CEO Interview

Michael Allison, CEO

What were the highlights of 2019 from your perspective?

Our continuing efforts to make the company more flexible and responsive are paying off. Despite a sharp drop in net sales because of the cyclical slowdown that started in 2018, we achieved a full-year EBITDA margin about 200 basis points higher than in previous downturns. The quality of our long-term customer relationships also supported us through a difficult environment. We built our Number One market share even further and continued to launch new products as our customers prepare for the next generation of digital devices. That includes more than 90 specification wins, a new record. We also achieved record free cash flows in 2019, despite the slowdown.

What changes have you made to achieve that result?

We’ve implemented a global cost optimization program along the entire value chain, from product design and procurement through to ordering, delivery and logistics. We’re also driving a comprehensive IT integration program to link all of our operational and business processes. That will make us faster and more efficient. It will also improve transparency, allowing us to make better business decisions and more quickly. And we continued our sector-leading investments in research and development despite the weaker market. Continuous innovation is absolutely critical to our competitive success.

Did the downturn change the competitive environment?

In a downturn, our customers focus on developing new platforms and bringing them to market. We have the strongest engineering resources and technology know-how in the industry, which gives us a significant competitive advantage. We also have a more global footprint than most of our competitors, so we can better optimize supply chains and adapt capacity across multiple facilities. Plus, our solid balance sheet and cash flow generation give us long-term stability, which our customers value.

“We built our Number One market share even further and continued to launch new products as our ­cus­tomers prepare for the next generation of digital devices.”

What’s the status of the Malaysia plant and how do you see its role for the future?

We officially opened the expanded facility in September last year. We’ve quadrupled production space to 24,000 square meters since the original facility was begun in 2012. We’re continuing to ramp up production, including engineering and testing facilities, and so far we’ve qualified more than 30 new products there. We expect our Malaysia facility to account for approximately 20% of total sales in 2020, increasing to about 40% in the coming years. It will play a key role, both in increasing our overall flexibility as well as strengthening our relationships with customers in the region.

How are you addressing sustainability in your business?

We aim to drive value creation along three lines: economic, social and environmental. We create social value in a number of ways, most directly by investing in the communities where we operate. Furthermore, we strive to create a work environment that is diverse, safe and rewarding for all of our people, and we run an annual engagement survey to measure our progress in this area. On the environmental side, we continue to develop ways to reduce raw materials, make our packaging less wasteful and improve production efficiency. That’s good for both the environment and our business.

What new technologies will drive growth in the next few years?

The Digital Era is just beginning, and ongoing developments in artificial intelligence, autonomous vehicles and Big Data will continue to create the need for newer, more powerful, and more energy-efficient semiconductors and digital displays. Almost all of the new technologies coming to market have higher densities of silicon chips, and this exponential growth is driving more and more capital investments.

We expect the new 5G network rollout to create significant demand for leading-edge silicon chips, not just in network electronics, but also in new handsets. These will have faster processors, more OLED screens and a huge increase in memory. Some of these advances will be based on new processes, such as extreme ultraviolet lithography, or EUV, for fabricating chips with transistors as small as 7 nanometers or lower. New materials, such as gallium ­nitride, are also being introduced as more energy-­efficient alternatives to silicon. All of this will require new high-vacuum solutions.

What’s your outlook for 2020?

We’re optimistic that 2020 will be a year of moderate growth. Net sales in the fourth quarter of 2019 returned to year-over-year growth, driven by demand recovery in the semiconductor sector, mainly in memory applications such as flash chips. We expect that trend to continue. The outlook for displays, solar and general industrial applications is also positive.

What will be your management priorities this year?

We need to ensure that we can quickly meet the changing needs of our customers as demand recovers. Technology innovation and product quality will remain in focus, as well as speeding up time to market. We’ll continue to drive out costs and drive up cash flow as we build and finetune our global footprint. We’re expanding our service offerings to help customers improve the performance of their existing assets and developing new generations of smart valves for the Internet of Things. And we’ll continue our efforts to create a sustainability culture in the company that will support our ability to create value for all our stakeholders over the long term.

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