Up Close with Alexander Hagemann, CEO, Cicor Group

Thanks Eric for having me.

I should say that Cicor has started out in 1966 as a manufacturer of PCBs and has ventured into the EMS space only with a string of acquisitions starting in 2004. When I joined the group, it was a technologically advanced group with good people. What I also found was we had some silos, too top-heavy in the organization, and not fully integrated. So that's what I found then: 12 sites in total, we had we were in US dollars roughly $180 million US in sales.

Actually I was running at the time another electronics firm. Saw the board and I had had extensive discussions about what we wanted to change, and we were talking about going back to business, you know, understanding our industry, it's very down to earth, and focusing on what really matters most, which is customers and operations, elimination of organizational layers. I'd say, sorry, even if I use them, also less PowerPoint, more touchpoint with the customer. So to develop consistent strategy and to focus on operational excellence and integration. So very clear charter, but again very down to earth.

First of all, what we managed to do with the approach that I just mentioned is to move organic sales up, winning new customers, to also bring margins up, so EBITDA margin before costs about 10% from the 6% it had when I joined. And then we used that as the jump-off point to accelerate our growth. And today we are talking about 28 sites with 52 lines, 200,000 square meters, so more than 2 million square feet of manufacturing space. We're talking about 4,300 employees that we are having, and being strong in a few countries: UK, France, Germany, of course, Switzerland. So that's what we did.

That we started actually 2017, and I think it was more important to say what we are not doing rather than what we are doing. We decided to not do automotive, and that is an important point because the hype about electric vehicles, hybrid vehicles started. Everybody said you have to be in. We decided no, that would be a market that would be very bumpy and very quickly commoditized. Yeah. So we focused really very much in aerospace defense, on healthcare technologies, and industrial applications, which is a bit of a bucket of broader applications that we're doing, and that has never changed since 2017.

Yes, it's true that one out of two hearing aids in the world is using one way or the other Cicor technology, Cicor components. It's still the case. We have broadened that presence even so, today you see ourselves doing PCBs, doing micro molded precision plastics, doing assemblies, and doing accessories, so that business continues to grow for us. It's one of the most important subverticals that we have in the group.

It's not original design. We have, with one very small exception, we don't own our design. So 100% of what we do, and that's a very clear business model, is doing for our customers. So in the meantime, it's roughly 150 persons doing hardware, software, mechanical design, and that even excludes the NPI work. So test engineering, so 150 persons doing product development. It is true co-development. It's development services. We never own the designs. Very important here. We stay very true to being a contract designer and a contract manufacturer. So therefore, 'Creating Together' — the creation aspect that you mentioned, but also the togetherness, that we never do things on our own. We always do them with and for our customers.

It's across the core segments that we serve. So aerospace defense, we do a lot in the UK and system development there. And then software technology and industrial, that's where you would see almost 100% of what we do in engineering.

So we are in a service industry. This is not an industry like products where market share is so incredibly important. So for us, it is that we want to grow to above 1 billion Swiss Francs within a few years, but we want to do that always staying true to the high mix low volume business in our core markets. So to get the scalability, we cannot only serve one country, we must serve all of Europe. Pan-European means we treat our French customers as French, the British customers as British, the Germans as German, etc. Very, very important because the proximity between our customers and us in engineering, in supply chain management is enormous. So we achieve scalability of our business at the same time remaining high mix low volume and focus on our markets by spreading across Europe, and that we combine with, let's say, a backbone which is our global manufacturing network, so nearshoring Romania and North Africa, and then our Southeast Asian manufacturing sites, our global procurement network, of course, and other aspects that we strive for. So that's a very simple and clear strategy. It is a bit unique in the industry. Maybe we are, because we are Swiss, you know, we're in a country where four languages are officially spoken. You know this, we are in a very small country, so we are used to listening to what our big neighbors are telling us. And maybe that enables us culturally to spread out across Europe as we do.

So we start the integration process already during due diligence. So we know the people, we know the business, we know the operations, and because we are only acquiring what we know very well, it doesn't take a long time, and we can already in a very early phase of the project discuss eye to eye with the acquired targets. So we get alignment on strategy at a very early moment, which allows us after the closing of a transaction to decentralize the businesses very, very fast. Actually, we have seen moments where an enormous amount of energy was released as formally businesses in a very centralized organization were decentralized to boost the motivation of the managers and the teams, performance shot up almost immediately. So after all the acquisitions we've done, it's a process we know about now. It's good for the stakeholders.

Yeah, it is exactly that. And the people, the teams, they are tight-knit normally, and all the issues, both positive and problems, are normally solved within the parameters of one site. This is why I want these sites under their leadership teams to be as agile and flexible and energetic in a positive way as possible to solve the problems. That's the only way to manage the amount of customers we are having with the very diverging requirements that they have.

Yes, we have grown it first really by an acquisition of Excell Electronics in the UK. And we learned the rules of the trade basically four years ago by understanding what is happening. There is an extremely close relationship on a national level with the players within the industry. So what you need is local support everywhere. On the customer side, you see very large groups, we all know the names, they have been created through acquisitions, partnerships, divestitures, joint ventures, program partnerships. That's how the industry works. So it's a complex environment, so you need to be present in all these countries, and in all these countries provide exactly what the industry needs. That starts from technologies, so very extensive test technologies or modification processes that you have. That is one of the things, and it ends with how do you manage the security? How do you manage the systems in all these countries? We have physically separated IT infrastructure to protect the information within that country. So we learned that trade of the business, and the ambition was to become the preferred partner of the European aerospace and defense industry. As you rightfully said, we have managed to do that. We are now at pro-forma annual sales including the latest acquisitions exceeding 200 million euros to that sector alone. And you're right, it makes us about 50% larger than the number two in the market.

Yeah, first of all, of course, we are listed companies, so we are following all the compliance rules that a listed company in Switzerland would follow. So that is how we are governed with a board which is majority independent. Now our largest shareholder, 40%, is One Equity Partners. You're right. And what complements their view and my view is actually a focus on growth and a very disciplined way in selecting targets, running the processes, very disciplined valuation models that we have, and very stringent integration. Now I should say that we are running the processes all in-house. We have a very small M&A team. We run the processes in-house with the exception, of course, of financial and legal due diligence that we do externally. So we learned a lot from One Equity Partners about the rules of the trade of doing acquisitions, and we implement it all in-house. We have constant dialogue. I always say that it is a very valuable consulting service that we're getting free of charge, and that all the independent shareholders of Cicor are benefiting from.

There are a few things that I would say about myself. I don't like corporate politics. I hate corporate politics. I don't like silos in the organization. I love quick and intense interaction. And that has led to some of the early decisions of slashing some of the hierarchical levels, allowing myself to be very close to operations and very close to customers. What it has allowed me to do from the leadership is to get rather soon a cultural change in the business towards what our values are today. Values are really driven by customer orientation, of course, by performance, but also by integrity, trust, collaboration. So that culture is really now, I would say, ingrained in the business, and I can tell you many hours and days were spent around the world in discussing, convincing, listening to concerns about that. What it also allows me, as we are pretty aligned on culture and as we are pretty aligned on strategy, is to have a very decentralized business model. So today, I really know that I can have 100% trust not only in the ability of my management worldwide but also in the direction in which they are steering the businesses. So I can have a very decentralized business model, very open in communication. They contact me for whatever is on their mind. Of course, we have clear governance in the group. But other than that, you would find me today, if things are going well, having a rather light touch because I have such an amazing management team worldwide.

Yes, exactly. And for many, it is seen as a relief. They have been extremely positive. Of course, I have to say some who were not, who did not like that, they have decided to leave the company, which is also normal and healthy. So this culture has evolved, and with the acquisitions that we do, I find it to be a very attractive culture for the new people who are joining us with each transaction.

Yeah, you know, the industry has evolved over the last 30 years, let's say, from being an industry where it was only about shedding assets and people, to being more transactional than it was about 10 years ago. So I look for the best deal. I look for quality, cost, delivery, but in a very transactional way. And today, I see that it's moving very much to a much more strategic partnership that we are having. That's at least what we try to establish, and we find our customers being very receptive. So you know, outsourcing strategy is something incredibly complex in a high mix low volume environment where you're not talking about outsourcing one product but maybe 100 products. All aspects of the supply chain are complex. They must work as well or better typically as they had worked when manufacturing was in-house. So we see the relationship with customers having evolved from transactional to becoming strategic.

Exactly. And legacy products can be 30, 40 years old. You know, in defense, for example, or also in aerospace, sometimes you have 30-year-old products that you have to run through a number of redesigns due to obsolescence of components, but they're still there.

I can obviously only talk about Europe best, and about the tier two, tier three companies, not on behalf of this industry. And what I see is a kind of bifurcation, because customers have changed rapidly, as I said. They look for strategic relationship, they look for capabilities, they look for scale, they look for footprint. And therefore, today, for example, if you're looking for footprint in Southeast Asia and you go to European EMS, we are one of the very few that do actually have a footprint in Southeast Asia. So these are requirements that are more and more firm by customers. And therefore, I talk about bifurcation. You have the ones that are single sites or maybe two sites only in one country, which tend to be more and more squeezed by the customers. And you see those that are doing like us. We're definitely not the only ones who have a global footprint, who have financial strength, who have the technological capabilities, and are very attractive. You know, you see many large companies, OEMs with 20, 30, 40 different EMS suppliers, and they're saying this is stupid. They want to go from 40 to four. This is the trend, and that leads to the bifurcation of the industry.

Our business, short-term not at all, because it's less than 1% of our sales that are affected. So that is very limited. Indirectly, I have to say it was more like a blip, because the effect from one month of tariff panic is going away very fast. Look at the stock markets, deep fall and now a very big recovery. There's not much. Companies, customers will wait very long before they change their supply chain, because each decision they take is a decision valid for the next 5 to 10 years. So nobody will make a decision very fast. But the general trends I think are continuing: nearshoring to Europe or to North America, not putting all the eggs in China but going between China and Southeast Asia or South Asia as an alternative. So these are trends that will continue. But short-term, tariffs are not affecting us at all.

We are driving automation at all sites. We are traditionally coming from being smaller businesses with little automation happening, and now new automation is happening every month and everywhere. So it is a trend very strong, not only in manufacturing but also in the administration, in the quoting process. You know, the new software AI-based that's available to support this automation will be also in the high mix low volume industry, will be one of the biggest drivers in the years to come.

What is very clear is that the model of outsourcing is continuing. It's a good model. And manufacturing is getting more demanding. And as it is getting more demanding, you know, new equipment that you need, nobody had 3D SPI solder paste inspection 15 years back, now you must have it. People normally didn't have the full AOI end of line, now each line has to have it. There is a lot of capital, know-how, etc., going into it. So the outsourcing model is continuing. I foresee an industry, and I speak specifically of Europe, that will be more consolidated clearly. There will be a number of billion euro plus companies, half a dozen, one dozen or so, in Europe having the broad service, and then hundreds and hundreds in Europe of very specialized small businesses in their niches because of the consolidation. What I believe in, what I think we will see, is a more attractive industry for everybody. So we have seen it over the last few years already, I think average margins, profit margins in the industry will continue to go up as a result of that process.

You know the company very well. So I think you hit the nail on the head, and we're touching all the aspects that are important for our business. Thank you for your continued interest in Cicor. I think it's a very exciting journey, and I'm really glad that I'm allowed to be part of that history.

Yes, sir. I would look forward. Fantastic location. We have now two sites there. Cable assemblies and full integration and box build. It's an amazing country and an amazing opportunity, I must say. That came from the Aolan acquisition. That came from the Aolan acquisition, and when I visited it first, of course about 3 months back, I said wow, what this country has to offer with regards to cost versus technology, proximity, and free trade agreements with many countries. It's amazing, and I must say, so far underrated country for manufacturing. So I'm very glad we have more than 200 employees there now, and I'm sure it will be one of the fastest growing sites that we have.

All the best to you. See you very soon, Eric.

Bye-bye.