Companies Sharpen Their Focus
This year, three major, publicly held analytical companies are implementing structural changes designed to advance their strategic and financial goals. The changes reflect the companies’ growing sizes and their ability to capitalize on financial and market opportunities.
Scanning electron microscopy maker FEI announced in January that it has reorganized into two groups: the Industry Group and the Science Group. This structure overlays the four previous reporting segments of Electronics, Materials Science, Life Sciences, and Service and Components. Service revenue will be included in each Group. “As we approach a billion dollars in revenue, FEI has put strong leadership in front of our customers with common needs to drive our continued profitable growth,” stated FEI President and CEO Don Kania. “This structure will also provide the framework to efficiently integrate acquisitions into FEI.” The company named Benjamin Loh, executive vice president and head of Global Business Operations, to the newly created position of COO. According to a presentation at the Stifel Nicolaus Technology Conference in February, he will oversee day-to-day operations.
The Industry Group includes the Electronics business and the Natural Resources business, which was previously part of Materials Science, and is focused on customers whose purchase decisions are motivated by the need to increase yield or by time to market. In 2012, the Industry Group represented 52% of revenues, around $463.7 million, and had a gross margin of around 42.6%. The Group is headed by Vice President Rudy Kellner, who was vice president and general manager of FEI’s Electronics business. According to the February presentation, general managers remain in place for the four existing market-segmented businesses.
The Science Group, which includes the Materials Science and Life Sciences businesses, serves customers focused on research and discovery. In 2012, the Science Group represented 48% of revenues, or approximately $428.0 million, and had a gross margin of around 50.8%. Heading the Science Group is Vice President Paul Scagnetti, who previously served as vice president and general manager of the Natural Resources business unit.
FEI’s reorganization is in line with the company’s growth plans. As FEI stated in its June 2012 Investor Day presentation, the firm expects to double its served available markets by 2015 from $2.0 billion in 2011. This growth is expected to come from emerging markets, adjacent markets, and complimentary tools. In 2012, Asia Pacific and Rest of World accounted for 40% of revenue.
Chemical and consumables supplier Sigma-Aldrich is another company that, beginning in 2013, will report its financial results in new segments. The Research (consisting of Analytical, Biology, Chemistry and Lab Essential/Labware products) and SAFC (consisting of Hitech, Bioscience, Custom Pharma and Supply Solutions products) business units will be replaced with three market-oriented units: Research, Applied and SAFC Commercial (see IBO 12/31/12). Sigma-Aldrich President and CEO Rakesh Sachdev told investors on the company’s fourth-quarter 2012 conference call, “We believe that each of these new business units are better able to tailor their product innovation programs, sales and marketing channels, and customized solutions in a manner that best suits the specific needs of the customer segments they serve.” The realignment specifically addresses marketing and sales, rather than product lines.
The Research Business Unit encompasses academia and government, and research pharmaceutical customer as well as dealers. Accounting for 53% of sales in 2012, or approximately $1,390 million, the new Research Business Unit includes many of the products that were part of the previous Research business. Describing the unit’s customers, Mr. Sachdev stated, “They require product breadth, quality, consistency and convenience. They greatly value products that are easy-to-order, in stock and delivered on time to any research laboratory across the globe.” For this unit, he said Sigma plans to broaden its product offerings, expand the sales channels, and work more closely with large customers on sourcing solutions. In 2012, Research revenue is forecast to grow in the low single digits, after posting 2012 organic growth of 1%.
The second-largest of the new business units is SAFC Commercial, which represented 24% of 2012 sales, or approximately $630 million, and grew 5% organically last year. It will consist of most of the products of the former SAFC unit, which includes life science products and services as well as electronics products for semiconductor and LED products. Describing this business unit, Mr. Sachdev said, “Compared to Research customers, our SAFC Commercial customers look to us to provide highly specialized solutions in addition to critical raw material, components and packaging. For these customers, we are an integral part of their development and manufacturing processes and have a profound impact on the functionality of their final product.” To drive growth, explained Mr. Sachdev, this unit plans to focus on its top 100 companies, its cell culture media business and expand its BioReliance business. In 2013, SAFC Commercial sales are expected to grow in mid-single digits in the first half of the year and in mid- to high single digits in the second half.
The new Applied Business Unit consists of product lines that are part of the Research and SAFC units. It will serve diagnostic manufacturers, hospital and reference labs, and environmental labs, as well as food and beverage testing and industrial raw material providers. “Given the strong growth prospects of this market segment and the specialized needs of these customers, we concluded that we can better serve them through a dedicated business unit that is able to help develop solutions and protocols,” commented Mr. Sachdev. He said Sigma plans to provide more total solutions to customers in this segment and work more closely with them in developing tests. In 2012, this business’s sales grew 4% on an organic basis to approximately $603 million. In 2013, it is expected to show mid-single digit growth.
Although there is no change in its financial reporting segments, organizational changes are also taking place at Bruker. Starting last year, the company began to implement structural and process changes in order to improve its cost structure, increase cash flow and improve margins. As Bruker noted in its November 2012 presentation at the Lazard Healthcare Conference, areas of focus for its reorganization effort include its decentralized business structure; IT systems; management of supply chain, outsourcing and inventory; and manufacturing footprint.
In September 2012, the company reorganized the 10 operating divisions of Bruker Scientific Instruments into three groups: Bruker BioSpin, which has annual sales of around $600 million; Bruker MAT (Material Research, Analysis, Metrology), with annual revenues of around $500 million; Bruker CALID (Chemical, Applied Markets, Life Science, In Vitro Diagnostics, Detection), with around $525 million in yearly sales; and BEST (Bruker Energy & Supercon Technologies), which has annual sales of around $130 million. Discussing the reorganization, Bruker Chairman, President and CEO Frank Laukien, PhD, stated on the company’s fourth-quarter 2012 conference call, “We believe that this structure will allow for greater managerial oversight and will make it possible for us to begin to implement common global processes in all groups and divisions.”
Other changes highlighted in the fourth-quarter conference call were the implementation of outsourcing programs, streamlining of BEST research programs, reduction in the operating loss of the Chemical and Applied Markets Division (CAM), and the use of performance management systems. Commenting on these and other productivity efforts, Dr. Laukien stated, “First, improving our operating leverage and kicking off initiatives that help us to lower our cost and working capital ratio is far and away my highest priority in 2013. While we have launched several initiatives to help us towards this endeavor, we intend to accelerate these efforts and decisions in 2013.” CFO Charlie Wagner noted plans to better manage inventory, including procurement and supply chain practices.
At the January J.P. Morgan Healthcare Conference, Bruker laid out a road map for increased profitability and cash. The 2012–2014 period will focus on leadership and organization, and between 2013 and 2015, the company will implement actions for incremental profit improvement, followed by a period of sustained profitable growth from 2014 to 2017. In the company’s fourth-quarter conference call and its presentation at the Cowen and Company Healthcare Conference in March, Bruker detailed specific actions for 2013, including facility closures, outsourcing of noncore BioSpin manufacturing and a 150-person reduction in headcount. The company expects to record annual restructuring of $20–$25 million this year.