A year ago, I wrote that I was excited by the early progress we had made in setting strategic priorities and initiating new processes to strengthen our organization and deliver increased value for both you and our customers.

Equally encouraging is the way the Company is aligning around a continuous improvement mindset. I’ve had the opportunity to engage with ATS personnel in many different locations, and I’m repeatedly seeing evidence of their deepening commitment to the ATS Business Model (ABM).

As positive as that sounds, we are just getting started. In the past year, we took innovative steps to strengthen our technical capabilities, broaden our product and service offerings, and develop new sources of recurring revenue. We also acquired two companies, our first such deals in four years. And, after deploying the first sets of ABM problem-solving tools, we are now expanding our training network and developing new tools to extend its reach and impact. Heading into 2020, we’re confident that our 2019 growth story is a precursor of even greater value creation to come.

2019 Financial Performance

Last year’s macroeconomic environment was generally healthy, although trade disputes created some uncertainty and heightened nervousness in equity markets. From a results standpoint, our story was one of strong, double-digit 11% organic growth, with record revenues of almost $1.3 billion. Order Bookings grew 19% to a record $1.4 billion and Order Backlog at year-end was $904 million, up 21% over 2018 – setting us up well for fiscal 2020. The Company’s margin expansion program contributed to an improvement in gross margins and a 90-basis-point gain in operating margins. Working capital as a percentage of revenues remained below 10%.

Our two acquisitions had a modest impact on results in fiscal 2019, due primarily to timing, as they closed in the second half of the year. Both are significant for their strategic value. Comecer, which has its main production facility in Castel-Bolognese, Italy, is a leader in aseptic containment and processing systems for the nuclear medicine and pharmaceutical industries. It strengthens our customer offering in both pharma and biopharma and adds an innovative new platform in radiopharmaceuticals. KMW, a supplier of custom micro-assembly systems and test equipment solutions based in Koblenz, Germany, strengthens our offerings in the electric vehicle market.

The Comecer acquisition will further contribute to growth in our life sciences vertical, which surpassed 50% of the Company’s consolidated revenues in our fourth quarter. This reflects our strategy to build shareholder value by expanding in strong, higher-margin sectors and product areas with above-market growth potential that, while not immune to cyclical swings, should remain relatively attractive even when the economy is at a low point in its cycle.

ATS Business Model

The foundation of a great business is having great people. It follows, then, that working to develop, engage, empower and energize our people is both a core ATS value and the first of our three pillars, followed by process, and then performance, at the foundation of the ABM.

The deepening commitment among our people to the ABM that I observed across the Company in 2019 isn’t merely anecdotal. It is reflected in engagement scores tracked in our employee surveys. And what it tells us is that the ABM – our playbook to achieve our business goals and objectives through disciplined, continuous improvement – is becoming ingrained in our Company’s culture. At the end of year two, it is much less of a management initiative and more a part of our DNA.

This success is a credit, in part, to our small ABM team, who developed the training methodology and initial problem-solving tools, and the growing number of local leaders who learned those tools and began taking co-workers through various projects. Most importantly, the success of the ABM is due to our workforce, who have participated in more than 40 Kaizen events and over 100 problem-solving exercises to drive continuous improvement.

For the ABM to deliver results as intended, it has to be led locally, with the quest for continuous improvement ultimately becoming part of every individual’s mindset. As the next section (“The ABM in Action”) shows, that’s not as big a stretch as it might seem. As soon as workers see process-oriented problem- solving exercises yielding efficiency gains of 50% or more, they’re on board and empowered. The principle of “measure, test, refine and repeat” becomes a simple tool like a hammer, and they start finding nails all over the place.

The ABM journey in 2020 will see us introduce additional measurement and process- improvement tools and apply them even more widely. We will also expand strategic planning at the business unit level to ensure ABM-led activities are closely linked to company goals.

We also expect to see more measurable evidence of the accumulating ABM-derived process improvements leading to higher profitability and generating greater shareholder value. From this standpoint, the ABM is an integral part of our overall capital allocation strategy – both in terms of direct returns on the internal investment and the added flexibility more rigorous control over our operations provides for external investment and potential acquisitions.

Looking Ahead

The widespread performance improvements and strong results we had in 2019 provide plenty of momentum heading into 2020.

I’m looking forward, in particular, to bringing our new acquisitions further into the fold and leveraging their potential across our offerings in important growth vertical markets.

From a product and technology development standpoint, the ATS innovation story will also be front and centre in 2020.

A key aspect here is the roll-out of Illuminate^TM Manufacturing Intelligence, a powerful smart factory IIoT platform taking the place of the ATS Toolkit^TM. Introduced in late 2019, it is a user-friendly upgrade that offers our factory automation customers more tools to operate their facilities more effectively. The built-in intelligence provides extensive analytics to track equipment performance and efficiency in real time, allows quick diagnosis of breakdowns and supports predictive maintenance.

Illuminate represents one of several tracks we’re following to grow our services business and to derive incremental revenues over the long term that provide some balance to the more cyclical nature of our project-oriented business.

All of these efforts tie back to driving value for our shareholders and our customers. I’m proud to lead a team that is so strongly focused and committed to that objective and I want to thank them for our success in 2019. We’re excited about where ATS is headed and I look forward to celebrating our achievements with you in 2020 and the years beyond.

Sincerely,

Andrew Hider
Chief Executive Officer
ATS Automation