New focus and the right competencies set direction
Beijer Electronics is making a new start in 2016 by creating a solid and streamlined platform for longterm profitable growth. The plan has been set. It begins with the events of 2015, our market position and the competitive climate.2015 was disappointing for the group as a whole, with lower sales than expected and unsatisfactory profitability. However, we also had significant success in the year. The IDC business area made convincing progress. With a sales increase of close to 20% IDC reached a new milestone at over half a billion SEK in sales.
Investments in IDC’s growth
The business area’s extensive investment and expansion program proceeded as planned, particularly in subsidiary Westermo. Although profit figures are down due to planned cost increases in development and markets, the outcome remains within the framework of the plan.
The investment program has focused on recruiting product development staff, while a number of new products have also been launched. In 2016, the emphasis will shift to recruitment in marketing, sales and support, which will help IDC safeguard its high growth. Westermo also confirmed its global leadership in the train segment in the year, and received a major repeat order from Toshiba for the supply of communication network equipment for the Washington Metropolitan Area Transit Network. Korenix also won an important breakthrough order for wireless networks from Taiwan Power.
IDC’s success illustrates its strong competitive position internationally, and progress in 2015 confirms that the business area looks set to achieve its sales and profit targets in 2017. The goals are annual sales of around 800 MSEK and an operating margin above 14%.
Multiple factors behind downturn in IAS
As the group’s new CEO, I will be allocating significant resources to turning IAS around. The business area was hit by several setbacks last year, with the termination of the contract with Mitsubishi Electric and the dramatic demand downturn in the oil and gas sector in the US. This led to a substantial reduction in sales and weak profitability in 2015. Exchange rate effects also had a negative profit impact of just over 22 MSEK, as Beijer Eletronics’ USD-denominated purchases were higher
than equivalent sales for the year.
Just as temporary problems have revealed some weaknesses, they have also created new opportunities. IAS rests on a solid platform and has a presence on the right geographical markets. Still, a review of operations revealed a need to refine some strategies and streamline the execution process. Basic operations need to return profitable growth. The problems in recent years are the result of too many products approaching end-of-life coupled with an unfavorable USD exchange rate. We will address these factors in 2016.
In January, we initiated a further program of measures aimed at reducing costs by 50 MSEK annually, which will take full effect in 2017. Like all businesses, Beijer Electronics is affected by global economic trends. However, with the exception of Scandinavia, we’re a small player in global terms, and this means that we should be able to return growth regardless of economic conditions.
Shift in focus creates growth potential
Using IDC as a model, our ambition is to ensure that IAS finds market segments and niches that return growth and high profitability. Rugged operator panels for demanding environments such as the oil and gas sector can be included in other segments such as energy and mining, for example. In other words, it’s better to be a big player in a niche than a minor player on a large market.
The program of measures incudes a partly new marketing organization and rationalizations in manufacturing. The objective is to create a more customer-oriented, closely knit and flexible organizational structure. Ultimately, we want to increase the proportion of software sales, step up the focus on selected segments for rugged operator panels and focus our resources on fewer markets while reaching larger customers.
At the same time, there’s a great deal going on in IAS. The product offering is gradually being renewed and more sales will be derived from middle-of-life products in a few years’ time. We’ve already achieved a great deal in terms of software product development for our smart operator panels. In 2015, we launched the new software version iX 2.20. The business area also successfully implemented a cost savings program in the year.
This means that we face positive prospects of turning IAS around and achieving our long-term objectives of positive growth and an operating margin of some 10%.
Anniversary marked by new identity
In 2016, Beijer Electronics is marking its 35-year anniversary by entering a new phase. Beijer Electronics was founded in 1981 on the basis of the Mitsubishi Electric distribution agreement; a collaboration that terminated at year end. Although this implies a short-term sales decrease of about 150 MSEK in 2016, it also creates new opportunities and a sharper focus on proprietary products, which will now provide more than 90% of sales.
My first six months as CEO of Beijer Electronics have clearly shown the competencies and professionalism of our people in the IAS and IDC business areas. Capitalizing on our employees’ expertise and potential will be a critical factor in the forthcoming change process and is the key to our success.
In 2016, we face the challenge of smoothly implementing restructuring and measures in IAS, while ensuring that IDC maintains positive growth. We’re focusing on 2017 and the ensuing three years, when we expect to see results in line with our targets. Sales in 2016 are expected to be down in the first six months, while a slight improvement on 2015 is expected in the second half of the year. Overall, we expect the group to return slightly reduced net sales and slightly improved operating profit excluding non-recurring costs for the full year 2016 compared with the outcomes 2015.
President and CEO