Annual Report 2000/01 Carlo Gavazzi Group

Transcription

1 Annua Report 2000/01 Caro Gavazzi Group

2 At a Gance Caro Gavazzi achieves a record resut Net income up by 31 % to reach CHF 13.9 miion Revenue increase of 11 %, hitting the CHF 500 miion mark Automation Components starts on its growth path by successfuy competing a first strategic acquisition Engineering and Contracting reports operating margin of 7.7 %, a benchmark achievement in this type of industry Eectronic Packaging achieves another record resut (CHF miion) 2000/ /00 % Bookings Operating revenue EBT Net income Cash fow nterest-bearing debt Sharehoders equity Operating revenue (CHF miion) Operating revenue by business unit (CHF miion) /97 97/98 98/99 99/00 00/ % 37 % 32% Eectronic Packaging 185 Engineering and Contracting 163 Automation Components 153

3 Five-Year Financia Summary (CHF miion) 2000/ / / / /97 Bookings Order backog Operating revenue Gross profit EBTDA EBT Earnings before taxes and minorities Net income Cash fow* Net cash provided by operating activities** Free cash fow*** Depreciation and amortisation Additions to fixed assets Accounts receivabe nventories Uncompeted contracts, net Net working capita Current assets Fixed assets, net ntangibe assets, net nterest-bearing debt, net Current iabiities Long-term iabiities Minorities Sharehoders equity Tota iabiities and sharehoders equity Number of empoyees (average) EBT Net income (CHF miion) (CHF miion) /97 97/98 98/99 99/00 00/ /97 97/98 98/99 99/00 00/ * Net income + depreciation + amortisation + change in provisions - gain (oss) on sae of investments or assets ** As defined by US GAAP (page 29) *** Net cash provided by operating activities additions to fixed assets

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5 Annua Report 2000/01 Caro Gavazzi Group 1

6 Art Photos n connection with this year s annua report, a competition among students of the University of Art and Design (Hochschue für Gestatung und Kunst), Zurich, was aunched and sponsored. The task given evoved around an artistic interpretation of this year s theme Movement and Contro in the context of the industria activities performed by the group s three business units. The three fu-page photos shown on pages 11, 15 and 19 represent the visuaisation by Nicoe Krauer and Petra Zbinden. Automation Components (page 11) The eectron beam manifests sensing, measuring and dispaying, key activities in industria processes. Engineering and Contracting (page 15) The aser beam symboises the awesome power of the energy sector. Eectronic Packaging (page 19) The computer screen iustrates the data and communications revoution of the ast decades. Pubisher CARLO GAVAZZ HOLDNG AG Sumpfstrasse 32 CH-6312 Steinhausen, Switzerand Phone Fax E-Mai gavazzi@carogavazzi.ch 2 CARLO GAVAZZ GROUP

7 ndex Caro Gavazzi Group 4 Group Profie 6 Letter to the Sharehoders 8 Review of Operations 10 Automation Components 14 Engineering and Contracting 18 Eectronic Packaging 22 Corporate Functions 24 Consoidated Financia Statements Caro Gavazzi Hoding AG 44 Financia Statements Appendices 50 Group Companies and Contact Persons 55 Caro Gavazzi on the nternet 56 Gossary 3

8 Group Profie Our mission The Caro Gavazzi Group is an innovator in the design, manufacturing and marketing of eectronic and eectric equipment targeted at the goba markets of industria automation, energy and environment and information processing. Our structure Caro Gavazzi is a diversified, internationayactive industria group organised in three business units under the umbrea of a hoding company. t is the function of the hoding company to ensure panning and deveopment of the group s business portfoio, to choose a coherent set of strategies and objectives, to monitor their impementation and the efficiency of the corresponding management toos and processes, to seect the upper-eve management, to directy manage corporate finance, controing, tax panning, management information systems, communication and investor reations. The business units operate separatey within the framework of defined strategies and objectives; they are responsibe for research and deveopment, manufacturing, quaity assurance, marketing and saes, human resources, ogistics, finance and contro. Group executives ead their business units as autonomous businessmen with strong entrepreneuria drive and fu profit and oss and baance sheet responsibiity. Our objectives For customers To provide them with technoogicay innovative and competitive soutions, in compiance with their requirements and expectations. For empoyees To create an environment conducive to their professiona and persona deveopment. For sharehoders To obtain a fair and equitabe return on their investment through sustained deveopment of our core activities. Our principes Customer focus To create added vaue for our customers by identifying and meeting their requirements and estabishing ong-term partnerships. Organisation To adapt structures and processes to market needs and deegate responsibiity. Corporate cuture To promote an environment conducive to mutua respect and cooperation. Management stye To mark cear eadership and integrity by doing what we say. 4 CARLO GAVAZZ GROUP

9 Our activities Automation Components Business Unit This unit designs and manufactures in its own factories, ocated in Denmark, tay and Mata, eectronic and eectromechanica contro components for the goba industria automation markets. Products (sensors, monitoring reays, timers, soid-state reays, eectronic motor controers and fiedbus systems) provide automation soutions for machinery, equipment, pants and buidings. Typica customers are origina equipment manufacturers of packaging machines, pastic-injection mouding machines, conveying and materia handing equipment and ifts. Products are marketed across Europe and North America through a network of 16 whoy-owned Caro Gavazzi saes companies and in other countries by more than 40 independent nationa distributors. Engineering and Contracting Business Unit This unit is a turnkey suppier of eectrica, instrumentation and contro packages for energy production and distribution as we as for environmenta protection and industria process appications. t aso engages in the turnkey suppy of smaer power pants fueed by renewabe energy sources, eectrica substations and water treatment pants. The range of services incudes project management, engineering, procurement, instaation, commissioning, maintenance and training. Customers are pubic and independent power producers, municipaities and industria companies in tay, the Midde East and the Asian Pacific Basin. Eectronic Packaging Business Unit This unit designs, manufactures and markets in the USA encosures and cabinets for the packaging and interconnection of eectronic system modues. The use of its high-speed backpanes aows fast and interference-free data transfer among these modues. The system integration activity provides customers with compete and fuy-tested systems on a turnkey basis. Recenty, the portfoio was extended to incude the design and manufacture of industria PCs and /O-soutions. Eectronic Packaging operates manufacturing faciities both on the East and West Coasts of the USA. The unit s main customers are manufacturers of commercia and miitary teecommunication equipment, mass-storage soutions for data processing, speciaised computers, medica equipment and systems for industria automation. 5

10 Letter to the Sharehoders Dear sharehoders Review of the year This annua report marks the second year of record profits for the Caro Gavazzi Group, consistent with our promise to the sharehoders of regaining trust by showing continued improved performance. Revenue grew by 11 %, net income by 31 %. Net interest-bearing debt decreased by 21 %. The year was good for a business units and market conditions were positive throughout the caendar year As is we known, at the beginning of 2001 a potentia sowdown in some technoogy markets became apparent. We have no evidence to date that these market changes coud have a asting effect on our business. The stock market showed a high degree of confidence in our company. The share price increased markedy from CHF 164 to CHF 243 during the year under review. This means that over a period of two years the share price has appreciated by more than 150 %. Our management and empoyees have demonstrated quaified capacity and strong commitment to achieve the objectives set by the board of directors at the beginning of the year. The present simpe, ean organisation portrays a high eve of decentraisation. Management incentives are based upon our main benchmarks, operating profit and Economic Vaue Added (EVA). The share and stock option pans presenty in pace are aimed at transforming managers into entrepreneuria owners. Financia resuts The year 2000/01 was dedicated to predictabiity and profitabiity. A financia parameters improved, incuding our main performance benchmarks EVA, EBT and cash fow. We have this year started our drive for interna and externa growth. With the resuts presented in this annua report, we perceive our share price to be undervaued in terms of price-earnings ratio. Consequenty, the Caro Gavazzi Group wi continue its drive for further improvement in profitabiity. As our baance sheet is now substantiay stronger, we sha give more emphasis to our pans for externa growth in the future. Automation Components The market for Automation Components grew on an industry average around 4 %. January to March 2001 did not yet revea any serious impact from the overa eectronic downturn. Our core product ines, sensors, contros and soid-state reays, have together grown above market average achieving doube-digit rates, whereas revenue from third-party products and eectromechanica reays has decreased by 20 % over the ast two years. Our strategy of focusing on areas where we have superior growth possibiities, with associated better margins, is thus paying off.the Automation Components Business Unit has now turned its sights to interna and externa growth. The acquisition of SAET Eettronica SpA is a first exampe of our externa growth strategy. We sha, however, continue to be very specific and critica when seecting potentia candidates. Eectronic Packaging The market in which the Eectronic Packaging Business Unit operates was positive unti December The impact on our business unit of the subsequent USA downturn in the eectronics industry was essened somewhat by miitary customers and diversified industries that portray a ess pronounced cycica behaviour. Our high-end industria PCs experienced heathy growth with some noteworthy break-through orders mentioned ater in this annua report. ndependent of the present downturn we continue to invest heaviy in this strategic segment. n CompactPC we have continued to expand our range of products from encosures, backpanes to /O boards and Pentium - based singe board computers. Enzo Urbani Chairman of the Board Engineering and Contracting n the Engineering and Contracting Business Unit we continue to buid on our successfu doube-track strategy: a) growth in environmenta and infrastructure pants in tay and b) overseas expansion into instaation projects in the Midde East. The newy-formed ndustry Division became a reaity and a success in 2000/01. t has started the new financia year with a backog which secures 100 % of the projected revenue for the current year. As a resut of concentrating on operationa exceence, our operating profit has once again improved to a heathy 7.7 % margin. We beieve that we are amongst the top performers in the internationa fied of Engineering and Contracting. n the coming years we sha increase our presence in service-oriented soutions, where revenues tend to be more stabe and risks somewhat ower. As a first resut, we have booked the first orders for decentraised power pants as we as operation and maintenance. Uf Berg Chief Executive Officer 6 CARLO GAVAZZ GROUP

11 Strategic direction Over the past years we have foowed a strategy of focusing the group towards high-tech businesses with sustainabe positions. After competing the eimination of non-performing entities with ow strategic vaue, we have this year entered the phase of soid profit improvement and profitabe growth. The previous years were thus characterised by a cautious Profit before Growth. We are now shifting the emphasis towards Profitabe Growth, athough growth remains secondary to profit. The year 2001 marks the 70th anniversary of the Caro Gavazzi Group a miestone that is reason enough to refect on the group and its basic strengths and competence. We have chosen Movement and Contro as the theme for this anniversary, as we as for this year s annua report. This refects the duaity of management and the core of the group s present situation: we are in a process of change but sha keep our destiny we under contro. Since Automation Components was our focus for many of the now competed streamining operations, it is natura that this business unit was the first to start on the track of externa growth. The post-acquisition processes have been executed ahead of time and better than panned. Therefore, it can be expected that this business unit sha continue on its path of carefu growth. The Eectronic Packaging Business Unit wi this year concentrate on consoidating the business, in the ight of potentia impacts from the economic downturn. Consequenty, as a precautionary measure we have reduced our capacity somewhat in the first month of the new financia year. Our strategy to deveop more high-tech soutions in the segment of active computer boards remains unchanged and we sha continue our investments accordingy. Engineering and Contracting has by now competed its restructuring process and, as a consequence thereof, has reduced its permanent workforce in tay by 39 %. n the years to come we sha deveop service-oriented business soutions towards operation and maintenance, pant service and decentraised power. First successes in this new direction have aready been achieved. A expansion projects in Engineering and Contracting are carried out on the basis of better than a one-year cash payback. With our business units we under way, it is now time to address the Caro Gavazzi Group s overa direction. t is our intent for the coming years to deveop into a rejuvenated, agie group with a much improved technoogy portfoio. We sha seek to be diversified regionay and have a broad customer base whie remaining focused on an eectronic product portfoio. Outook Predicting overa market conditions for industry is at present a difficut task. Our expectations are that our Eectronic Packaging activities shoud revert to growth by September/December and that any potentia spiover effect from the US on the Automation Components activities in Europe shoud not be substantia. Engineering and Contracting shoud not be impacted significanty due to its focus on basic infrastructures. Further, due to dereguation, the taian energy market is very strong. Caro Gavazzi 70 years As mentioned before, the financia year 2001/02 marks the 70th anniversary of our group. Founded in Mian in December 1931 by Caro Gavazzi, the company quicky grew to a sizeabe taian, then European operation. Today the group is present on a continents with a wide range of proprietary product offerings. Throughout the years, the group has been committed to foster technoogy and expand markets, serving customers in a fast and efficient manner. The ogo of our anniversary refects the restess, cosmopoitan spirit that has aways pervaded it. Thanks Specia thanks go to a of our empoyees for their creativity and commitment, which resuted in the more recent years progressivey positive resuts. We woud aso ike to thank our customers and sharehoders who have shown confidence in the Caro Gavazzi Group. Enzo Urbani Chairman Uf Berg Chief Executive Officer 7

12 Review of Operations Structure n contrast to previous years, the organisationa structure of the group remained stabe during the year under review. One acquisition was made by the Automation Components Business Unit, which compensated for the revenue oss due to the sae of the German drives activity in the previous year. The size of the three business units remains in the same order of magnitude, with revenues ranging from CHF 155 to CHF 185 miion each. Bookings and backog Compared with the previous year, consoidated bookings increased by CHF 78 miion to reach CHF 496 miion. The financia resuts of the individua business units (pages 10, 14 and 18) show that a business units achieved an increase in their booking eves. However, the main increase is attributabe to the Engineering and Contracting Business Unit, reporting an increase of cose to 50 % against the previous year. This increase resuts from the cycica award of arge projects, typica for the engineering and contracting type of business. n the year under review, Engineering and Contracting secured an additiona order for a biomass-power pant in tay and the eectrica refurbishment of eight oi patforms in Kuwait. The order backog for the group at the year-end amounted to CHF 203 miion, corresponding to work on hand for approximatey five months. ncome statement Consoidated operating revenue increased by CHF 51 miion to CHF 500 miion. By hitting the haf biion mark, the Gavazzi Group has achieved a compounded annua growth rate of 11 % over the past five years. A business units contributed to this revenue Geographica revenue distribution 2000/ /00 14 % 10 % 35% North America tay Europe without tay Rest of the word 41% 18 % 9 % 33 % North America tay Europe without tay Rest of the word 40% Key figures (CHF miion) 2000/ /00 % Bookings Operating revenue Gross profit SG&A expense EBT Net income Cash fow growth, with Engineering and Contracting and Eectronic Packaging achieving doube-digit increases of 15 %, foowed by Automation Components with a reativey modest 4 %. The different growth rates in the three business units ed to the beow specified geographica revenue distribution of the group. Gross profit improved by CHF 12.3 miion to CHF miion, mainy due to the increase in voume. The reduction of the consoidated gross margin by 0.5 percentage points to 28.6 % is predominanty attributabe to the different growth rates in the three business units, which ed to a changed composition of the consoidated margin. Anaysing the gross margin of the individua business units, two units show sight margin improvements of 0.1 to 0.3 percentage points, whereas Engineering and Contracting reported a decrease of 0.5 percentage points. Seing, genera and administrative expense increased by CHF 8.1 miion to CHF miion or 8 %. However, as a percentage of revenue these expenses decreased from 22 % to 21 % in the previous period. Over a period of five years these costs have steadiy decined from 27 % of revenue to today s eve. The average number of personne rose by 200 or 8 % to empoyees. Over 80 % of the increase is attributabe to temporary project-reated hires. Out of the tota workforce, 1040 empoyees of the Engineering and Contracting Business Unit are empoyed on a project reated basis. Excuding temporary project-reated hires our workforce changed from 1630 to 1660 or by 2 %. This refects a marked increase in overa productivity. Tota personne expenses increased by 4 % to CHF 122 miion compared with CHF 117 miion in the previous year. Research and deveopment expenditure was hiked by CHF 1.9 miion to CHF 12.3 miion. This rise in cost is predominanty inked to the increased focus on new deveopments in the Automation Component s core product ines (sensors, soid-state reays and contros) and to the design of state-of-the-art CompactPC 8 CARLO GAVAZZ GROUP

13 processor boards for the industria PC markets. Expressed as a percentage of the reevant revenue, this future-orientated expense reached 3.6 %. As in the past, this expenditure was charged in fu to the income statement. Depreciation and amortisation of tangibe and intangibe assets resuted in a charge to the income statement of CHF 11.2 miion, a decrease of CHF 1.0 miion compared with the previous year. The decine is due to the ower amortisation charge resuting from a goodwi decrease foowing the sae of the German drives activity in the previous year. The income statement ine restructuring and other income (expense) incudes mainy costs arising from the restructuring of the instaation activity in tay with the aim to create a eaner and more fexibe organisation. With earnings before interest and tax (EBT) of CHF 29 miion or 5.8 % of revenue, the Caro Gavazzi Group has ceary outperformed ast year s resuts. The increase amounted to CHF 1.9 miion or 7 %. A business units contributed to this improvement, with increases in operating profit eves of between CHF 0.6 and CHF 3.2 miion. As in the previous year, Engineering and Contracting reported, once again, a marked increase in operating profit reaching 7.7 % of revenue. Noteworthy is aso the performance of Eectronic Packaging, reaching an operating profit eve of CHF 17.0 miion or 9.2 % of revenue. A business units of the group achieved operating profit margins exceeding 7.5 %. Earnings before income taxes and minorities reached CHF 23.9 miion. After the deduction of taxes (41 % of pre-tax earnings), the group was abe to report a net income of CHF 13.9 miion. This represents an improvement of 31 % compared with ast year. Over a period of five years, the compounded annua growth rate of net income amounts to 23 %. The group is proud to add another year to the continuation of the steady annua resut improvements since As a resut of this doube-digit earnings number, the return on equity (ROE) cimbed to 11 %. The return on capita empoyed (pre-tax cacuation) amounted to 16 %. The economic vaue added (EVA) amounted to CHF 4.3 miion, refecting the additiona vaue which the group has generated after having paid for cost of the invested capita. The weighted average cost of capita appied amounted to 7.5 %. With CHF 24.8 miion or 5 % of revenue, the cash fow increased by CHF 7.0 miion compared with the previous year. Due to yet another strong reduction of the net working capita, the impact on net cash provided by operating activities was even more pronounced, reaching CHF 31.5 miion. This impied that the free cash fow (net cash provided by operating activities minus purchase of fixed assets) reached CHF 18.9 miion, which in turn impacted the net interest-bearing debt positivey. Baance sheet Despite the increase of 11 % in revenue, net working capita decreased by CHF 11 miion or 10 % to CHF 105 miion. Assets empoyed in trade receivabes (net) increased marginay by 1 % to CHF 132 miion, whereas the average payment period, however, decreased from 87 to 86 days. The vaue of inventories at CHF 57 miion increased by 5 %, resuting in inventory-turns (cacuated on the basis of cost of goods sod) of 4.3 times. The net increase of work-in-progress in the order of CHF 16 miion refects the two arge biomass pants under construction by the Engineering and Contracting Business Unit. As a resut of the acquisition of SAET Eettronica SpA, a eading sensor speciaist ocated near Boogna, the vaue of intangibe assets increased by CHF 4 miion. The newy acquired goodwi wi be written off over a period of 15 years. At the end of the reporting period, net interest-bearing debt contracted, yet again, by CHF 11 miion to a record ow of CHF 41.6 miion. This deveopment was mainy driven by the effective asset management eading to a ower net working capita despite an 11 % increase in revenue. Debt owed to financia institutions at year-end was thus 70 % ower than the sharehoders equity incuding minority interests. Sharehoders equity increased by 7 % to CHF 130 miion. Due to the weakening of the European currencies against the Swiss franc, currency transation adjustments of CHF 1.4 miion affected the equity negativey. n addition, dividends amounting to CHF 2.8 miion were paid out to the sharehoders during the year under review. n reation to tota assets, sharehoders equity and minorities amounted to 33 %. Key figures (CHF miion) 2000/ /00 % Net working capita Current assets Fixed assets, net ntangibe assets, net Net interest-bearing debt Minorities Sharehoders equity Tota iabiities and equity

14 Automation Components Review of operations Robust economic cimate in Europe The wordwide industria automation market grew on average at a rate of 4 to 5 % in the year under review. Whereas the European economy remained robust throughout the reporting period, the US and some Asian marketpaces started to show signs of weakness during the fourth financia quarter. Soid financia performance Bookings and operating revenue rose by 3 and 4 % respectivey. The positive book-to-bi-ratio achieved by Automation Components provides for a good start into the new financia year. n terms of revenue, the acquisition of SAET Eettronica not ony offset the sae of the German drives activities which was divested at the end of the previous year, but aso strengthened the business unit s market penetration with sensor products. These and the soid-state switching devices, both core product ines of the business unit, achieved doube-digit growth. Compared with the previous year, the sae of non-core products, particuary in the fied of dedicated eectromechanica devices for power and transportation, stagnated or continued to decine. Thanks to the continuous efforts to improve manufacturing effectiveness and through rejuvenating the product portfoio with new products and products with enhanced features and functionaity, Automation Components succeeded in coping with the ongoing price erosion in the market. The resuting higher gross margin together with cost-contro measures improved the operating profit again to reach 7.6 % of revenue. The average number of empoyees increased sighty foowing the acquisition and additiona hirings to strengthen R&D and seing activities. A strategic acquisition A andmark event in the reporting period was the acquisition of SAET Eettronica SpA, a manufacturer of sensing devices, ocated near Boogna, tay. The acquisition provides considerabe synergies in practicay a areas. The company s products comprising miniaturised inductive proximity sensors, magnetic proximity sensors and a range of safety devices, ideay compement Automation Components existing product portfoio. Further, SAET s saes outside tay amounted to 10 % of tota revenue ony. The combination of these two factors aowed the quick introduction of the acquired product ines into the business unit s extensive internationa saes network. n tay, SAET serves a number of renowned OEMs with its sensor range. Taking advantage of these existing customer reationships wi generate cross-seing of additiona products currenty marketed by Automation Components. As the company outsourced most of the manufacturing processes, additiona benefits can be expoited by moving the production to our Danish sensor faciity. n addition, SAET brings proven design competence into the sector of safety devices, which is considered a growth opportunity. Major efforts wi therefore be made to expand the current product ine. Management is happy to confirm that the postacquisition process is ahead of schedue and that subsequenty the synergetic potentia wi come to fu fruition in the current financia year. Dino Masii, Group Executive Expansion of presence in Asia Saes to customers in this region deveoped we in the year under review. Management attributes this resut to the enhanced presence in this area where, two years ago, the business unit estabished a regiona training centre for independent distributors. Taking advantage of the momentum created, the business unit carefuy expored the next steps for expansion. The ony way to sustain the rapid growth of market penetration is to get even coser to the current and potentia customer base, to understand their requirements and to prompty respond to their needs. Therefore, the We are fiing the channes to the market with new and innovative products. Financia resuts (CHF miion) 2000/ /00 % Bookings Operating revenue Operating profit Number of empoyees CARLO GAVAZZ GROUP

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16 Environmenta-friendy generation of eectrica energy. The wind sensor is an important component of the generator s measuring and contro system. Contrary to conventiona devices, static wind sensors that measure air speed and wind direction have no movabe parts and do not fai under rough weather conditions such as snow, haistorms and icing. Environmenta-friendy generation of eectrica energy. The wind sensor is an important component of the generator s measuring and contro system. Contrary to conventiona devices, static wind sensors that measure air speed and wind direction have no movabe parts and do not fai under rough weather conditions such as snow, haistorms and icing. Automation Components has a ong-standing reputation for suppying reiabe photoeectric sensors to the car wash industry. The spray and dirt inherent to this process do not hamper operationa function. t is no coincidence that these products are aso used in stateof-the-art car wash pants for high-speed trains eggs per hour are graded and packed by this system which aso comprises oader, feeder and unoader modues. Automation Components phase sequence reays monitor the smooth and uninterrupted operation of the conveyer bet. High operationa avaiabiity is expected of pastic injection mouding machines. As down-time is an important cost factor, a mafunction has to be detected in the fastest possibe way. Therefore, fai-safe soidstate reays with oad circuit monitoring are used for heating contro and for switching the conveyer pumps in the granuate dryers. business unit wi make further investments in this region by opening a fu-fedged regiona saes and marketing office in Kuaa Lumpur, Maaysia. Product innovation Severa products strengthening and compementing the existing product offering were aunched during the year. The new generation of soid-state reays for printed circuit board mounting feature a further significanty increased ife span thanks to the utiisation of a new soft compound that reduces the mechanica stress inside the reay. Users appreciate the avaiabiity of a muti-votage feature for the contro input, which drasticay simpifies procurement and contributes to stock reduction. Fast reaction time or phase contro capabiities are typica demands in many factory and process automation appications. The switching devices handing these situations have thus to compy with these requirements. Therefore, the mouding mass free ine of soid-state reays aunched in the previous year was extended with instant-on switching types. Additiona ow-votage versions of soid-state switches address in particuar heating, ventiation and air-conditioning appications in buiding automation. Additiona ines of inductive proximity sensors feature specia shapes and extended detection ranges. They are aso capabe of withstanding high temperature. To expoit additiona potentia in the materia handing, packaging, automatic doors and machine toos segments, a fu famiy of miniaturised photoeectric switches was aunched in autumn To detect the rotation direction of eectrica motors and to prevent damages from phase sequence faiures, the range of monitoring was extended with a phase sequence reay in a compact housing. Strategy and focus Automation Components has come a ong way from being an over-diversified operation with a weak presence in some geographica areas. t has diigenty pursued a strategy of focusing on a imited number of core product areas. As a consequence, the unit streamined the manufacturing activities by structuring production in competence centres, each dedicated to a core product area. t divested activities of non-strategic importance and now made a first strategic acquisition in the year under review. 12 CARLO GAVAZZ GROUP

17 Foowing the estabishment of a stronger presence in the Asian markets, it can be expected that the business unit wi seek further geographica expansion by setting up a foothod in Latin America. Management is convinced that the strategy to focus on core product ines such as sensors, soid-state switching and contros for specific appications and ceary determined markets is the key for the future success of the business unit. n this context, three principa initiatives are paramount: product innovation, access to new markets through both organic and externa growth, and the consistent pursuit of operationa exceence. growth in bookings, revenue and operating profit. n order to strengthen its core product ines, management continues to pursue further strategic acquisitions. Outook Management forecasts a modest growth for the wordwide industria automation market. n Europe, the main market area for the business unit, some nationa saes operations recognised a weakening in the ordering pattern during the past months. The signs of a sowdown in the US economy starting eary 2001 and affecting particuary the teecommunication and computer industry have not yet affected the American operations, which continued to enjoy heathy growth in bookings and revenue. As a consequence of these deveopments, Automation Components takes a cautious approach and pans for singe-digit interna Operating revenue (CHF miion) /97 97/98 98/99 99/00 00/ Operating profit (CHF miion) /97 97/98 98/99 99/00 00/

18 Engineering and Contracting Review of operations Market environment The domestic energy market was characterised by the privatisation of ENEL, the impementation of environmenta reguations and the need for net import of eectricity into tay. The Energy Division benefitted from growing demands for power pants fueed by renewabe sources a consequence of the Kyoto protoco on the emission eves requiring a two percent of the tota eectrica energy production to come from renewabe sources such as wood, soid waste, hydro, wind, soar, etc., within the next few years. n the water treatment and distribution sector, the further deay in the privatisation of the water faciities resuted in the postponement of major projects, athough a number of projects of a smaer size were tendered. Foowing the price increase in crude oi, Saudi Arabia saw higher investments in the oi and petrochemica markets. Whie seeking investments by PPs, the pubic energy authorities sowed down their own investments in the power generating markets. Further improvement of resuts The Engineering and Contracting Business Unit continued on the previous year s trend and further improved bookings, operating revenue and operating profit. t is management s opinion that the operating profit, which by now is cose to 8 % of revenue, represents a good benchmark figure for the type of activities performed by the business unit. Positive were the contributions from the taian-based Energy Division and the Saudi Arabian subsidiary, which continues to deiver exceent resuts, year after year. Both units exceeded their financia targets. During the year under review, the newy formed ndustry Division succeeded in securing its operating revenue for the current year by acquiring projects both in the domestic market and in those foreign countries in which the business unit operates. The atter wi be executed jointy by headquarters and the foreign subsidiaries. The increase in the average number of empoyees was mainy due to a number of arge projects executed by the Saudi Arabian and Egyptian units. More than peope are empoyed on a temporary, project-reated basis in these countries. n contrast, the workforce of the taian-based operations was reduced by 39 % over a two-year period. Power pants projects The Energy Division neared competion of its two first biomass-fueed power pants, executed on a turnkey basis. The two 10 MW pants are ocated in Crotone, southern tay, and Bando d Argenta near Ferrara, northern tay. For the Crotone project the provisiona acceptance certificate (PAC) is expected during June 2001, whie for Bando d Argenta the competion of this miestone is panned for the second financia quarter. The division was awarded a contract for Crotone s second 10 MW unit in Juy 2000, with competion expected by September The 180 MW combined-cyce power pant ocated in Servoa near Trieste was successfuy competed with commercia operation commencing in December The pant, which is fueed by natura gas mixed with recovery gases from a stee production process, was reaised by a consortium consisting of Ansado Energia (power bock and mechanica baance of pant), Moras (civi works) and Caro Gavazzi mpianti (eectrica systems). As an EPC contractor, Caro Gavazzi mpianti was responsibe for a eectrica systems and for the erection of the pant, which was carried out by the business unit s instaation arm. n March 2001, the 1.8 MW co-generation pant ocated in Foggia, southern tay, successfuy passed the efficiency tests. Caro Gavazzi s scope of suppy incuded boier, heat-exchanger, eectrica system, PLCbased contro system and civi construction. As eader of a consortium, the ndustry Division obtained a contract for eectrica and contro systems for one GianMaria Gabriei, Group Executive With a benchmark performance of neary 8% operating margin we have buit a soid foundation for future deveopment. We are proud of it! Financia resuts (CHF miion) 2000/ /00 % Bookings Operating revenue Operating profit Number of empoyees* * thereof temporary project-reated CARLO GAVAZZ GROUP

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20 The business unit s first biomass-fueed power pant ocated in Crotone, southern tay, nears its competion. The pant wi produce 10 MW of eectrica energy through the incineration of wood-chips. Another 10 MW unit is under construction near Ferrara in northern tay. Recenty, a contract for the erection of a second unit in Crotone was aso paced with Caro Gavazzi. CG dross competed the revamping of the wastewater treatment pant and the sewerage network on the Capri sand on a turnkey basis. An additiona bioogica treatment stage was aso incorporated in this system that serves a nomina popuation of and up to during the tourist season. The ndustry Division competed the refurbishment of the eectrica systems of three mid-town and two suburban stations of the Rome subway. The competence of Engineering and Contracting in the urban transportation fied is confirmed by simiar orders for the Copenhagen subway and the raiway ink between the internationa airport and the centra station in Kuaa Lumpur, Maaysia. Large oi tankers berth way off the coast to unoad their cargo. The oi oading system on the offshore patform on the Fiumicino coast near Rome was equipped with an automation and contro system designed and suppied by the Contro Systems Division. of the word s argest hydropower pants currenty under construction in Pont-Ventoux, Va di Susa near Turin. The compexity of the project stemmed from the space constraint and difficut access to the site, which is entirey encapsuated in a cavern. Continued success in environmenta protection The most important project competed by CG dross during the year was the wastewater treatment pant and sewerage network for the se of Capri. The company carried out a revamping of the existing wastewater treatment pant by adding a new bioogica treatment phase and a new sewerage system. The pant has to dea with the nomina popuation of as we as the peak of during the tourist season. CG dross competed the water treatment pant of the Via d Este fountains in Tivoi near Rome. n 1998, the pubic authorities prohibited the use of water from the Aniene River due to the dangerous coibacius content. The company suppied the entire purification pant with a softening treatment that modifies the aggressive water characteristics, a fitering phase that cuts down particuate over 25µ, and a fina treatment by a UV-unit to nuify the bacteria content to practicay zero. nteresting transportation projects The ndustry Division competed the Tirrenica raiway project, which incuded the impementation of a new contro system in three power-conversion substations feeding power aong a raiway ine on the northwest coast of tay. CG Maaysia secured the order for the instaation of the feedpower ine for the raiway ink between Kuaa Lumpur s new internationa airport and the new centra station. This third order in the transportation sector, after simiar ones acquired in Copenhagen and Rome, confirms Caro Gavazzi s internationa expertise and competence in this market segment. Petrochemica and oi & gas The ndustry Division competed the refurbishment of the eectrica and &C systems for the gas storage and pumping station in Cortemaggiore, tay. CG Maaysia performed a eectrica and instrumentation works, incuding testing and pre-commissioning of the Fexsys-Cap2 petrochemica pant in Kuantan. Fexsys, a renowned Canadian company, hods the wordwide patent to produce Cristex, a catayst used for the production of car tyres. The Kuantan pant is the ninth faciity of this kind in the word and the argest in Asia. During the year, the ndustry Division obtained a arge 16 CARLO GAVAZZ GROUP

21 project covering the repacement of eectrica equipment on nine offshore patforms in Saudi Arabia. The job wi be executed in cooperation with the business unit s Saudi Arabian subsidiary and a Kuwaiti company providing for the transportation faciities. The division wi ead the consortium formed by these three companies. n Egypt, another order was received for the engineering and suppy of a compete vertica centrifuga LPG pumping unit incuding suction and discharge skids, as we as receiving, metering and pressure contro skids. The scope of work comprises an &C-sheter incuding contro system, a eectrica equipment such as MV and LV-switchgear, DC-system, HVAC and a fire-fighting system. As a first step in the geographica expansion within the Midde East, CG Arabia obtained the instrumentation works reated to the Borouge Poyethyene Project in Abu Dhabi, which foresees the construction of new poyethyene units and reated faciities. The execution of the project cas for a tota of man-hours with an expected peak manpower of 300, a under the management and supervision of the business unit s Saudi Arabian subsidiary. Decentraised power packages, a new activity To grasp the opportunities in the growing market of sma-scae power pants, the business unit estabished the Decentraised Power Division. This new entity suppies turnkey combined heat and power packages in the range of up to 1 MW. Services offered incude operation and maintenance as we as deveopment of energy management contracts. n the first few months after impementation, the new division acquired a first order for a one MW gas-fueed combined heat and power unit. environmenta and infrastructure pants in tay and to expand instaation activities in the Midde East. The increasing demand of power generated by renewabe sources and the experience achieved in such turnkey projects supports the objective to consoidate our position as a biomass power pant suppier and to deveop further into waste-to-energy projects. n addition, the business unit pans to offer the operation and maintenance services for the competed power pants. A investments are carried out on a sef-financing, one-year payback basis. n order to sustain the growth of the foreign subsidiaries and to further enhance their EPC contract capabiities, the cooperation between the taian divisions and subsidiaries wi be strengthened. To expand geographicay, CG Egypt has started to expoit opportunities in Libya, and CG Arabia has opened branches in the Guf Area. Outook After having reached appreciabe growth and satisfactory earning eves during the year under review, the business unit wi now concentrate on consoidating resuts with a cear focus on profit before growth. Utmost attention sha be given to reduction of net working capita. Focus sha aso be on the improvement of synergies among operating units and on additiona efforts in enhancing efficiency at a eves. n view of these factors, management forecasts a singe-digit percentage growth of bookings, operating revenue and operating profit. Strategy and focus Engineering and Contracting sha continue to buid on the doube-track strategy it has successfuy embarked on during the past years: to grow in Operating revenue (CHF miion) /97 97/98 98/99 99/00 00/ Operating profit (CHF miion) /97 97/98 98/99 99/00 00/

22 Eectronic Packaging Review of operations Changing market conditions The first three quarters of the period were characterised by strong market demand, and business deveoped according to pan. The fourth quarter saw severa customers pushing out deiveries and deaying the pacement of new orders. The earnings shortfas of severa arge computer and teecommunication manufacturers aso adversey affected Eectronic Packaging s order intake during the ast quarter of the financia year. Leading market indicators have shown many customers modifying their strategies and adopting more conservative business pans for the current economic cimate. Earnings performance The business unit continued its string of four years of above-average growth in bookings and revenue. The year ended with record revenue of CHF 185 miion, up 15 % over the previous year and, even more impressive, up CHF 130 miion compared with five years ago. The operating margin of 8.6 % remained at the eve of the previous period, resuting in an operating profit which exceeded the previous year s by CHF 2 miion. Aggressive poicies regarding coections heped reduce the average number of receivabe days and interest-bearing debt was aso reduced during the period. New fieds of activity The increase in saes of industria PCs and CompactPC products continued to exceed forecasts. Both standard and custom products were offered to meet the fast-paced growth demands of the teecommunications, industria and medica markets. Saes during the reporting period showed a transition from mature VME products to the high-growth PC and CompactPC products. Contributing to the growth in product revenues were ATX motherboard systems, SUN server patforms, input/output transition cards, proprietary singe board computers and Aurora s ControTower product used as a management too for server farms. A new, ow-cost PC-chassis with high accessibiity features was added to the product ine during the year under review. This product is expected to generate significant revenues in the future. The business unit is now the singe argest suppier of CompactPC products, ranging from backpanes to fuy integrated and tested systems for high-end industria appications, in the US. Geographic expansion within the US A of the business unit s expansion pans were competed on schedue. A new faciity in Garand, Texas, was opened during the year under review. Garand was picked as a centra ocation for the growing eectronics industry in the Daas, Texas, area. This sef-sufficient faciity currenty occupies more than m 2 of foor space and is designed to faciitate one-stop shopping for customers. The new faciity is staffed with saes, marketing, quaity and engineering personne. Manufacturing capabiities incude on-site sheet meta production, weding, harness making, ESD assemby areas, system integration and fina test. Quaity management is currenty in the process of obtaining the atest SO certification for the faciity m 2 were added to the Sparks, Nevada, faciity. This expansion was competed to provide space for additiona arge integration orders in support of the business unit s doube-digit growth in the western region of the country. Jeff Russe, Group Executive Organisationa efficiencies As time goes on, it is evident that /O-products, industria PCs and eectronic packaging are converging into one business. A consoidation of the many organisationa eements has thus been carried out, We have positioned our business to take advantage of the industry-wide move into the CompactPC architecture. Financia resuts (CHF miion) 2000/ /00 % Bookings Operating revenue Operating profit Number of empoyees CARLO GAVAZZ GROUP

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24 The expanded Sparks faciity offers additiona foor space to cope with Eectronic Packaging s growth in the western region. High-avaiabiity CompactPC chassis are assembed to finay incude therma management, power suppies, backpanes, singe board computers and /O-cards. CompactPC systems are rapidy gaining importance in the open system architecture word. The business unit recenty aunched this 19-inch rack mountabe or benchtop encosure. The configurabe and extremey compact unit is suitabe for appications in the datacommunications, teecommunications and industria sectors. The fina inspection is the ast step in the chip production process. Eectronic Packaging buids and integrates test beds, which accept printed circuit boards equipped with integrated circuits to be automaticay tested. This contro consoe is buit, integrated and deivered to a arge US instrumentation company. nstaed in their production ine, the controer is capabe of simutaneousy handing the automatic testing on a mutitude of compex integrated circuits. resuting in a reduction of manageria ayers. This reduced overhead expense and provided a more focused and cost-effective organisation. During the year, various sub-suppier categories experienced heavy deivery shortages which resuted in substantia price pressure. The business unit s suppy management activities successfuy mitigated the impacts through eary re-design and aternate suppy pans. As a consequence, no serious adverse impact arose and profitabiity remained intact. Substantia investments in hardware, software and networking capabiities were made during the year. This aowed the introduction of a paperess documentation system in the engineering and manufacturing groups of a six faciities. A new system comparing actua reported costs versus estimated costs was introduced, thus improving the accuracy of the costing/quoting system. n addition, the Computer Systems Group estabished an e-commerce site which nternet customers may use to order products on-ine. n the ight of potentia impacts from the economic downturn, the business unit has, as a precautionary measure, reduced manufacturing capacity in the first month of the current year. n addition to the management incentive schemes, a pant-wide profit-sharing pan based on quaity incentives was instituted for empoyees during the year. Productivity improvements Significant investments in personne, hardware and software were made during the year under review to increase and improve engineering and manufacturing capabiities. Sheet meta equipment was added to three faciities, at ocations in Sparks, Nevada, Garand, Texas, and Brockton, Massachusetts. A 200 m 2 stateof-the-art ESD faciity for system integration was constructed in the Brockton manufacturing operation. New CNC machining centres were aso added to this faciity. Equipment improvements to the printed circuit surface mount ine in Brockton were made during the period. A compete upgrade of the printed circuit faciity in Brockton was reeased and first production runs are panned during the current financia year. Significant investments in design engineering personne and supporting CAD and BOS deveopment software were made in the Houston, Texas, designcentre and the Aurora faciity in Brockton, Massachusetts. Large projects awarded The business unit s argest contract for the integration of teecommunication servers was extended for an 20 CARLO GAVAZZ GROUP