Dear Shareholders,

DR. MARTIN KOMISCHKE
CHAIRMAN OF THE BOARD OF DIRECTORS

VAT is the world’s leading supplier of high-end vacuum valves used to make semiconductors, digital displays, solar panels, and many other high-precision products. Indeed, our valves are vital to the new Digital Era – Big Data, Artificial Intelligence, autonomous vehicles – and the continued growth in all kinds of smart personal and industrial devices depend on the ultrapure manufacturing environments created using VAT valves.

In 2019, market conditions presented a significant challenge, with lower demand reflecting the continued cyclical slowdown that began in the second half of 2018. However, VAT continued to focus on delivering the highest level of customer value in our industry while building the fast and flexible global organization that we need to secure our competitive success over the long term. I believe our results show the success of that approach. The return to demand growth in the fourth quarter shows that the downturn is behind us and we are now in an even stronger position to take advantage of the many opportunities that lie ahead.

We approach those opportunities with a solid and simple business strategy built around the three pillars of growth, profitability and free cash flow.

Our growth strategy is focused on continuously building our market share through deep customer relationships and our commitment to technology innovation. In 2019, we further expanded our market share to 50% and introduced a variety of new products across all of our businesses in close collaboration with our customers. Technology advances continued in the areas of reduced particle emissions and product purity, improved consis­tency in valve performance, and high-speed process control. Exciting new developments are being made in the area of mechatronic valves that integrate mechanical, electronic and computing functionality. Our leading capabilities in all these areas are feeding a strong pipeline of spec wins, which are product designs agreed together with our customers that they will use in the next generation of fabrication equipment.

We also aim for sector-leading profitability. Since VAT went public in 2016, our management team has been driving increased operational agility through the cycle. That means broadening our global footprint, optimizing supply chains, speeding up internal processes and freeing up our employees to focus more of their energy on meeting customer ­requirements. In 2019, we continued to increased production ­capacity at our Malaysia plant. Our cost and efficiency program that we introduced at the beginning of the cyclical downturn in 2018 made a significant contribution to EBITDA and helped us achieve an EBITDA margin in 2019 that was well above previous cyclical lows.

“We have a solid and simple business strategy built around the three ­pillars of growth, profitability and free cash flow.”

Ultimately, we want to generate healthy and sustainable free cash flows so we have the financial strength to take advantage of the many growth opportunities to come in this dynamic and exciting business. We are also committed to paying a sustainable dividend. In 2019, we continued to drive improved working capital management, and with the completion of our expansion at the Malaysia plant, lower capital expenditures in the coming years will further support free cash generation.

These three pillars describe our approach to creating long-term economic value, but we also recognize the need for sustainable value creation along social and environmental dimensions. These include building our talent base, transferring know-how and expanding our supply chains to create value for our people and their communities in Switzerland, Romania and Malaysia, as well as developing production methods that reduce our physical impact on the environment. For example, we are using ground-source heat pumps to cool buildings during the summer and are participating in an energy-saving initiative in Malaysia using solar panels on the roof of our plant there. We will continue to build a sustainability culture in VAT that both supports our business development and guides the attitudes and behaviors of all of our employees.

As I’ve said in previous letters, VAT’s biggest asset is its people and 2019 confirmed this. Our approximately 1,800 people around the world turned in an excellent performance in a very challenging business environment. On behalf of the Board of Directors and Executive Management, I’d like to thank them for their commitment and engagement.

I’d also like to thank our shareholders for their trust in our company and I’m pleased to report that we will again recommend a dividend of CHF 4.00 per share.

Our long-term market outlook remains very positive. We are still at the beginning of the Digital Era. Device interconnectivity and the Internet of Things, cloud computing, new mobile data applications coming through the rollout of 5G telecommunications, smart personal devices, automated homes: there is no end in sight to global digitalization and the high­-precision products needed to make it happen.

As we move into this new world, we will intensify our focus on meeting and exceeding our customers’ demands by continuing to innovate: new valve designs, new materials, new product modules and actuating systems, new service products, and new interconnected “smart” valve products and systems that will further improve our customers’ performance. Increased organizational flexibility will remain a management priority, together with a stronger drive to build a sustainability culture in which we can ensure value creation for all of our stakeholders.

I look forward to working with all of you to achieve this goal.

Sincerely,

Dr. Martin Komischke
Chairman of the Board of Directors

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