As we enter a new year, we are faced with the fastest changing environment that we have ever seen in our customer base and industry. Within a period of approximately six months, we will see three of our major competitors purchased/sold. These are:
* Sauer purchasing Danfoss through a merger
* Parker purchasing Commercial Intertech
* Parker purchasing Gresen
Mannesman is also spinning off their engineered products business into a new company which includes Rexroth.
Not only are we seeing a dramatic change in our competition, but two of our largest customers (New Holland and Case) have merged to form CNH, the largest tractor manufacturer in the world and the No. 3 player in the construction market. Additionally, Timberjack was recently purchased by John Deere which is Deere's first major purchase of a competitor in years. The character of Caterpillar is also changing dramatically as they become a significant player in the compact equipment market through their internal development efforts and introduction of skid steer loaders, compact wheel loaders, and expanded tractor loader backhoe product lines.
Consolidation of companies in our industry will continue, and mergers and purchases of our customers will also continue, resulting in larger organizations which demand more and more of their supply base, particularly relating to reduced pricing.
Goals
With that in mind, I would like to set out key HUSCO goals for the next several years. These are:
1. Become market leaders in suspension systems for off-highway equipment.
2. Complete development of highly cost-effective, next generation electro-hydraulic poppet valve (EHPV) system for off-highway equipment including valves, electronic controllers, EASY 5 models, communications and machine control software, joysticks and sensors.
3. Become the long-term market leader in Europe for off-highway equipment controls by 2005 (currently tied for No. 2), establish manufacturing and market presence in China by 2002, and develop market leadership in India and Brazil by 2005.
4. Establish market leadership in automotive electro-hydraulic controls market with highly proprietary products in selected niche markets including suspension and engine cam phasing to offset the cyclicality of off-highway equipment markets and provide expanded opportunities for significantly higher sales growth.
5. Acquire highly complementary businesses as available to further the above objectives.
Achieving these goals is essential for the continual growth and prosperity of HUSCO International. We believe that through continued growth we will be able to develop a corporation whose size and capabilities will allow it to maintain its independent status, a goal which is necessary for us to maintain the culture and values which are the essence of HUSCO.
Opportunities
Off-Highway Equipment Market
Opportunities for HUSCO are immense. We have major programs ongoing with virtually every major manufacturer in off-highway equipment market, which should allow us to continue to expand market share. Growth will be driven in four major ways:
1. Expanding penetration of existing large OEMs and new mid-size customers, with derivatives of existing products and technology and new product platforms.
2. Leveraging our knowledge and capabilities of suspension systems into market leadership for off-highway equipment applications.
3. Utilizing the highly proprietary and patented EHPV technology to establish a dominant presence in applications requiring electro-hydraulic control systems.
4. Continuing to evaluate and pursue business acquisitions of manufacturers of related products which are highly complementary to HUSCO's existing capabilities.
Automotive Market
Growth in automotive markets will be based on a two-prong strategy. First, we will continue to expand our relationships with existing customers including formalizing "partnering" agreements with several key Tier 1 customers. Secondly, we will continue our efforts to expand our customer base to include additional automotive manufacturers and Tier 1 suppliers with existing and new products where HUSCO technical competence provides an ability to establish competitive advantages.
Challenges
Although I remain extremely optimistic about HUSCO's future, the key to our success is based not only on technical expertise, but it requires establishing operational excellence and driving continuous improvement each year. Operational excellence is core to our success. By operational excellence I mean not only superb execution by our manufacturing operations, but also superb execution by engineering, sales and marketing, and support services.
During the last several years, the installation of BaaN system, retirement of key executives, and a 50% slump in the agricultural tractor market have created a difficult environment. Although we have had spectacular performances by a large number of individuals and teams, our overall performance has not met with our goals and high standards. This year each of you will be exposed to many challenges relating to not only improving performance relative to 1999, but improving performance in a dramatic way which will make up for HUSCO not meeting our improvement objectives in 1998 and 1999. It must be recognized that these improvements are not just nice to have, they are fundamentally important to our success in an environment of falling prices and uncontrollable increases in costs such as medical care, utilities, wages, etc. These efforts may make those who are happy with the status quo uncomfortable, but for HUSCO to succeed, each of us must achieve stretch objectives. Stretch objectives require creative solutions and may result in stress, but they also help create the drive and energy to allow you to achieve them.
I am certain each of you will sense a much greater presence of management and supervisory personnel in your daily activity. This is resulting from the pressure I am exerting on theses individuals to ensure that we achieve our goals. Without achieving performance goals, we will lose business and our ability to succeed as an independent company will be threatened. HUSCO is made up of superb individuals and teams who invariably rise to the occasion when challenges are presented to them. This is a year where all of us must rise to the occasion and perform dramatically better than we have in the past. I know I can expect the support and cooperation of each of you, and I thank you for this now.
God has blessed this organization with the unique capabilities and competencies which have made our performance spectacular in the past. He continues to guide us, but His guidance will result in success only when it is combined with faith, dedication, perseverance, and the will and confidence to succeed.