SWITCHGEAR (AMT)

The AMT Business Unit carries out its business at by way of five industrial units:

Arroteia – Matosinhos (Portugal): Centre of Engineering and R&D expertise, where all the strands in the value chain of the overall supply are connected;

Santa Bárbara – Tarragona (Spain): Centre of expertise in compact substations, with a scope of operations covering the entire Spanish market;

Prague (Czech Republic): Industrial unit that operates for the whole of the Eastern European market;

Buenos Aires (Argentina): Industrial unit that operates for the whole South American market;

Nashik (India): Industrial unit responsible for producing components and semi-finished products to supply the other industrial units.

269

269

Number of Employees

61.8 M

61.8M

Turnover

6.4 M

6.4M

EBITDA

VISION

To anticipate solutions for energy infrastructures in the new energy era

MISSION

To create value by designing and providing flexible solutions and equipment for electricity production, transmission and distribution systems

STRATEGY

To develop partnerships and a customized, flexible supply of products using a production model with relocation of sourcing and assembly units

WHICH GEOGRAPHIES?

STRATEGIC
PILLAR

Technological
Innovation

  • Increasing the scale of current product lines
  • Upgrading the current high-voltage product offering
  • Developing an approach that is integrated with the services of other product Business Units, accelerating revamping services

Operational
excellence

  • Potentially increasing production in low-cost countries (LCC)
  • Continuing to make efficiency efforts to lower operating costs, specifically by optimizing procurement

Proactive
comercial
approach

  • Prioritizing a fly-in fly-out model and partnerships to minimize local structures
  • Intensifying the focus on recent certifications while strengthening business in priority locations
  • Intensifying joint sales efforts with the aim of achieving synergies in upselling and cross-selling markets and/or customers

Focus
on the client

  • Faster product certification
  • Improving deadline compliance (on-time delivery)

Talent
Development

  • Building a dual career model to boost vocational development for technical functions together with management functions
  • Reviewing the performance assessment model and including the specific characteristics of career families vs. career groups throughout the company
  • Reviewing the compensation and benefits model, promoting an approach based on strategic objectives (e.g. proactive commercial approach) and tactical objectives (e.g. lower accident rate) in the Business Units and the Group
  • Defining a talent management model that makes it possible to identify employees who have high potential and guide them towards faster career development paths
  • Drawing up a behavioural, functional and management training plan capable of preparing employees for Efacec 2020

The defined strategy is implemented via 19 initiatives which are foreseen to start having a positive impact on EBITDA in mid-2017.

GLOBAL MARKET VISION

The global switchgear market followed the general trend of the electricity sector equipment market, with very moderate growth and even stagnation in terms of market size in some regions. However, there were some segments of the market that stood out positively in terms of growth, specifically the switchgear market for the solar sector, thanks to the installation of new solar parks around the world.

At regional level, some markets postponed or cancelled projects due to instabilities in the price of the economies’ basic raw materials and also due to dependence on external funding. The Middle Eastern market continued to present a considerable number of new projects.

OPERATIONAL PERFORMANCE

Globally, orders rose around 20% compared to the previous year, strongly driven by the Middle Eastern market, which is rewarding the efforts and investments made by Efacec in recent years.

Additionally, 2016 saw new markets open up, including the Russian market, with the supply of secondary distribution (compact switchgear), and the Algerian market reopened with the supply of modular switchgear for secondary distribution.

Several opportunities arose in the renewable energy field to supply photovoltaic substations (PVs) in the European market, driven by EU directives, and in the Latin American and African markets. Some of the opportunities identified translated into orders in 2016, particularly in Portugal and Holland. With the emphasis on renewable energies, transformer substation solutions for wind and solar energy produced at the factory in Spain and the opening of a new factory in India to boost the supply of components and semifinished products at global level were also important milestones in 2016.

In Eastern Europe, the AMT Business Unit focused all operations on the Czech Republic, and all business in the Czech Republic, Slovakia, Polond, Bulgaria and Romania was conducted from there.

In the Portuguese market, the AMT Business Unit continues to be a market leader and in 2016 it was selected by EDP Distribuição to supply 180 units of its new product – Revac (vacuum recloser, developed for overhead line management), demonstrating the national distributor’s recognition of Efacec’s technical capacity.

The AMT Business Unit also boosted its presence and visibility in the market by taking part in several events and trade fairs in the sector, such as CIRED 2016 in Helsinki and European Utility Week in Barcelona, which enabled Efacec to position itself as a world player that is recognized in the field.

In 2016, the means of production in Portugal were also enhanced with the construction of new high-voltage laboratories for carrying out final product inspectionsand cross-cutting lean manufacturing projects were launched with the aim of boosting competitiveness and agility in global markets.

The year 2016 also saw extensive investment in R&D with the construction of new high-voltage laboratories for carrying out tests to support the development of new products and the certification of new high rated primary distribution products (in the Normacel range – 17.5kV – 3150A/4000A and in the Qbn7 range – 2500A), thereby helping open up new markets.

The AMT Business Unit received a delegation from DEWA – Dubai Electricity and Water Authority to certify a factory with the aim of supplying primary distribution equipment from the Normacel range for Dubai’s electricity distribution grid. Certification of the factory was completed successfully, and orders are expected to be received in 2017.

The following noteworthy events also took place in 2016:

  • Organizational restructuring with the aim of focusing on supervision of the overall supply chain, the development of industrial processes, continuous improvement across all AMT industrial units and technology R&D, launching the foundations for sustained medium and long-term growth;
  • Efacec expanded its presence in the Middle Eastern market through its partner in Qatar, ITCC – Imperial Trading & Contracting Company, concluding an order to supply primary distribution units (from the Normacel range) to Kahramaa – Qatar Electricity and Water Corporation. The equipment included in this contract, which is of a highly complex technical nature, will be manufactured at the Arroteia facility and the first consignment is foreseen for October 2017, with a total of 2,200 Normacel units over a period of 3 years.
FINANCIAL PERFORMANCE
ECONOMIC INDICATORS

(MILLIONS OF EUROS)

The AMT business is characterized by a combination of small and medium-scale supply contracts, which are normally short-term, typical of the secondary distribution market, together with less frequent largescale contracts with longer supply cycles, typical of primary distribution.

Some primary distribution contracts had a significant weight in the 2016 indicators because of their size. The ITCC contract for Kahramaa is one such example, worth a total of $36m, and in the last quarter of the year the contract added to and solidified the AMT backlog, explaining the marked increase in orders.

Orders rose 31% in comparison with 2015, creating a solid backlog and, as a result, sustaining the growth expected for 2017.

In terms of revenue (9% more than in 2015) and gross margin (31% more than in 2015), the increase compared to the previous year is heavily linked to both our entry into new markets and direct cost optimization measures in the AMT Business Unit related to component sourcing, streamlining processes and measures to increase productivity.

Alongside all the measures mentioned previously, cost control and reduction for the structured put in place during the year led to an increase in the EBITDA margin from 6.2% to 10.4%, which made it possible to achieve profitability ratios that were quite satisfactory and in line with what was expected.

EXPECTATIONS FOR 2017

Since the Middle East has seen considerable growth in the AMT Business Unit sector, Efacec’s presence will continue to be boosted in this market. This will be realized by fulfilling the first orders for countries such as Dubai and Iran, increasing consignments for Saudi Arabia and the start of consignments for Qatar.

Furthermore, it is foreseeable that the growth of renewable energies at global level, particularly in Latin America, Africa and Europe (Portugal, Spain, France and The Netherlands) will be a significant driver of growth for the industrial unit in Spain with the supply of compact substations.

Regarding operations in Argentina, a year of moderate growth is expected in light of the forecasts for the internal market and the Latin America region. The industrial unit aims to increase its revenue by following a commercial policy founded on agents and distributors in the different provinces of Argentina and supplying the Paraguayan, Uruguayan, Bolivian and Brazilian markets.

The concentration of the AMT business at the Prague unit, which was put in place in 2016, will optimize commercial and operational resources, particularly regarding the supply chain, and will enable sustained growth for business in Eastern Europe.

Finally, the investment in continuously improving processes at global level should be enhanced in 2017 with the conclusion of lean projects launched in 2016. These projects will help improve the industrial units’ Operational Performance, reducing the capital involved and the time to market, as well as increasing supply capacity to the different markets.

A GLANCE
AT THE BUSINESS

ARMANDO
FERNANDES

SWITCHGEAR BUSINESS UNIT

At the end of 2016, the Middle Eastern markets played a very significant role in the AMT business. What is the strategy behind this situation?

With poor growth in the European market, the markets that are growing the most in the world in our sector are the Middle East, Latin America and Asia. Since the Asian market is extremely competitive due to the Asian players, the other two markets are a clear point of focus for Efacec.

The Middle Eastern market is extremely demanding in terms of quality and technical capacity (it requires excellent products with high power ratings) and can only be reached by large world players. It is here that Efacec has something to give, thanks to its comprehensive portfolio and renowned quality. We are also recognized by our customers and the competition for having extensive technical capacity and flexibility to customize the final product, adapting it to customer needs, which gives us a great advantage compared to the big world players. When we established the Middle East as a target market, we took all these factors into consideration. However, to achieve this, we had to make significant investments in certifying our products at international laboratories. Thankfully, we were successful and we now have a large potential market in front of us that can only be reached by the best.

Of the structural measures launched in 2016, which ones do you see as being the most important for sustaining business in the long term?

One of the greatest challenges for AMT is its ability to meet the needs of an increasingly demanding, competitive market that can quickly exclude us if we cannot provide suitable answers. Today, customers buy later and later and require appropriate responses. To meet these needs, organizations have to be extremely flexible as well as extremely capable of adapting. As a result, in 2016 the AMT Business Unit launched a range of measures aimed at effectively responding to these questions.

Firstly, it changed the organization to focus on control of its supply chain (it operates in 5 different locations), continuous improvement of processes and new product launches (and new power ratings) by improving the resources available. Secondly, it invested in a new factory in India, increasing the capacity to supply components and semi-finished products and lowering the final production costs of its production units. Thirdly, it launched lean projects with the aim of reducing the capital involved in operations and time to market. Together, all these measures will continue to increase our competitiveness in international markets.

What are the new market trends and how do you think the AMT Business Unit is following them?

The market has a tendency to require, in the medium and long term, products that are insensitive to the environment where they are installed, that use ecological insulation elements, that do not need maintenance, and that are integrated and remotely controlled, among other demands. These challenges must be clearly identified in order to safeguard the future. Our Technology Management Office is currently developing several products and subproducts that meet the challenges that the market poses for us, from products using SF6-free switchgear technologies to solid insulation, electronic control and sensors.

In short, R&D is one of the basic pillars of the AMT business and we are therefore extremely observant of a market that is constantly demanding.