I joined ATS in March 2017 with a commitment to you and our board to delve deeply into our business, to assess our strengths and where we can improve, to set strategic priorities, and to implement new processes that will enable us to deliver value for both you and our customers. We have made progress in each of these areas and have delivered topline growth and margin expansion. Importantly, we have taken foundational steps that help position us for the next level of performance.
This past year, we completed a thorough strategic review of our operations, technologies, customers and markets. We deployed the ATS Business Model across the organization, we added a number of signicant customer relationships and we continued growing repeat business with new and long-term customers.
I’m excited by what we accomplished and am confident that we are on the right track. Having undertaken an extensive analysis of our capabilities and technologies – and how they align with customer needs in each of our key markets and submarkets – we believe we are well positioned to drive above-market growth well into the future.
2018 Financial Performance
With a strengthening macroeconomic environment, generally, and solid market fundamentals where we operate, specifically, we delivered sequential improvement in our key financial value drivers: bookings, revenues and adjusted earnings. We achieved record annual order bookings of $1.2 billion, up 4% over last year, and we ended the year with a record order backlog of $746 million, a 10% improvement compared to 2017. Our revenues were $1.1 billion, our EBIT margin expanded by 90 basis points and we saw improved gross margins, reflecting solid program execution and greater operational utilization. We also continued operating with working capital as a percentage of revenues below our target of 15%.
Furthermore, we initiated a restructuring plan, which will enable us to improve our cost structure and management, enhance our global capacity utilization and align resources to areas of the business where we expect to drive growth.
The past year represents the start of our journey, and I am cognizant of the challenges ahead of us. We know we need to do more in talent development and capacity utilization across all of our operations. And, of course, innovation is imperative in our industry. This is where the ATS Business Model represents a truly exciting opportunity.
We are well positioned to drive above-market growth well into the future.
ATS Business Model
Every successful team has a playbook designed around its shared strategy, collective strengths and commitment to performance. For us, that playbook is the ATS Business Model – or ABM. It is a set of tools that enable us to pursue and evolve our strategy, to drive continuous improvement, to outpace the competition in the markets we serve and to support long-term, sustainable value for you, our shareholders.
Common sense, rigorously applied – that’s the foundation of the ABM. We pursue it across the organization, with a focus first on people, then process, then performance.
We have operations around the world and industry-leading technologies. None of that is possible, of course, without the intelligence and commitment of our people. Having a highly skilled, technical workforce in place – and ensuring everyone can contribute at his or her highest level, and grow in his or her position over the long term – enables us to win as a team. Through the ABM, we are developing leaders, while engaging and empowering our global workforce.
With strong leaders and engaged people, we can drive robust, disciplined process in all aspects of our business and seek continuous improvement in everything we do. Whether it’s a Kaizen event to advance process, a 5S workspace improvement or a goal deployment to segment strategies into specific focus areas, the ABM provides valuable tools for the whole organization. By continuously improving process, determining what we can repeat and sharing those improvements throughout the company, we strengthen the organization and create value for our customers and shareholders.
In 2018, for example, one of our service groups took a close look at its way of doing things by tracking and analyzing leading and lagging indicators. Through a combination of process-oriented problem solving and sustainable daily management adjustments, it improved on-time deliveries by over 50%. Such Kaizen events or improvements – where we maximize efficiencies and throughputs – can be shared across ATS and help us pursue growth and margin expansion regardless of market.
Ultimately, performance powers value creation. It also provides clarity within the organization, for individual employees and for us as a team. Consistently measuring our performance is how we ensure we are maximizing the value of our people and our process. It’s how we keep score.
The adoption has been encouraging, and we see many opportunities ahead for continued improvement. We are fully implementing the ABM in a number of ways. One way is through global One-Point Lessons, which cover a specific training topic once a week. We have also kicked off three-day ABM Boot Camps, where leaders come together, learn how to implement and improve, and leave able to champion the playbook’s adoption among their division team members.
We are in the early days of the ABM. Its ongoing development will complement our existing strengths and help us realize new ones. As we deploy new tools, we will focus on those that can effect the biggest impacts across the organization. Internal process changes will maximize our ability to align our value proposition with customer demand in attractive markets, along with our ability to foster product innovation. We are breaking into opportunities with existing and new life sciences customers, for example, and we are helping transportation companies grapple with the shift from internal combustion engines to EV technologies. We are poised to help customers in both areas roll out flexible solutions in a deliberate, economical and safety-conscious fashion.
The global marketplace is experiencing rising labour costs, a constant drive toward improved quality and continual time-to-market imperatives. These factors all play well with the value that ATS delivers. Through the ABM, internal process-oriented changes and a rich history of innovative automation solutions, we are in an enviable position to serve our customers with efficient, reliable solutions – before, during and after automation.
As we enter the new fiscal year, we are celebrating some important ATS milestones: 2018 is our 40th anniversary as a corporation and our 25th anniversary as a public company listed on the Toronto Stock Exchange. And our subsidiary IWK is celebrating its 125th year of offering customers innovative solutions – certainly an amazing milestone. I am proud and humbled to have the privilege of leading this great company and our team of over 3,800 people. It’s a team that’s engaged, committed and fully aligned to drive value for you and our customers. With deep roots like ours, a forward-looking mentality and the right playbook in place, we are ready to keep delivering value for years to come.
Chief Executive Officer
June 21, 2018