VIGO SYSTEM S.A.

Investor Relations

Strategy

Prospects for the development of the Company- VIGO 2020 Strategy

Taking into account the past performance, solid technological base, stable financial position, as well as the anticipated developments of  photonics market , The Management Board decided to develop a new strategy for the Company for 2020..

The main objective of the Strategy is to grow the business while maintaining profitability and maximizing the shareholders return, due to:

  • maintaining a leading position in the field of photon infrared detectors by providing the most advanced photonic solutions in the world,
  • the knowledge and technology based  development of the Company and the implementation of innovative solutions and products,
  • creating  the potential for the expected growth of demand for advanced photonic sensors,
  •  stable dividend policy.

1.1.1          Trends in the photonics market.

The company operates in the industry of photonics, which includes within its scope a growing segment connected  with the use of light, from its manufacturing (eg. Light emitting diodes or lasers), through strengthening and  distribution (fiber optics, lasers), to the use in sensors and detection systems. Photonics market, in particular segment based on infrared technology, is relatively new and rapidly growing market. Optoelectronic technologies have been mainly used in science so far and  the study of new solutions. Only recently they are used in the industry and the real economy. So far, the key barriers to market growth of  infrared detectors were:

  • high price of components.
  • limited supply, associated with limited production capabilities of components manufacturers.
  • limited range of implemented applications.

Nevertheless, the market is characterized by very significant growth prospects, due to, among others, the scale of the current outlays on research and development in this field. It is expected that the increase in demand will  be influenced (impacted, caused)  mainly  by an increase in global expenditures of public funds for defense and public safety, and the increase of  the share of infrared technology in consumer electronics.

In addition, following trends should be noted:

  • social trends - the growing public concerns about the environmental hazards (air, water, soil polution);
  • geopolitical situation - terrorist threats result in increased demand for the detection and identification of hazardous substances;
  • development of legislation - the improving norms and standards increase the needs of monitoring of various parameters (eg. Air quality, emissions);
  • economic trends - with an increase in production volumes and a decrease of unit prices new applications for infrared sensors are created;
  • development of technologies –  a continuous improvement of the technical parameters allows for the development of new applications.

1.1.2         Public funding for photonics

These trends are also reflected in the policies of the European Commission, which recognized photonics as one of the so-called  Key Enabling Technologies (KET ) - ie. technology determining the progress of the whole EU economy. Due to the importance of photonics, the European Commission is cooperating  within the framework of public-private partnership with the Photonics 21 - European photonics technology platform, bringing together European companies and research institutions.

The aim of this program  is to strengthen the competitiveness of the European photonics, strengthen cooperation between the suppliers of various elements in the supply chain of photonic devices, strengthen innovation, in particular in small and medium-sized photonics enterprises . This program  foresees investments in photonics of 7 billion euros, including 1.4 billion euros of public support.

The program  is implemented through a series of coordinated  by the European Commission and Photonics 21 actions . A part of the program includes project  of pilot production line MIRPHAB (Mid InfraRed Photonics Fabrication devices for chemical sensing and Spectroscopic applications). The aim of the project is to develop a European market for photonics, including the development of devices based on mid-infrared technologies for industrial applications as well as security-related ones. Implementation of the project MIRPHAB should contribute to the development of the European photonics industry, finding new uses for infrared sensors and the transition from small-lot production of expensive components for volume production of a relatively low-cost systems.

1.1.3          Projected market growth

In recent years, the number of different types of sensors in the market grew exponentially. In 2007-2013, the number of sensors sold increased more than a hundredfold, which is primarily associated with an increase in sales of modern smartphones. Currently, some global companies specializing in electronics (Bosch, Intel, HP) forecast that the demand for sensors will grow over the decade by several orders of magnitude (from volumes of a few billion in 2012. Until trillion in 2022). Photonics industry predicts an increase in the total market of 350 billion euros in 2014  to more than 600 billion euros in 2020. In this, growth of mid-infrared market, from approx. 800 million USD in 2012 will grow to approx. 7 billion $ in2019. This means average annual growth of approximately 37%.

1.1.4          Potential new applications

Forecasts of the Company's customers indicate the following uses for infrared detectors in next few years:

  • automation for intelligent buildings,
  • monitoring of emissions and air quality,
  • Industrial Automation,
  • monitoring of energy infrastructure,
  • petrochemicals,
  • medicine,
  • detection of hazardous materials and contraband.

1.1.5          Company's activities

The use of current trends will not be possible without:

  • several-fold increase of production capacity in order to exploit economies of scale,
  • a significant reduction in the price of detectors (the current average price detector / detection module is approx. EUR 1400. Manufacturers of infrared detection modules expect the price of 150-200 euros).

In addition, in order to maintain its competitive advantage and profit margins, the Company will:

  • develop new product technologies (aiming to improve the technical parameters of the detector). Technological progress, opening of the new markets and applications, as well as the activities of competing companies require constant investment in research and development related to the improvement and development of the Company's products. One of the first steps in the implementation of this task will  be expanding the range of Company’s products with detectors based on new semiconductor materials produced in the technology of MBE, which should take place by mid-2016.
  • strive to increase the added value for customers by offering products with a higher degree of integration (integrated modules consisting of detectors, electronics, optics and other components)
  • strive to shorten the development time of new applications offering customers company’s knowledge and application expertise.

1.1.6          The investment program

A key element of the strategy will be to build a new manufacturing plant and an application-implementing center that will  enable cost-effective production of 100 thousand detectors annually.
The necessary investments are estimated to amount of EUR 55 million PLN net. The Company intends to obtain financing from the European funds at the level of approximately 30% of expenditures. The company intends to gain external financing of at least 50% of expenditures. Management believes the Company will have no problems with the gaining external funds in this amount.
Furthermore, the Company intends to maintain a relatively high level of investment in research and development (at approx. 10% of annual revenues), which to a large degree will be financed with subsidies received from public funds - national and the European).
The Company intends to continue its policy of paying at least 50% of net profit as dividends to shareholders.

1.1.7           Financial goals

Due to the implementation of the Strategy, the Company will have the potential to achieve the following financial targets in 2020 .:

  • revenues of 80 million PLN,
  • EBITDA of 30 million PLN,
  • net profit of 20 million PLN.

These objectives were based on a number of assumptions, expectations and projections. In this they are subject to risks and uncertainties which may change under the influence of external and internal factors.