From the Com Dev website..., plans for the future.
David Raine
Vancouver
Bulletin to Shareholders:
November 16, 1999
When I became CEO of COM DEV in June of this year, it was clear that COM DEV needed to
adjust its corporate direction and business strategy in response to changing dynamics in its
markets. We also needed to undergo internally a fundamental restructuring that would enable us
to increase margins, deliver sustainable profits, improve operating efficiencies and strengthen
customer relationships in our core markets. I recognized that the transition to our performance
objectives would take time; however, as we progress with these initiatives it is important to
update shareholders and other interested parties on our progress even when the activities of the
company do not warrant press releases.
COM DEV possesses world-class technology along with strong relationships in satellite
communications and a business model that marries satellite-based technology with ground-based
wireless technology. Additionally, the company has an excellent track record of financial
performance despite some disappointing results due to a mix of external and internal factors
which began in the second quarter of fiscal 1998. I personally am committed to correcting these
disappointing results by leading the company to a modified business platform for sustainable
growth.
As we have reported previously, we are addressing internal problems by strengthening
management in key positions, consolidating our wireless division and introducing more
disciplined operating systems. We are addressing external factors by adjusting our business
strategy to increase our market share in existing markets, and target new but related, growth
markets.
To strengthen management in key positions, John Keating was appointed President of the Space
Group while Peter Scovell assumed the position of President of the Wireless Group. Both of
these executives have demonstrated the ability, experience and determination to deliver expected
results. In both groups, management moved quickly to analyze the current situation and identify
priorities. The management structure has been streamlined, augmented and tasked with clear
accountabilities to deliver well-defined results. By the end of our third fiscal quarter, in July
1999, we decided to consolidate our wireless business and close our manufacturing facility in
California, a move that is now substantially complete. We also decided to significantly reduce
staff levels across the company with a particular concentration on the Space Group and to stop
investing in certain activities which could not meet our performance criteria.
Leading up to November 1, the start of fiscal 2000, we undertook a thorough analysis of our
operations and markets, and in conjunction with the restructuring, we produced our 2000 operating plan. This plan is the result of a rigorous process, one in which we utilized external
consulting expertise to review and challenge the assumptions underlying the plan. This plan,
which has been approved by the Board of Directors, calls for 15% revenue growth, a return to
profitability, and the penetration of new markets. I am committed to deliver these results. Let me
update you on the growth drivers this year, and in the future.
SPACE GROUP
In the Space Group, our plan for fiscal 2000 is to build on our business of supplying equipment
to the geostationary satellite market where our customers have a solid track record of profits and
cash flow. These programs provide the opportunity for moderate growth and, more importantly,
the basis for solid, profitable business. For the longer term, we continue to believe in the future
of multi-media satellite systems, despite the much-publicized problems of ICO and Iridium ã , and
are well positioned to capitalize on these opportunities as they develop.
COM DEV will continue to enhance its leading role as a supplier of payload equipment by
offering new products such as our latest dielectric C-band output multiplexers. This new product
is an essential part of our new business proposals for the latest generation of satellite payloads.
To improve operating margins, the Space Group has implemented a comprehensive "lean
manufacturing" process, which has resulted in improved productivity. In line with its focus on
improving operating efficiency and performance, the Space Group has also implemented new
business management systems using SAP software.
WIRELESS GROUP
The wireless market is entering a stage during which demand should accelerate. This demand
will be driven by increasing cost competitiveness between wireless versus wired access options
which itself is a result of an increase in volume of mobile phone usage. This cost
competitiveness is already prompting more people to choose a wireless connection in preference
to a fixed line and should lead to even stronger growth in usage that will offset price erosion. The
demand for our existing generation of products is expected to remain strong, fuelled by growth
of 15-20% each year in the infrastructure market. Furthermore, with the imminent introduction
of new data-ready mobile systems based on EDGE and GPRS, we expect to see the demand for
mobile data to increase significantly (i.e. mobile Internet), which in turn will boost demand for
our products.
Sustained growth of the wireless market is almost guaranteed with the follow-on third generation
mobile solutions likely to be installed in late 2001. Another positive sign for our wireless
business is our customer's trend towards greater levels of outsourcing. We see this with our
largest customer, Nortel Networks, and perhaps more significantly, with Ericsson which remains
the largest and most vertically integrated infrastructure supplier in the world.
Organizational improvements are focused on bringing in experienced managers from within the
wireless industry. Within the next two months, a seasoned Vice President of Operations from the
electronics industry and an experienced Vice President of Marketing and Sales, with over twenty
years experience in the wireless industry, will join the Wireless Group's management team.
In addition, changes to the Wireless Group's materials management processes have yielded cost
improvements, and average labour efficiency has improved from 55% in August to 72% in
October.
SUMMARY
So, if market conditions look good, when will COM DEV start to deliver better results? The
answer to this important question is that we are already seeing positive signs of better results.
However, as I mentioned, it will take time to produce the dramatic improvement quarter by
quarter which our shareholders demand. I am already encouraged by the changes I see taking
place within our organization, changes which will lead to steady improvement within the next
year. We have reduced costs, leading to improving margins and we are winning new business.
In recent weeks, we have secured contract awards and supply agreements in excess of
$65 million. The details of these agreements will be announced as soon as we have received
approval of press releases from our customers. I am confident that COM DEV is well positioned
to return to profitability.
Our employees deserve praise for their resilience in dealing with the changes we have had to
make and for the degree of commitment and enthusiasm they continue to exhibit. COM DEV's
ability to achieve its plan rests in the hands of a large number of dedicated, motivated employees,
a significant percentage of which, myself included, own stock in the Company and we intend
to restore its value.
It is our intention to update the contents of this website to provide our shareholders with more
current information, but in the meantime if there are any questions or suggestions, please feel
free to contact our investor relations line at 519-622-5004 or email investor.relations@comdev.ca.
Thank you for your interest in COM DEV. We are committed to earning your support by
successfully carrying out the company's business plan and building sustainable shareholder
value.
Keith Ainsworth
President and CEO |
