RF Power Modules, X-ray Module Systems, EB modules, as a kind of sensors or data generators. They can deliver data directly or indirectly. Sometimes we have to add a kind of a sensor with a feedback loop, and this will allow us to get data out of the process With algorithms and pattern recognition, we get insights that we could not get without this digitalization of and all what our customers want is to optimize their production processes, to increase their yield and to improve on their overall process. And this is what we can deliver. What we learned over the past months and years is that we can use a similar approach how we handle this data. Big Data, Data Analytics, Machine Learning is a common denominator more and more of these digitalized products. So this gives us a good opportunity to use all what we learn, for example, in the X-ray Systems business on data processing because there we are generating A lot of data to use this for other applications, and the benefit for the whole group is that we and leverage whatever we learn and whatever we do. We run our business in 4 focused divisions. And as we run it based on strong shared core competencies. As I said before, we don't consider it be a portfolio of independent businesses. On the slide here, you see the share of the overall business of the group. So PCT and the 2 x-ray businesses make the major pillars are the major pillars of the ComEd Group, e beam, a very promising business on sterilization and using e beam in general. Let me now give you an overview on our 4 businesses on their positions in the market, their addressable market and their current market shares as well as on their strengths and the potential they have. For those who just started to follow our company, this picture here illustrates our growth engine. We have established this growth engine to better steer initiatives intended to deliver on our Strategy 2020, which is to leverage our core competencies in technology and application know how into various markets and applications. The key elements of this wheel are the ongoing business, operational excellence, the business development and our growth initiatives. To achieve strong profitable growth, they all need to reinforce each other. So let's start with the ongoing business. I will go more into details for the e beam and X-ray systems business as you will get in-depth insights on our plasma control and X-ray modules business by their corresponding presidents later on. Allow me to start with E Beam as we communicated news on the separation of our Devonport site this morning. This July, we announced our decision to separate from our E beam site in Devonport, U. S. And refocus our E beam operation on the OEM business model, all together with a strong and motivated team. As announced this morning, we will hand over the systems part to a new owner. This transaction allows us to complete the planned divestment faster than expected. Introduces management attention and risks, and we will slightly reduce the impact on the group's net income in 2018. In short, it provides positive effects for all stakeholders that's also for our customers. The new owner will guarantee the completion of all orders, warranties and services associated with them. With the decision to refocus, The COMET group is concentrating on its business with the compact sealed e beam engines, which holds longer term promise and can be used to make individual processes more environmentally friendly and also more productive. So what changes? On the left side in red, you see so called old world. On the right side is the new business model, the new model with the focus on OEM business. We are now exclusively addressing OEMs, which integrate our engines in their systems. In order to be able to operate and develop the small scale business sensibly, We have switched to risk adjusted sustainable financing. We see the development of our The development of the business is happening less developing completely new markets than in scaling of existing assets, such as market access, knowledge and products into neighboring and partially new applications. I will explain later on how we see that. As mentioned in August 2018, we expect this realigned EBIM Business to deliver a low double digit sales volume based on contracts with partners, our EB Labs and R and D income over the next 5 years. Starting from about €15,000,000 in 20 team and increasing gradually until large volumes will kick in. In view of the uncertainty Surrounding time to volume, we are striving to keep the costs of maintaining normal business risk adjusted, both by involving partners even more closely in the development and maintenance of the business and by achieving operational excellence and a low fixed cost base. With this new focus, we are convinced that we have a sustainable setup for the startup division that has a very promising Upside Potential. We have a strong technology with many benefits, and so far, we are the only manufacturer able to offer the compact sealed e beam lamp to customers. In addition to the core applications that we have started with Petra Park and Buhler. We are now moving to the egg case area of hedging eggs and material modification, including printing. The growth drivers are fully intact as the need for environmentally sound and economical production processes continues to gain importance. The best illustration of this is provided by Tetra Pak and Buhler as the 1st large companies to be strategically committed to the use of e beam. I will touch on this later on. With this realignment and Risk Adjusted Financing. The priorities for the new management of EBT will be, 1st, to work on the operational excellence and reliability. We increase our efficiency and reduce the relative cost level. Tetra Pak and Buhler are the major partners, so we will continue to work with them and position us as the solid partner for also further ideas. We want to continue the AG case, and you will hear more about that later on. We will develop into new partnerships with OEMs and scale our know how and market access and our products. Let's come to IXS now. As you know, we initiated a profit improvement program in July in order to balance cost and growth of this division. We initiated a change in leadership. We have a strong management team at IXS in place with several new hires, and the whole team is highly committed to bring IXS back to a growth path and to profitability. As you can see from this slide, our program is well on track. We started with the reprioritization of our projects, and you will see the results afterwards. We have reduced our workforce in Germany, and we have worked on the increase of our efficiency, optimize the organization, Optimize Production Processes, so that we have a lean and efficient company that will improved the profitability from 2019 on. So what have we done so far? We started in 2018 by putting end of line checks, which will help us to reduce warranty cost by about 15% starting end of 2018. We have introduced a lean pilot, introducing Tact. And for 2 of the important products Cheetah and Kugar EVO, we will reduce the throughput time by about 30% and the working hours by about 20% starting end of the first half year twenty nineteen. On the development side, we have reprioritized our projects. So we have Put priorities. We have reduced the number of projects we are working on, and we see already good results on that. After a pretty sluggish start with FF2035 CT, we have an order income of +80% compared to 2017 on these machines. On Cheetah Kugar EVO, we have a plus 10% order intake versus the old systems. And with the recently launched new wheel inspection system, which is 50% Faster has 50% more throughput. We have already sold 15 systems after a very short time after introduction in Germany, Korea and Mexico. Further releases will follow shortly, so we plan to have new releases towards Industry 4.0 requirements in 2019 already continuing then with new product introductions from 2020 on. We see IXS as an exciting business with a great potential. For the future, we see excellent opportunities based on innovative data processing, computed tomography as the most powerful sensor in manufacturing processes, promising applications beyond traditional inspection and metrology are opening up. Specifically to support new production methods such as additive manufacturing, but also in general process optimization. IXS is tapping this potential by working closely with qualified partners and experts as well as on the basis of 2 patents submitted, and we will have to make further investments in the coming years. Thomas Renzel will later on let you know more about this in his presentation. On the right side, you see the market. Total market is roughly EUR 760,000,000 The gray bar here shows our market share. And if you look at this And with the position and the knowledge that we have, you see we have a great potential to further grow this exciting business. So what are the priorities for 2020? We continue to implement lean processes in Hamburg. To be faster and more efficient, we will further develop our organization. We will make sure that we bring the new products on the market in a timely manner, on time and with the right quality, and we will further develop and upgrade our methodology as a feature for NDT. And last but not least, we will enhance our data analysis capability to make use of all this modern data processing, not only for IXS, but for the whole company. Let me now move to IXM. I will for IXM and PCT only give a brief overview as more detailed presentations will follow later on. Let's start with iXm. This is superior industrial metal ceramic x-ray tubes, in-depth and unique process know how and the ability to deliver tailor made solutions for our OEM customers, the IXM division is the clear market leader Purity Inspection. This statement relates to the tube business. With X-ray tubes, we have a market share of about 70% to 80%. What you see here is the market combined with the generator market That opens up new opportunities for us. We see this market at the level of roughly a little bit less than CHF 300,000,000. If you see our market share here, you clearly see that we have potential for growth in this business, and we have a unique value proposition with the combination of our I value generator with our outstanding at X-ray Tubes. What are the priorities here? Here as well, we are working on our operational excellence. We are investing in lean activities. We implemented the lead buyer concept, which can be expanded further expanded Global Logistics and here as well, a flexible cost base is important. We will exploit the existing portfolio to grow with the bundle, as I have explained before. So we will tap into the CHF 200,000,000 market. We will launch cost optimized security products because there we see a cost pressure, but we have all in place to be competitive there, and we will expand our product range to explore new and adjacent markets. PCT is one of the leading suppliers of RF power technology, and it's a strong growth driver for the ComEd Group. As the only manufacturer worldwide that is capable to produce the vacuum capacitors, the matchboxes and generators, we have a unique position. And we have over 50 years of accumulated know how in the field of vacuum capacitors, which is still the heart of our RF Matchboxes. Flexible production structures allow fluctuations to be cushioned. Current investments in more efficient production and logistics processes will help to achieve even greater robustness and flexibility in the future. The division has an excellent scope for further strong growth with high profitability. Of particular note is the work on entering the US700 $1,000,000 generator market, which is an important step for the company. So when we add the Matchbox market and the generator market together, We talk of about 1,000,000 market which we can address with this combination. And we are very confident that we will be successful with this new step. Michael Kammer and Andre Grady will give you more information on this, and you will also have a breakout session where you can see our smart lab, the status of that, which made great progress in the past months. So what are the PCT priorities to 2020? Here as well, we have the same topics as we have for the iXm, the X-ray modules. For our key customers, we want to remain the preferred partner. What does that mean? We have to optimize our R and D processes because the customers' innovation cycles are getting shorter and shorter. We have to cope with that, and we have done all the measures to be successful there. And we prepare the new production facility for the next generation of our generators. And we plan for the market intro of this new generator portfolio. So that's the core business. Now let me briefly discuss the other elements of the growth engine. In the last year, we have made progress along the entire supply chain. I will not go into details of every activity, but what I want to highlight is that we have completed the new building. You are sitting now here, and we are very happy to have that done on cost and on time. The building is important for us because he gives us the flexibility that we need for further growth and to optimize our processes to implement more lean initiatives and optimize the whole procedures that we have here. We have set up 1st optimized clean assembly cells here in Flamat and will implement an automation contract with focus on PCT vacuum capacitors. Chromate has also made progress in the business development initiatives you see here. They were all well advanced to a higher maturity stage. You will hear more about some of these initiatives in the presentation later. Also the growth initiatives saw good progress. I don't go into details here as you will hear updates as well in the following presentations with the exception of metrology, where we were able to strengthen our portfolio. Metrology is the basis for expanding our data analysis capabilities. Here, we achieved a milestone this year with an improved so called NPE value that allows us to position metrology as an attractive add on for our NDT feature. So I hope that I was able to give you an overview of state of play in our growth engine strategy implementation. What's next? As I pointed out already at our Investor Day 2017, I'm convinced that the ComEd Group needs to invest in the 4th focus area you see here to get ready for the next level of growth. I already talked about Digitalization gave you some examples. Diversification is a topic that we are following. Speed and agility, Like the example with the R and D process, our customers have more speed. We have to follow and have even more speed than they. And go to market is another lever that we have recognized as worth to invest into. This gives an overview on the main initiatives that we have implemented. For example, the smart connectivity, which you will see in one of our breakout sessions. It has a part in digitalization as well in speed and agility. The expansion of the product portfolio plays into the diversification of these 4 levers. You will hear more about these 3 automated shuttle logistics, and you will see our PCT SmartLab in Flamat in the breakout sessions. With this brief overview, Let me close for now with the group and go into the divisions to see how exactly we are progressing and preparing ourselves to tap the attractive market potential that we have. So we have a strong base on shared competencies. We have a Strategy 2020 that is on track, and we have taken the actions to address the challenges that we have. And we have put clear priorities what to deliver on our 2020 strategy and beyond. So overall, with all these presentations and insight, I hope you agree with me that we have potential in all four divisions that we are in, in all four fields that we are in. We have a good position, and we have a lot of potential to grow in the next years. We are implementing our 2020 strategy with clear priorities to deliver on our ambition to leverage our core competencies in technology and in our application know how in all the applications and markets that we are in. Now let me give you an outlook. You know our outlook for 2018. We expect net sales between €430,000,000 €440,000,000 and an EBITDA margin of between 7% 2019 2020. Profitability will increase significantly, already thanks to the non occurrence of the extra ordinary items amounting to about CHF17 1,000,000. Given the geopolitical uncertainty, the lack of visibility we have in the semiconductor business and structural changes in the E beam business, the company is not publishing targets for 2019 2020. Nonetheless, as pointed out throughout the day, we expect and market successes in 2019 2020 across all the divisions. This will help to create value add for our shareholders in 2019 2020 following our strategy. With this, I would like to close my comments to 2020. As mentioned this morning, Hans Hess will comment today on several topics that have been brought up and give you the opportunity to ask questions. Please hand. Thank you, Rene. Well, ladies and gentlemen, I guess your information storage devices must be pretty full by now. So I'm not going to add more information to you. I rather try to maybe put into perspective things that you have heard during the course of the day, and I'd like to do that from the perspective of the Board of Directors. The Board is aware of questions being raised at the level of our current strategy. I hope we have been able to shade some light on those questions during the presentations or during the interactions you have had with our management team, but we are aware of that. We're also aware that investors are pretty disappointed about performance of the company in 2018, we are also disappointed. However, I think we have firmly addressed the issues, and we will go stronger into 20 'nineteen. Thanks to all these changes. And I also understand that investors have certain questions with Regards to the future of the company, where does the company go, where what is the strategic path. So I'd like to address some of those questions from, as I said, the perspective of the Board of Directors. Let me start with Strategy 2020. It's almost exactly 3 years ago that we have presented Strategy 2020 to you at the Investor Day of 2015. And we have all witnessed that actually the last 3 years, 2016, 2017, have been fantastic improvements. The performance was outstanding, and we have reached in 2017 a record level. So I think the strategy has worked pretty well. Unfortunately, in summer of 2018, we have been confronted with a number Of issues, IXS and EBT were no longer on track, and we had to take corrective measures to get them back on track. I think those corrective measures, we have said throughout the day that they will be completed by the end 2018, but actually my view is they are completed today. We have sold EBS yesterday. We have cut we have reduced the headcounts in Exelon. We're done. So we will go in a much with a much stronger position of profitability, as just been mentioned by Rene into 20 'nineteen. Unfortunately, at the same time also in summer 2018, we have seen some we have been confronted with a significant slowdown in our semiconductor business. And the first half of 2018 has still been very strong in semiconductor. The second half will be 30% down. So This is a major change, obviously. However, and I think that's the important thing that we would like you to know. From a board's perspective, we consider this to be Rather, let's say, operational issues, this is not questioning our strategy. We think we have issues. Some we can fix, like EBT and the IXS. The The semiconductor will turn back when the semiconductor turn back. We don't know that, but I think we have operational matters at hand. And we do believe that going forward, we'll be able to continue value to continue to create value for our shareholders with the strategy that actually is in place. So we don't see a necessity to change our strategy at this point in time. However, obviously, with regards to the future of our strategy, there is 2 things that are on the mind of the Board of Directors. Number 1. We need to get those 2 businesses back on track, which have been off track, and I think that will be happening very quickly. We are refocusing those two businesses. We're trying to gain operational excellence and make these businesses more successful than they have been in this year. But maybe more even more importantly is, okay, on how do we continue to develop the strategy going forward? We have asked from the Board's point of view, management to start in 2018 to look at the strategy Going forward, we have asked him to make an assessment of the current strategy. We have asked him to come up with further proposals on how to develop the strategy further in order to continue to have a convincing proposition for all our investors. So This process is ongoing. You have heard a number of elements in this process already during the course of the day in these various presentations. So it's not just like, okay, one day we finish our old strategy, then one day there is a new strategy. This is a continuum. And I think in this continuum, we are well advanced. We will spend a lot of time on the strategy, not only on the management's Board, but also on the Board of Directors during the course of 2019. And once we are ready to communicate what we want to communicate, then we will also communicate There is also obviously questions on the level of the portfolio of our company, and I'd like to share with you what the view of the Board of Directors is on the portfolio. We actually don't look at our business as a portfolio of for independent unrelated different businesses. That's not the way we look at this. We look at our portfolio or we look at our business standing on 2 legs. 1 is the plasma control leg. The other one is the X-ray leg. And we are trying to leverage these core technologies into various applications. We have chosen not to go too far in order to really focus, but I think there is a lot of opportunities to leverage the knowledge, to leverage the technology components and the competencies going forward. And that is the strategy. So we fundamentally don't think we have a setup that needs to be corrected. We have slippages in 2018, but we think we have a convincing strategy going forward, and we will continue to implement this strategy. Obviously, there has been concerns on those two businesses, IXS and EBT, and I'd like to quickly just put into perspective what the Board of Director thinks about these 2 businesses that have been kind of challenge store question marks on it. The Board of Director remains convinced that the X-ray systems pieces has significant potential to create value going forward. We are well positioned in this business. And I think even more importantly, We are well positioned in an attractive market. We just heard that, how important this X-ray technology is for customers to not only detect failures, but to actually further improve that entire processes. You have heard from Thomas's presentation that we think the future of this business, the key drivers will be things like 3 d printing, 3 d testing, metrology, computer tomography and all these type of things. And you have also heard from Thomas that we believe we are firmly convinced that actually we have a lot of opportunities for data analysis, for analyzing the data and helping our customers to actually implement these things and make their processes more efficient and more quality assured. So I think on one hand, we believe the strategic opportunity for IXS is fantastic. On the other hand, we are also aware that we need to improve the operational excellence, and we're working on this. And the measures that this management team is taking is quite impressive, to become faster, leaner, more efficient, all these good things. And I also can say that have not only made a number of good hires in recent months into this management team of Exelon, but we have also we are also relatively close to finding solution for the leader of Exelon and that this team by the end of the year will be together to drive this with full energy forward. And so the Board of Directors is convinced that Exelon, our X-ray Systems business is a very very value creating proposition going forward and very important for the total group, particularly in the areas of this data analytics and all the things that go along with this. The second point or the second business that have question marks have been raised is the E Beam Business. Obviously, the E Beam Business has been a disappointment. The acquisition we have made in 2015 has been a huge disappointment, and I take the responsibility for that. But at the same time, I can say that the fundamental Opportunities for e beam is unchanged. Customers and we have heard one customer, They truly believe in this. We have large customers like Tetra Pak, like Beulah, like Bell. They firmly believe in this technology. They are totally convinced that this is going to resolve a major challenges that they currently are faced with. So the Board of Director thinks with this strong commitment from these really important customers, We will be able to really find good a good return on this investment going forward. Is it as quickly as we would like to? No, This is a startup business. This takes more time than the other businesses, but we believe that there is a great opportunity. And what I also would like to say is There is a lot of synergy between e beam and others. It sounds different, X-ray and e beam, but at the bottom of everything, It's all about the same thing. It's about high voltage technologies. It's about high vacuum technologies. It's about material science. And to be honest, an e beam lamp and an e beam generator are technically very similar to an x-ray tube and an x-ray generator. Those are not different things. We call them differently, and we organize slightly differently, but there is a lot of synergies between those. So I'd like to say in summary that the Board of Directors is convinced that this management team will not only solve and has already solved the operational issues that are at hand. We have full confidence that they are willing and able to do that. But we're also convinced that together with the management, the Board of Director will design and continue to develop the strategy of the ComEd Group going forward, and we are convinced that this will be really a very exciting and value creating strategy. COMET Group is a company where I think the potential is just almost unlimited. It's just hours to extract it and really grab it. My last point is I'd like to make is with regards to the lack of guidance. I'm fully aware that we have probably disappointed a number of investors this morning by not giving further guidance into 2019 and even beyond, and I apologize for that. We would have loved to give guidance. And it's not that we think we are kind of lost and we don't know where we are going. We actually will enter this 2019 On a much improved level, on a much improved operational level, we have taken cost out already last half in the last 6 months, which other companies will maybe yet have to take out. So we have done our homework, and we will go on a much more profitable level into 2019. Our problem is that our biggest business, which is the PCT business, which is half of our revenue and even more of the profits, this business has currently no visibility. And we think if we have visibility, we give guidance. If we have no visibility, We're not going to fool neither you nor anybody else nor ourselves. We cannot give guidance. And this starts all the way at the end of the food chain. So how should we in a position as the sub supplier of a component to say where things are going? We just don't know. We even don't have a visibility into the first quarter of 2019. This is not frightening us. This is a cyclical business. We have been in this business for a long time. We have adapted our cost structures very quickly. We can continue on a lower level as long as it is on a lower level. We all know that this will come back. And as soon as we have a better understanding from the end users and our direct customers, then we will certainly come up with the guidance. But for the time being, there is no visibility. And unfortunately, because this is such a big chunk of the business we will not be able to guide. We have given on our November 2nd media information, some guidance with regards to all the other businesses. So I think analysts should know where we are, where we should be on the E Beam business. We, the analysts, should know where we will be on IXS business and on the other X-ray business. The only open question is where This semiconductor business is going to be and that I hope will clarify during the course of the next several months. And once this has clarified, We're more than happy to give guidance going forward. So that's the situation. I hope you understand this, but it was important to me to share the perspective of the Board of Directors and put things into perspective as we see it. With this, I'd like to hand back to Rene to close this and get into the Q and A. Thank you. Thank you, Hans. You mentioned the strategy process. Just a few words on that. As Hans mentioned, we have started the strategy development process in all the divisions and also on our functions. So we will come up with a set of strategies. Of course, overall, is the Comet Group strategy. And as soon as we are ready, we will finalize and align the strategy for the coming period together with the Board and Board of Directors. That's what we are working on. So and then I started with a look back of 70 years starting 1948 and then with this great growth story in the past years here. And looking forward, I'm convinced that we can continue this story. You have seen today the strength of all the divisions. Yes, of course, it will take some time, but the base, the technology that we have, the application know how, The growth drivers that are in place make me confident that we can reach our future targets, that we can continue the growth story, continuing also by leveraging these 4 additional levers of digitalization, Diversification, our go to market and speed and agility. So I would like to thank you very much for your attention. It was a pretty long day, but we wanted to give you as much as possible information about where we stand, where we are, how we solved our issues and how we want to go forward.