BE SEMICONDUCTOR INDUSTRIES N.V. 
Annual Report 2020
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Introduction |
This year marks the start of a new decade of progress and opportunity for our Company. Over the past ten years, we have delivered significant growth and value creation for all stakeholders while conducting our business in a responsible and sustainable manner. The emergence of COVID-19 this year underscored the importance of building a resilient, flexible and sustainable organization. The far-reaching impact of the pandemic on Besi's global operations has encouraged us to develop new ways of working, communicating, travelling and interacting which can also help reduce our environmental footprint going forward. This year, we highlight our Environmental, Sustainability and Governance ("ESG") goals and ambitions which include the establishment of a more robust framework with specific targets identified to guide our activities for the next decade.
Our mission
Besi's mission is to become the world's leading supplier of semiconductor assembly equipment for advanced packaging applications and to exceed industry average benchmarks of financial performance. We also strive to create long-term value for stakeholders and operate our business in a sustainable way, respecting both the environment and society.
INVESTMENT CONSIDERATIONS
KEY HIGHLIGHTSRevenue*
€ 356.2
€ 433.6
Orders*
Gross Margin
Net Income*
Net Margin
Return on Average Equity
€ 472.1
59.6%
€ 132.3
€ 348.7
55.8%
€ 81.3
30.5%39.5%
€ 77.4
€ 123.4
+3.8 pts
€ 51.0
22.8%24.2%
+7.7 pts
+15.3 pts
Scope 1 and 2 Emissions
(tCO2e/€ millions revenue)
20
25
-20%
Renewable Energy
20%
18%
+2.0 pts
* In millions.
REMUNERATION REPORTREPORT OF THE SUPERVISORY BOARDBOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
Contents
REPORT OF THE BOARD OF MANAGEMENT 2
Company Profile 3
Key Highlights 2020 5
Letter to Stakeholders 9
Market Overview 15
Strategy 21
Financial Review 28
Environmental, Social and Governance Report 37
Risks and Risk Management 54
Shareholder Information 68
Corporate Governance 74
REMUNERATION REPORT 80
REPORT OF THE SUPERVISORY BOARD 96
BOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS 101
FINANCIAL STATEMENTS 2020 103
Consolidated Statement of Financial Position 104
Consolidated Statement of Operations 105
Consolidated Statement of Comprehensive Income 105
Consolidated Statement of Changes in Equity 106
Consolidated Statement of Cash Flows 107
Notes to the Consolidated Financial Statements 108
Parent Company Balance Sheet 154
Parent Company Statement of Income and Expense 155
Notes to the Parent Company Financial Statements 156
OTHER INFORMATION 163
PDF/printed version
This document is the PDF/printed version of the 2020 Annual Report of BE Semiconductor Industries N.V. and has been prepared for ease of use. The 2020 Annual Report was made publicly available pursuant to section 5:25c of the Dutch Financial Supervision Act (Wet op het financieel toezicht), and was filed with Netherlands Authority for the Financial Markets in European single electronic reporting format (the ESEF package). The ESEF package is available on the Company's website athttps://www.besi.com/investor-relations/ financial-reports-and-publications/ and includes a human readable XHMTL version of the 2020 Annual Report. In any case of discrepancies between this PDF version and the ESEF package, the latter prevails.
FINANCIAL | OTHER |
STATEMENTS 2020 | INFORMATION |
Report of the Board of Management | |
Company Profile | 3 |
Key Highlights 2020 | 5 |
Letter to Stakeholders | 9 |
Market Overview | 15 |
Strategy | 21 |
Financial Review | 28 |
Environmental, Social and Governance Report | 37 |
Risks and Risk Management | 54 |
Shareholder Information | 68 |
Corporate Governance | 74 |
REMUNERATION REPORT
REPORT OF THE SUPERVISORY BOARDBOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
3 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Company Profile
BE Semiconductor Industries N.V. ("Besi" or the "Company") is engaged in one line of business: the development, manufacturing, marketing, sales and service of semiconductor assembly equipment for the global semiconductor and electronics industries.
Our market
The semiconductor manufacturing process involves two distinct phases: wafer processing, commonly referred to as the front-end, and assembly/test operations, commonly referred to as the back-end. Our equipment is principally used by customers to produce advanced semiconductor assemblies or "packages". Typically, such assemblies provide the electronic interface and physical connection between a semiconductor device, or "chip", and other electronic components and protect the chip from the external environment. VLSI Research, a leading independent industry analyst, estimated that the size of the assembly equipment market was approximately $ 3.6 billion in 2020, or 5% of the total semiconductor equipment market. Annual growth rates can fluctuate greatly based on global economic cycles and the capital investment programs of our semiconductor and industrial customers.
FROM PROCESSED WAFER TO ASSEMBLED CHIP
Semiconductor Manufacturing Equipment 2020: $ 72.7B*
Front-end: $ 62.9B (86%) | Assembly: $ 3.6B (5%) |
Test: $ 6.3B
(9%)
Assembly Process
Dicing
* Source: VLSI, February 2021
Die Attach
Wire BondPackagingPlating
Semiconductor assembly involves three primary process technologies depending on the product application required:
Leadframe assembly, the most traditional approach, involves the electrical connection of the chip via a wire bonding process to a metal leadframe. Leadframe assembly technology is most frequently used to produce semiconductor devices for mass market and consumer electronics applications.
Substrate assembly has gained increased market acceptance over the past decade. It is used most frequently in new product applications that require high degrees of miniaturization and chip density such as smart phones, servers, tablets and laptops as well as wireless, automotive and cloud-based internet applications. In a typical substrate assembly, no metal leadframes are utilized and the electrical connection of the chip is made directly to a multi-layer substrate or through the creation of direct connections to the multi-layer substrate via a flip chip die bonding process.
Wafer level packaging, the most advanced assembly technology, eliminates the use of either a metal leadframe or laminated substrate for semiconductor assembly. In wafer level packaging, the electrical connections are directly applied to the chip without the need for an interposer. This process technology enables customers to achieve even higher degrees of miniaturization, chip density and performance and lower energy consumption than substrate assembly but at a higher cost and reduced yield currently. We anticipate that wafer level packaging will be more actively utilized for next generation applications such as data mining, predictive analytical software, artificial intelligence, high-performance computing and new 5G powered systems and services as we move further towards the digital society.
Besi is a leading provider of advanced packaging solutions to customers which incorporate both substrate and wafer level based packaging processes in their assembly operations. We define advanced packaging as the assembly of semiconductor devices with geometries below 28 nanometer and placement accuracy below 10 micron in 24/7 production environments. We estimate that approximately 75% of Besi's system revenue in 2020 was for advanced packaging applications of which 55% were for the most leading edge devices with geometries below 17 nanometer and placement accuracy below 7 micron.
Our products and services
Besi develops and supplies leading edge systems offering high levels of accuracy, reliability and productivity at a low cost of ownership. We offer customers a broad portfolio of systems which address substantially all of the assembly process steps involved in leadframe, substrate and wafer level packaging.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
4 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
CURRENT OPERATIONAL PROFILE |
Our principal product and service offerings include:
• Die attach equipment: single chip, multi chip, multi module, flip chip, TCB, FOWLP and hybrid die bonding systems and die sorting systems.
• Packaging equipment: conventional, ultra thin and wafer level molding, trim and form and singulation systems.
• Plating equipment: tin, copper, precious metal and solar plating systems and related process chemicals.
• Services/Other: tooling, conversion kits, spare parts and other services for our installed base of customers.
Our customers
Our customers are primarily leading multinational chip manufacturers, assembly subcontractors and electronics and industrial companies and include ASE, Amkor, Forehope, Foxconn, Greatek, Huatian, Infineon, JCET/STATS ChipPAC, LG Innotek, Micron, NXP, STMicroelectronics, TDK Electronics and TFME. Customers are either independent device manufacturers ("IDMs") which purchase our equipment for internal use at their production facilities or subcontractors which purchase our equipment to assemble packages for third parties on a contract basis. Our equipment performs critical functions in our customers' assembly operations and in many cases represents a significant percentage of their installed base of assembly equipment.
Our commitment to sustainability
Our objective is to promote Besi's business and financial interests in a socially responsible manner for the benefit of all stakeholders, employees, partners, the environment and the local communities in which we operate. We are committed to running our operations in accordance with internationally recognized standards and best practices and to promote sustainability with all stakeholders including topics such as environmental conservation, human rights, conflict mineral free supply chains, hazardous materials, anti-corruption practices and corporate transparency. Our Environmental, Social and Governance ("ESG") strategy has three pillars: Environmental Impact, People Wellbeing and Responsible Business. Within these pillars, we have identified 12 material topics of which key priorities include energy use and renewable energy, sustainable design and diversity and inclusion. For more information, refer to the Environmental, Social and Governance Report.
Our global presence
We are a global company with headquarters in Duiven, the Netherlands. We operate seven facilities in Asia and Europe for production and development activities as well as nine sales and service offices across Europe, Asia and North America. We employed a total staff of 1,618 fixed and temporary personnel at December 31, 2020, of whom approximately 68% were based in Asia and 32% were based in Europe and North America.
- Development activities in Europe
- Production in Asia
- Sales/service activities in Asia, US and EuropeSales officeProduction siteSales and R&D site
Full Year 2020
Europe/NA
Asia
Revenue (MMs) | € 72.3 | 16.7% | € 361.3 | 83.3% |
Headcount | 523 | 32.3% | 1,095 | 67.7% |
Our listings
Besi was incorporated under the laws of the Netherlands in May 1995 and had an initial public offering in December 1995. Besi's ordinary shares are listed on Euronext Amsterdam (symbol: BESI) and are included in the Amsterdam Midcap Index ("AMX index"). Our level 1 ADRs trade on the OTC markets (symbol: BESIY, Nasdaq International Designation). We also have three issues of Senior Unsecured Convertible Notes outstanding which are listed on the Deutsche Börse's Freiverkehr market (see Shareholder Information).
More detailed information about Besi can be found at our website:www.besi.com.
REMUNERATION REPORTREPORT OF THE SUPERVISORY BOARD
Key Highlights 2020
• | Revenue of € 433.6 million, up € 77.4 million, or 21.7% versus 2019 | ||
• | Orders rose 35.4% to € 472.1 million | • | Cash flow from operations of € 162.0 million grew by € 41.9 million, or 34.9%, versus 2019 |
• | Gross margin reached 59.6%, up 3.8 points | • | New issuance of € 150 million of 0.75% Convertible Notes increases financial flexibility |
• | Net income of € 132.3 million, up € 51.0 million, or 62.7% | and market presence | |
• | Net margin increased to 30.5% versus 22.8% | • | Cash and deposits of € 599 million (€ 8.22 per basic share) provide solid basis for future |
• | Return on average equity grew to 39.5% versus 24.2% | growth | |
• | Total shareholder return of 46.8% versus SOX index of 52.9% | • | Net cash of € 198.7 million grew by € 68.4 million (52.5%) versus year end 2019. Reflects |
dividends and share repurchases of € 91.3 million |
Strong cash flow generation supports shareholder friendly capital allocation program
Strong performance in challenging year
BOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS
Renewed growth in industry recovery. Operating efficiency increased
FINANCIAL STATEMENTS 2020
• Revenue growth driven by improved market conditions, new 5G smart phone product cycle and increased investment by Chinese customers
• Gross margins rose due to disciplined management of personnel, production and supply chain amidst COVID-19 related disruptions
• Profitability further enhanced by strategic initiatives to limit personnel and expense development
• Gross and net margins and return on average equity highest amongst assembly equipment peers
Well positioned for long-term, secular growth
• Advanced packaging becoming ever more critical part of semiconductor value chain for emerging digital applications
• Leading position in advanced packaging and highly scalable production model increase Besi's revenue and profit potential
• R&D increased to align with customer roadmaps for 5G network compatibility and enhanced features, cloud and high-performance computing, AI, data analytics, electric vehicles and autonomous driving
• New joint development agreement with Applied Materials, Inc. to develop hybrid bonding systems for wafer level integration of heterogeneous logic and memory devices
• Extension and increase of share repurchase program from € 75 million to € 125 million
• Proposed 2020 dividend of € 1.70 per share, an increase of 68.3%. Pay-out ratio of approximately 94%
Progress on ESG initiatives
• Additional safety, health and organizational measures implemented due to COVID-19
• Relative reductions in fuel, energy, hazardous waste and water consumption
• 100% renewable energy generation achieved across three operating locations
• Defined targets set for 2022-2030 on both corporate and entity level
REMUNERATION REPORTREPORT OF THE SUPERVISORY BOARDBOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
REVENUE AND GROSS MARGIN TRENDS
NET INCOME TRENDS
2016Revenue
2017
Gross Margin
€ millions
200
180
160
140
120
100
80
60 40 20 0
Net Margin 50%
173.2
2018
2019
2020
2016Net Income
40%
30%
20%
10%
2017Net Margin
2018
2019
2020
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
7 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
Selected Financial and Other Highlights | |||||
(in euro millions, except share and non-financial data) | |||||
2020 | 2019 | 2018 | |||
Operating data | |||||
Revenue | 433.6 | 356.2 | 525.3 | 592.8 | 375.4 |
Orders | 472.1 | 348.7 | 483.1 | 680.9 | 373.8 |
Operating income | 149.9 | 91.9 | 172.7 | 209.4 | 75.2 |
EBITDA | 169.0 | 111.7 | 187.7 | 222.8 | 89.8 |
Net income | 132.3 | 81.3 | 136.3 | 173.2 | 65.3 |
Net income per share (in euro)1 | |||||
Basic | 1.82 | 1.12 | 1.83 | 2.32 | 0.87 |
Diluted | 1.67 | 1.06 | 1.68 | 2.17 | 0.85 |
Dividend per share (in euro)1, 2 | 1.70 | 1.01 | 1.67 | 2.32 | 0.87 |
Shares outstanding (in thousands)3 | 72,866 | 72,212 | 73,570 | 74,551 | 74,653 |
Balance sheet data | |||||
Cash, cash equivalents and deposits | 598.7 | 408.4 | 475.5 | 527.8 | 304.8 |
Total debt | 400.0 | 278.1 | 276.1 | 280.2 | 136.7 |
Net cash | 198.7 | 130.3 | 199.4 | 247.6 | 168.1 |
Total equity | 371.2 | 298.5 | 372.2 | 434.1 | 345.0 |
Financial ratios | |||||
Gross profit as % of revenue | 59.6 | 55.8 | 56.8 | 57.1 | 51.0 |
Operating income as % of revenue | 34.6 | 25.8 | 32.9 | 35.3 | 20.0 |
Net income as % of revenue | 30.5 | 22.8 | 25.9 | 29.2 | 17.4 |
Return on average equity (%) | 39.5 | 24.2 | 33.8 | 44.4 | 19.3 |
Return on invested capital (%) | 19.6 | 13.5 | 22.3 | 30.4 | 16.0 |
Current ratio | 7.4 | 6.4 | 6.0 | 5.2 | 4.7 |
Solvency ratio | 40.7 | 42.8 | 48.2 | 49.6 | 58.7 |
Headcount data | |||||
Headcount fixed | 1,523 | 1,534 | 1,692 | 1,724 | 1,586 |
Headcount temporary | 95 | 62 | 67 | 316 | 83 |
Total headcount | 1,618 | 1,596 | 1,759 | 2,040 | 1,669 |
Geographic data | |||||
Revenue from Asia as % of total revenue | 83.3 | 72.2 | 66.4 | 70.4 | 78.2 |
Headcount in Asia as % of total headcount | 67.7 | 68.3 | 70.3 | 71.1 | 66.8 |
Environmental, Social and Governance data | |||||
Direct emissions (tCO2e/€ millions revenue) | 20 | 25 | 21 | 21 | 30 |
Renewable Energy (% of total energy consumed) | 20% | 18% | 5% | 0% | 0% |
Female employees (% of FTE) | 17% | 17% | 17% | 16% | 16% |
1 The number of shares and per share amounts have been adjusted for the two-for-one stock split effected on May 4, 2018.
2 Proposed 2020 dividend for approval at Besi's AGM to be held on April 30, 2021.
3 Net of shares held in treasury.
REMUNERATION REPORTREPORT OF THE SUPERVISORY BOARDBOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
LIQUIDITY TRENDS
2016
2017
Cash and DepositsNet Cash
CAPITAL ALLOCATION TRENDS € millions
200
209.5
100
150
50
0
2016
2017
Dividends
Share Repurchases
2018
2019
2020
2018
2019
2020
DIRECT EMISSIONS
INDIRECT EMISSIONS
tCO2e
tCO2e/€ millions revenue
12,50050
10,848
-17%
2018
2019
2020
Scope 1Scope 2Relative to revenue*tCO2e
tCO2e/€ millions revenue
1,200,0006,000
-10%
2022
Target
2030
2018
2019 2020
Scope 3Relative to revenue*
2022
Target
2030
* Targets for 2022 and 2030 based on 2019 revenue.
* Targets for 2022 and 2030 based on 2019 revenue.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
9OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
Letter to Stakeholders
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
10 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Letter to Stakeholders
Dear Stakeholders,This year marks the start of a new decade of progress and opportunity for our Company. Over the past ten years, we have delivered significant growth and value creation for all stakeholders while conducting our business in a responsible and sustainable manner. Besi's dedicated focus on advanced packaging, technological leadership and the disciplined execution of strategic initiatives has created a leader in the assembly equipment market with superior through-cycle performance and best in class financial metrics.
HISTORY OF SUPERIOR LONG-TERM VALUE CREATION
* Includes dividend of € 1.70 per share for approval at 2021 AGM.
Since 2011, we have distributed approximately € 866 million to shareholders in the form of dividends and share repurchases (including the dividend proposed for 2020 of € 1.70 per share) representing over 20% of our cumulative revenue during such period, registered a share price increase of 1,836% and grown our market capitalization from € 170 million to € 3.6 billion at year end 2020. The profitability of our business model has also increased significantly with gross margins increasing from 40% to approximately 60%, net income growing five-fold from € 26.4 million to € 132.3 million and return on average equity more than tripling from 11.2% to 39.5% this year.
In 2020, we enjoyed strong growth with revenue increasing by 21.7% to reach € 433.6 million and net income rising by 62.7%. In addition, orders of € 472.1 million increased by 35.4% versus last year as an industry recovery took hold in the fourth quarter of 2019 and accelerated in the second half of 2020. Besi's results were even more impressive considering the multiple headwinds faced and organizational challenges posed by the global COVID-19 pandemic, increased trade tensions between the US and China, decreased shipments to automotive end-user markets and an approximate 8% decrease in the value of the US dollar versus the euro in the second half of the year.
Besi's revenue and order growth in 2020 benefited primarily from improved industry conditions and increased shipments for mobile applications due to a new smart phone product cycle featuring 5G capabilities and increased investment by Chinese customers. Profit growth was aided by higher revenue levels and a gross margin expansion of 3.8 points associated primarily with Besi's strong advanced packaging market position and more favorable product mix. It was also aided by increased productivity as relatively stable fixed headcount levels helped drive labor efficiencies. In addition, year over year operating expenses grew by only 1.7% versus 2019. Relatively stable expense development resulted from strategic cost reduction initiatives and reduced corporate travel and personnel overhead associated with the pandemic and expansion of the work at home economy. As a result, net margins rose from 22.8% in 2019 to 30.5% in 2020.
Besi's profitability has increased significantly since the last industry downturn as measured by a comparison of the years immediately following cyclical trough levels reached in 2015 and 2019. As evident in the chart below, operating income in 2020 grew by 99.3% versus the comparable period of the prior cycle while operating margins rose from 20.0% to 34.6%. Increased efficiency this year positions us well for continued profit growth in the current industry upcycle.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
11 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
INCREASED PROFITABILITY VS. LAST INDUSTRY CYCLE
Trough € millions
450
400
350
300
250
200
200
160
+2.0%
356.2
349.2
+58.7% | 25.8% 91.9 |
16.6% 57.9 | |
2015Revenue
2019
Operating Income
120
80
40
0
Post Trough € millions
450
400
350
300
250
200
200
2016Revenue
2020
Operating Income
160
120
80
40
0
Coping with the COVID-19 pandemic
The emergence of the COVID-19 virus in the first quarter of 2020 presented a challenge unlike any we have encountered and underscored the importance of building a resilient, flexible and sustainable organization. Management took immediate precautionary measures to protect the safety and health of our employees, customers and suppliers, significantly increased the frequency of management and board meetings in order to sustain employee and customer engagement in the face of restrictions on personal movement and interaction. In addition, we flexibly adjusted the management and organization to the new and uncertain realities of the pandemic as it evolved.
Fortunately, Besi's operations in Leshan, China and most of our Chinese customers were outside of the primary quarantine zone in Wuhan. In addition, due to our flexible Asian supply chain, labor force and assembly capacity, we were able to shift production and final assembly sufficiently among our Malaysian, Chinese and Singapore facilities to satisfy customer demand. Virtually all Besi office personnel worked remotely with careful adherence to local regulations. Our production also benefited from Besi's dual source supplier strategy and advance purchases of components deemed critical to our operations. The far-reaching impact of the pandemic on Besi's global operations has encouraged the development of new ways of working, communicating, travelling and interacting which will benefit our business going forward. We want to personally thank everyone involved for their efforts to maintain business continuity under such difficult working conditions.
Besi's financial position and liquidity improved
Besi ended the year with a solid liquidity base consisting of cash, cash equivalents and deposits aggregating € 598.7 million (€ 8.22 per basic share). This represents an increase of € 190.3 million, or 46.6%, versus year end 2019 primarily as a result of the offering in August of € 150 million of 0.75% Convertible Notes due 2027 via a registered private placement with institutional investors. The Convertible Note issuance provides attractive seven-year growth capital, increases our financial flexibility to withstand market volatility and take advantage of future strategic opportunities. In addition, it further strengthens our market presence with leading IDM customers which increasingly view Besi as an important partner in their advanced packaging development below 10 nanometer.
Our financial position also improved as cash flow from operations increased by € 41.9 million, or 34.9%, mainly due to higher profits generated during the year and improved working capital management. Similarly, Besi's net cash increased by € 68.4 million, or 52.5%, to reach € 198.7 million as compared to year end 2019.
Shareholder returns increased
Shareholders were rewarded for their investment in Besi both by our capital allocation policy and share price performance. In 2020, € 91.3 million was returned to shareholders in the form of dividends and share repurchases. In October 2020, we extended the current share repurchase program by one year and expanded the amount available thereunder from € 75 million to € 125 million. At year end 2020, Besi held approximately 5.7 million shares in treasury which represented 7.3% of total shares outstanding at an average cost of € 16.43 per share. The year end balance reflects the cancellation of 1.5 million shares held in treasury in October 2020.
Final preparations for hybrid bonding trials at Besi Austria.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
12 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Besi's shareholder total return was 46.8% in 2020 versus a 28.9% return by our most comparable peers and a 52.9% return for the benchmark Philadelphia Semiconductor ("SOX") index. Over the past five years, Besi's stock has produced a cumulative total return of 584.3%, significantly outpacing returns of both our peers and the SOX index.
Given profits earned in 2020 and Besi's solid financial position, we will propose a cash dividend of € 1.70 per share for approval at Besi's AGM to be held on April 30, 2021. The proposed distribution is the eleventh consecutive annual dividend paid and reflects a pay-out ratio relative to net income of 94%.
Strategic priorities focused on COVID-19 and R&D initiatives
In the first quarter of 2020, we finalized initiatives for the 2020-2024 planning period. Besi's priorities this year focused, in part, on addressing the COVID-19 pandemic and its impact on our global organization, supply chain and timely customer shipments. A variety of initiatives were developed to adjust our business model to the new economic and workplace realities caused by the pandemic. Ongoing cost reduction efforts focused on the continued consolidation and reduction of Besi's European footprint. The successful execution of strategic initiatives significantly improved our financial performance this year.
We also reorganized our research and development organization to better align it with customer roadmaps. Similarly, we increased gross R&D spending (excluding the impact of net capitalized R&D) by € 3.0 million, or 7.8%, versus 2019. Spending growth was primarily due to higher personnel levels necessary to support customer programs as well as the construction of a Class 10 cleanroom at Besi Austria to further hybrid bonding development. Key development activities primarily related to the following applications and process technologies:
• Next generation 5G smart phone components and applications such as antennas, world facing cameras, enhanced 3D imaging and microLED screens.
• Hybrid bonding interconnects for the integration of multiple, heterogeneous devices in chip scale logic and memory devices for which we shipped our first nano-accurate hybrid die bonding system.
• Next generation high speed <5 micron accuracy TCB die bonding systems and flip chip die bonding systems for the assembly of advanced logic and memory devices.
Joint development agreement signed with Applied Materials
We signed a joint development agreement with Applied Materials, Inc. in October to develop the industry's first complete and proven equipment solution for die-based hybrid bonding. The collaboration harnesses each firm's respective expertise in front- and back-end semiconductor process technology for next generation applications such as high-performance computing, AI, 5G, mobile, data storage and automotive.
Hybrid bonding connects multiple chiplets in die form using direct copper interconnects. This technique enables designers to bring chiplets of various process nodes and technologies into closer physical and electrical proximity so that they perform as well or better than if they were made on a single large, monolithic die. Hybrid bonding is a major improvement over conventional chip packaging because it permits increased chip density and shortens the lengths of the interconnect wiring between chiplets, thereby improving overall performance, power, efficiency and cost. A complete die-based hybrid bonding equipment solution requires a broad suite of semiconductor manufacturing technologies along with high-speed and extremely precise chiplet placement technology. To achieve this, the joint development program brings together Applied's semiconductor process expertise in etch, planarization, deposition, wafer cleaning, metrology, inspection and particle defect control with Besi's leading die placement, interconnect and assembly solutions.
JOINT DEVELOPMENT AGREEMENT WITH APPLIED MATERIALS
Industry shift to smaller, integrated, heterogeneous chip designs for leading edge 5G, AI, HPC, data storage and auto applications
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
13 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
The parties have established a Hybrid Bonding Center of Excellence at Applied's Advanced Packaging Development Center in Singapore which is located across the street from Besi's Asia Pacific headquarters. The Applied facility is one of the industry's most advanced wafer level packaging laboratories and contains 17,300 square feet of Class 10 cleanroom space with full lines of wafer level packaging equipment. The Center of Excellence was outfitted jointly in the fourth quarter of 2020 with customer engagement at the facility commencing in the first quarter of 2021.
ESG strategy enhanced
This year we engaged an independent, third party consulting firm to help us better define our Environmental, Social and Governance ("ESG") goals and ambitions in the context of our industry, culture and increased scale. We simplified areas of focus while expanding reporting activities and the scale and scope of our initiatives. We also engaged senior management and relevant stakeholders for their input.
ESG STRATEGIC PILLARS, MATERIAL TOPICS AND KEY TARGETS
Strategic Pillars:Material Topics:
Environmental Impact | People Wellbeing | Responsible Business |
Impact at Besi:
Impact at suppliers/ customers:
|
|
|
Key Targets 2022
| Key Targets 2030
|
* As per Greenhouse Gas Protocol. Targets relative to 2019 baseline data.
Besi's ESG strategy is centered on three strategic pillars: Environmental Impact, People Wellbeing and Responsible Business. Within these pillars, we identified 12 material topics, of which key focus areas include energy use and renewable energy, sustainable design and diversity and inclusion. We also translated our ambitions into a broad range of measurable and challenging targets for the short-, medium- and long-term. In addition, we reinforced the importance of achieving such targets by embedding them in the remuneration policy for the Board of Management and senior executives.
Key ESG accomplishments in 2020
• Additional safety, health and organizational measures implemented due to COVID-19
• Near and long term ESG ambitions, targets and KPIs set
• 100% renewable energy achieved across three operating locations
• Reduction of Scope 1 and 2 carbon emissions by 6% on absolute basis and 20% on relative basis
• Relative reductions in fuel, energy, hazardous waste and water consumption
• Remote service and installation begun using augmented reality
• Increased employee engagement and improved sentiment identified in corporate COVID-19 Pulse Survey
• Proposed increase of female representation at Besi's Supervisory Board level from 20% to 40%
Besi's enhanced ESG framework, progress achieved in 2020 and long-term targets will help facilitate our successful and sustainable business growth over the next decade.
Favorable industry outlook entering 2021
There are many positive indicators as we enter 2021. They include (i) larger customer capex budgets for advanced packaging applications, (ii) increased consumer demand for 5G enabled smart phones, (iii) renewed growth for memory devices following a long period of oversupply conditions and (iv) improved orders for automotive applications as the global economic recovery continues. We are also encouraged by substantial fourth quarter orders of € 157.3 million which reflected growth across all end-user markets. Traditionally, the fourth quarter is the weakest period of the year for bookings. One of the principal questions for 2021 is the trajectory of the industry recovery given the spread of new COVID-19 variants and renewed restrictions on travel and personal interaction in selected parts of the world.
Longer term, we are encouraged about Besi's prospects given our strong performance during the last industry downturn and current pandemic and by the presence of strong secular growth drivers. Anticipated growth will be driven primarily by 5G network expansion and feature/functionality upgrades, continued investment in cloud computing infrastructure and artificial intelligence applications, advances in electric vehicle
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production and autonomous driving and significant investment by the Chinese government to build out its semiconductor production capacity. In addition, we see IDMs more actively engaged in the deployment of next generation processes than the last investment cycle. In this regard, we have seen increased focus by memory manufacturers on high-speed, high-accuracy flip chip production versus traditional wire bonding solutions and increased engagement on the topic of hybrid bonding for the development of next generation applications. Our hybrid bonding joint development agreement with Applied Materials holds significant promise to expand our addressable market and increase our share of wallet at Besi's leading IDM customers.
As chip functionality, complexity and density increase and device geometries shrink, Besi's advanced packaging solutions are ever more important to customers. As such, the traditional back-end assembly process is starting to merge with the front-end at the most advanced node levels. In addition, it appears that the pace of innovation is increasing as the pandemic has accelerated society's move to a digital infrastructure wherein technology adoption has greatly increased in our daily lives. Innovation is an important driver of our business.
In closing, we want to thank our employees, customers, suppliers and other stakeholders for helping Besi deliver impressive growth in a challenging year. We look forward to a time when the virus is no longer a daily threat to our families, communities and business relationships and we can fully focus our efforts on the many exciting growth opportunities in the decade ahead.
Board of Management Richard W. Blickman
February 18, 2021
Webex meeting bi-weekly strategy program update.
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Market Overview
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Market Overview
Assembly equipment market
The semiconductor manufacturing process involves two distinct phases, wafer processing, commonly referred to as the front-end, and assembly/test operations which are commonly referred to as the back-end. Besi's assembly equipment is used by customers principally to produce advanced semiconductor assemblies or "packages". VLSI Research, a leading independent industry analyst, estimated that the size of the assembly equipment market was approximately $ 3.6 billion in 2020, or 5% of the total semiconductor equipment market. Besi's product strategy focuses primarily on providing advanced packaging solutions to customers which incorporate both substrate and wafer level based packaging processes in their semiconductor assembly operations. This represents the most rapidly growing area of the assembly equipment industry.
Besi's product group offerings for the assembly equipment market include Die Attach, Packaging and Plating which represented approximately 80%, 17% and 3%, respectively, of our revenue in 2020. As per VLSI Research, Die Attach systems represented the largest estimated portion of the assembly equipment market in 2020 (31%). Based on VLSI data, we estimate that our addressable market was approximately $ 1.6 billion in 2020 which represented approximately 44% of the total assembly equipment market.
ASSEMABsLsYemEbQlUy IEPqMuipEmNeTntMMAaRrKkeEtT* (2020)*
$(2020: $3.4 billion)
BESI ADDBeRsEi SASddArBesLsEabMleAMRaKrEkeTt(*2020)*
(2020: $1.2 billion)
Plating 2%
* Source: VLSI, February 2021
Besi's key end-user markets
Besi has three principal end-user markets: mobile internet, computing and automotive. They represented an estimated 73% of Besi's total revenue in 2020 (2019: 72%). In addition, we serve industrial, medical and other markets and provide spares and services to our installed base of customers which represented approximately 10% and 17%, respectively, of total 2020 revenue.
Besi End User Applications Mix
BESI END-USER MARKETS
2019 % Revenue
2020 % Revenue
Source: Company estimates
Mobile internet
Besi's largest end-user market has traditionally been mobile internet devices. We sell die bonding, packaging and plating systems to support high-end and mainstream smart phones, wearable internet devices and other related wireless devices and logistical systems. Besi's end-user customers include the largest mobile handset manufacturers and their global supply chains worldwide from which revenue can fluctuate significantly on an annual basis depending on the timing of new product introduction cycles. Through its assembly solutions, Besi helps manufacturers develop next generation mobile device features and functionality such as 5G antennas, front-back facing cameras, multiple camera modules (8+), enhanced 3D sensing and facial recognition features and micro LED screens.
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A significant customer focus is the development of die bonding and packaging solutions for smaller, highly complex and feature packed 5G compatible smart phones. 5G is a unifying connectivity platform for future innovation enabling secure cloud access on a continuous basis at significantly higher data and video transmission speeds.
5G PENETRATION RATES 2019-2025
5G % of Total Connections
80%
60
40
20
0
1.8 billion connections
2019
2020
2021
2022
Source: GSMA Mobile Economy and Besi analysis, March 2020
5G connections
2023
2024
2025
As presented in the chart above, 5G penetration rates are anticipated to grow significantly over the next five years. As such, user adoption of 5G capabilities could greatly expand mobile broadband activities and accelerate the usage of artificial intelligence for the Internet of Everything.
Computing
Computing has traditionally been Besi's second largest end-user market. It includes sales of die bonding and packaging systems for high-end logic and memory devices used in servers, PCs, tablets, flat panel displays and internet applications. Computing has been growing rapidly over the past decade with the explosion of data volumes and memory needed to power the IT needs of the largest sections of the global economy. Specific growth opportunities include the expansion of cloud-based computing and its requisiteinfrastructure, the adoption of artificial intelligence and virtual and augmented reality in our daily business and personal interactions, the usage of software to mine, organize and analyze the massive quantities of data being generated and the proliferation of the Internet of Everything including the smart management of residential, industrial and municipal equipment and functions.
A strategic focus is the expansion of Besi's reach in the logic and memory markets in the era of cloud computing, data mining and artificial intelligence of which advanced packaging plays a critical role. To this end, we are working jointly with Applied Materials to develop and commercially introduce next generation hybrid bonding solutions for customers which can greatly expand data transmission speeds via chip scale packaging integrating ever smaller, denser, complex and feature-packed devices.
Data Volumes Growing Exponentially | Advanced Computing Expanding in Largest Sections of Economy | Digital Society Accelerating |
200 175 150 CAGR +28% 100 128 101 79 65 50 50 0 2020 2021 2022 2023 2024 2025 Global Annual Datasphere in zetabytes | Manufacturing $ 14T Automotive $ 10T Healthcare $ 7T Cloud computing $ 230B Gaming $ 150B | Data mining Artificial intelligence Medical Cloud infrastructure Work at home economy |
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Automotive
Besi's automotive end-user market consists principally of the sale of die bonding, packaging and plating systems for intelligent automotive components, sensors and subsystems to leading European, North American and Japanese automotive component and subsystem suppliers. Besi's system solutions address critical automotive requirements such as increased power, safety, reliability, intelligence and autonomous driving capabilities. Projected growth in this end-user market reflects ever increasing electronic content requirements. In addition, it reflects the usage of more dense, integrated and complex chips as the industry moves to electric and computer driven vehicle operation in response to environmental and climate change concerns.
AUTOMOTIVE GROWTH DRIVERS
Electric vehicles
Autonomous vehicles
New powertrainCharging infrastructure
Better technology Modularization
SensorsHPCBig data / Analytics Al / Deep learning
Navigation and guidance
Connected vehicles
Infrastructure
Wearables and personal devices
Source: KPMG Automotive Semiconductors: New ICE age, November 2019
Mobility as a service
Vehicle
RidesharingCar sharingCloud
Flexible bus
Micro mobilityDelivery
SEMICONDUCTOR COST CONTENT PER CAR IS INCREASING
USD 800 700
600 500 400 300 200 100
0
2000
2010
Semiconductor value per car (USD)Automotive electronics cost (% of total car cost)
Source: IHS Markit and Deloitte Insights, July 2020
Industrial, medical and other
% of total car cost 50%
40%
30%
20%
10%
0%
2020
2030
In the industrial, medical and other end-user markets, Besi sells its full range of systems for advanced medical equipment and devices, high-end lighting and LED devices and solar, lithium battery and renewable energy applications.
Spares and service
Revenue from Besi's spares and service activities are estimated to have represented approximately 17% of total revenue in 2020. In general, revenue from these activities has grown significantly over the past decade reflecting the increase in our installed base of systems and increased customer requirements for onsite production assistance. Revenue from spares and service activities is typically less cyclical than our equipment sales.
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Assembly equipment market trends
VLSI Research currently estimates that the semiconductor assembly equipment market increased by 19.8% in 2020 versus 2019. The current 2020 growth estimate reflects a much more favorable outcome than the 8% decrease forecast post the COVID-19 pandemic outbreak in March 2020.
ASSEMBLY EQUIPMENT MARKET TRENDS 2015-2023E
2016
2015
2017
2018
Market SizeYoY Growth RateSource: VLSI, February 2021
50%
30%
10%
-10%
-30%
-50%
2019
2020E
2021E
2022E
2023E
Looking forward, VLSI estimates that the market will continue its recovery from the most recent 2019 trough with growth of 20.3% and 13.3% forecast for 2021 and 2022, respectively. Growth will be driven by 5G network expansion and new product introductions, continued investment in cloud infrastructure and high-performance computing, renewed capacity investment for memory applications, a rebounding global economy and innovations in packaging technology.
Strategically well positioned for next generation of electronics applications
We believe that we are in the early stages of a transition to a digital society accompanied by a new generation of sustainable and more environmentally friendly electronics applications. In such a society, intelligence and electronic content will increase in allfacets of our life including medical care, homes, factories, municipalities and transportation. We see evidence daily of new productivity enhancing technologies such as cloud computing, 5G networks, artificial intelligence, data mining and predictive analysis, autonomous driving, robotics and blockchain software. In response, new leading edge semiconductor devices are being developed which will play a critical role in furthering the use of many such applications.
DIGITAL SOCIETY DRIVES GREATER COMPUTING AND DATA NEEDS
Technology Drivers
5GAIIoT
On the road to augmented intelligence
TRENDS
PC
1990
1995
2000
3D Graphics
Card
Deep Neural Network
Source: Yole, January 2020
Mobile
Smart
Robotics
Human augmentation
2006
2010
2014
2017
2027
2037
2040
Deep Neural
Network with GPU
SiriAlexa First SOC with
NPUHW for audio All
Consistent with these trends, a new technology cycle is underway wherein customers increasingly demand more complex advanced packaging solutions containing ever more functionality in ever smaller form factors. Advanced packaging is now recognized by customers as a critical part of the semiconductor value chain to produce next generation devices. As such, Besi is actively involved with the leading semiconductor producers and supply chains at an early stage in the design process. We are well positioned with an estimated 75% of our systems corresponding to the VLSI Research definition of advanced packaging, of which approximately 55% were in the most leading edge applications (<7-micron accuracy and <17 nanometer form factor).
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ADVANCED PACKAGING CRITICAL TO NEXT GENERATION APPLICATIONS
Growth Drivers
Digital Society
• Smart mfg, cities, mobility and homes
• Internet of Everything
• 5G mobile/wearable devices
• Artificial intelligence
• Driverless cars
• Data mining
• Cloud servers
• VR/AR
• High-performance computing
Besi's leading position in advanced packaging, engagement in leading edge customer roadmaps and scalable production favorably position us to capitalize on an exciting new era of industry applications and growth.
Increased focus on sustainability and climate change in production of next generation devices
Society and customers in each of our end-user markets are increasingly interested in sustainability as they seek to operate in a safer, more environmentally efficient manner. In fact, the Information Communication Technology ("ICT") sector, of which we form a part, has the potential to help the world decouple economic growth rates from emissions growth rates and aid in the battle against climate change in such areas as lower resource consumption, lower dependence on fossil fuels and the promotion of cleaner environments.
Many of Besi's assembly systems help promote ICT advancements and consequently sustainability and environmental improvements in each of our end-user markets. In addition, the utilization of our systems can assist in the development of the Internet of Everything incorporating smart cities, smart manufacturing, smart mobility and self-driving electric cars with artificial intelligence. Our systems can also contribute to a more efficient and cleaner industry by means of longer battery life for electronic devices, more efficient solar cells and lower power consumption and heat dissipation in smart phones. Additionally, increased automotive electronic content and intelligence can help foster the development of next generation electric and autonomous vehicles without fossil fuel generated combustion engines.
Another trend which affects Besi's business and end-user markets is the circular economy. As opposed to a linear economy in which we make, use and dispose of materials, a circular economy emphasizes (i) the usage of materials for as long as possible, (ii) the extraction of their maximum value while in use and (iii) the recovery and regeneration of products and materials at the end of their useful service life. Besi contributes to the circular economy by designing high quality, flexible systems which have long useful lives and can be repurposed by customers or by us for other production requirements to extend their useful lives. For more information, please refer to the Environmental, Social and Governance Report.
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Strategy
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Strategy
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Mission
Besi's mission is to become the world's leading supplier of semiconductor assembly equipment for advanced packaging applications and to exceed industry average benchmarks of financial performance. We strive to create long-term value for stakeholders and operate our business in a sustainable way respecting both the environment and society.
Summary strategy and long-term value creation model
Long-term success in the assembly equipment industry requires technological leadership, customer alignment, system reliability and high levels of accuracy in 24/7, high volume production environments. Other key factors include production flexibility and scalability in response to volatile shifts in demand for an industry whose cycle times have become ever shorter. We also recognize the importance of human and natural considerations in the development of our strategy such as our environmental footprint, the sustainable performance of our systems and the development of a business culture which is diverse, respects the rights of our employees and promotes the skills and talents of our personnel. Besi's business strategy has been developed with these considerations in mind.
BESI'S LONG-TERM VALUE CREATION MODEL
Capital inputs
Input
Intellectual
• Significant investment in R&D
• Know how of our people
• Our intellectual property
Industrial
• Our global production and supply chain
• Components, modules and semi-finished products we purchase
Financial
• Strategic planning
• Capital allocation
• Capital markets funding
• Acquisitions
Output
• Leading edge assembly solutions
• Sustainably designed systems
• Partnership with industry leaders
• Committed and engaged employees
• Long-term customer relationships
• Increased customer satisfaction
• Expand addressable market
• Recyclable materials
• A light carbon footprint
• Higher % of renewable energy
• Conservation of natural resources
• Value-added assembly
One of our top priorities is the maintenance of technological leadership in the advanced packaging segment of the industry. This is the most rapidly growing part of our business with the greatest potential for future growth. We aim to leverage Besi's leadership position to generate ever higher levels of through-cycle revenue, profitability and cash flow via a highly scalable and flexible production model. Weekly analyses of order development and the supply chain combined with disciplined cost control efforts have enabled us to respond rapidly to changing market conditions, retain peer leading margins and generate high levels of cash flow to support a shareholder friendly capital allocation policy.
Besi's Board of Management reviews its strategy on a semi-annual basis. We engaged an independent consulting firm in both 2016 and 2019 to assess our strategic plan and long-term value creation model and help formulate specific revenue and cost initiatives. The most recent plan assessment encompasses the period 2020-2024. Besi's development and execution of strategic initiatives has favorably influenced our organizational development, financial performance and competitive position in recent years.
• Scalable, sustainable and responsible supply chain
• Flexible production model
• Peer-leading financial metrics
• € 91.3 million returned to shareholders
• ROAE of 39.5% and total return of 46.8%
Impact and Outcomes
Environmental footprint
• Promote cleaner environment and combat climate change
• Longer battery life in electronics
• Lower power consumption and heat dissipation in smart phones
• Lead free content in PCBs
• Reduced waste, water, energy, packaging and hazardous materials
• More efficient solar cells
• Electric vehicle usage
• Reduced greenhouse gas emissions
Digital society
• Promote new applications in digital society
• Smart infrastructure, manufacturing and homes
• Better communication, mobility, medical care and security
Communities
• Provide safe and healthy working environment
• Invest in wellbeing of employees/communities
• Promote training, local sponsorship, investments, diversity and human rights
Shareholders
• Offer attractive long-term returns
Stake-holders
CustomersEmployees
Society
SuppliersShareholders
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Strategic objectives
The key initiatives to realize our strategic objectives and long-term value creation can be summarized as follows:
Through the implementation of these strategic initiatives, Besi seeks to (i) increase revenue at rates exceeding the growth rate of the assembly equipment market, (ii) become a more efficient and profitable company with increased market share in those segments of the assembly equipment market with the greatest potential for long-term growth and (iii) enhance production scalability and flexibility.
Besi seeks to achieve its strategic objectives in a socially responsible manner for the benefit of all stakeholders, partners, the environment and the local communities in which we operate. In addition, Besi wants to be a meaningful partner in the emerging digital society and to further advance information and communication technologies which can benefit sustainability themes in the future. We are also committed to being a good employer and to foster a workplace culture that encourages our employees to grow and excel in their careers.
Our key long-term business model objectives are set forth in the chart below:
RevenueAddressable market share
Gross margin
Net marginHeadcount split
Scope 1 and 2 emissions
Global energy needs
Business Model Objectives |
€ 800 million |
40%+ |
55-60% |
30-35% |
80% Asia/20% Europe/NA |
60% reduction |
65% from renewable sources |
Maintain best in class technology leadership
Besi aims to provide global semiconductor manufacturers and subcontractors a compelling value proposition consistent with market requirements and new product development roadmaps. We seek to differentiate ourselves in the marketplace by means of a technology-led product strategy that capitalizes on revenue opportunities in both premium and mainstream assembly equipment markets. Besi enters such markets with leading edge technology and products appealing to the first movers of the industry, typically leading global semiconductor manufacturers and other advanced industrial end-users. Upon commercial acceptance, we then attempt to maximize the return on investment of our products through continued system cost reduction so that they appeal to a broader, more mainstream customer base and extend their product life cycle. Mainstream customers are often Asian assembly subcontractors. Besi exits product markets when its technology becomes commoditized and returns on investment become unattractive. In pursuing its product strategy, Besi uses its core competency to (i) increase revenue by expanding its addressable market and market share and (ii) maximize the return on its technology investment.
Over the past five years, Besi has developed next generation die attach and packaging systems with a particular emphasis on substrate and wafer level packaging processes. Development efforts have focused on customer requirements for (i) thinner devices and higher levels of miniaturization, (ii) increased accuracy, performance, chip density and complexity, (iii) lower power consumption and heat dissipation and (iv) shorter lead times, all at a lower overall cost of ownership. In addition, we design enhanced versions of each
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product line every one to two years to ensure that Besi's systems maintain their technological leadership in the areas of form factor, accuracy and throughput.
Key highlights in recent years include the development for production environments of:
•<3-micron accuracy flip chip and fan out wafer level die bonding systems and wafer level molding systems.
• A line of die bonding systems capable of assembling complex, <5-micron accuracy modules incorporating multiple components for advanced mobile internet applications such as facial recognition and 3D image sensing.
• High volume TCB die bonding systems for advanced memory and logic applications.
• Assembly solutions for next generation 5G smart phone applications such as antennas and microLED screens.
• Hybrid bonding systems capable of integrating multiple heterogeneous devices at geometries as small as 7 nanometer via a single interconnect.
• Leading edge solar and 3D lithium-ion battery plating systems.
In addition, Besi is re-engineering several of its existing product platforms to reduce their overall cost and manufacturing cycle time through more standardized design and manufacturing processes. As part of the streamlining process, we have focused on the development of common parts and common platforms for each successive, next generation die bonding and packaging system with the objective of decreasing the number of platforms for such products. This initiative will enable Besi to (i) reduce the number of components and machine parts per system, (ii) decrease average component costs, (iii) greatly simplify design engineering, (iv) shorten cycle times and (v) lower warranty expense. In this manner, Besi expects to achieve additional labor cost, supply chain and working capital efficiencies.
Increase market presence in addressable markets
Key to increasing our market presence and addressable market is the development of close, strategic relationships with customers at the forefront of semiconductor technology and deemed critical to our technological leadership and growth. Besi's customer relationships, many of which exceed 50 years, provide us with valuable knowledge about semiconductor assembly requirements as well as new opportunities to jointly develop assembly systems. As such, they provide Besi with an important insight into future market trends and an opportunity to broaden the range of products sold to customers.
In order to sustain close relationships with customers and generate new product sales, Besi believes that it is critical to maintain a significant presence in after-sales and service in each of its principal markets. As such, Besi currently has nine regional sales and service offices in the Asia Pacific region, Europe and the United States and a direct sales force and customer service staff of 196 people at year end 2020, of whom 168 are located in Asia. Consistent with the migration of customers to Asia, we have strengthened our sales andcustomer service activities in this region and have shifted a significant portion of our resources to countries such as Singapore, China, Malaysia, Thailand, Taiwan and Korea. We also centralized all global spare parts activities in one business unit based in Singapore to increase customer satisfaction and efficiency. We plan to expand our Asian process support, order fulfillment and field service capabilities over the next five years to better serve a rapidly growing installed base of customers in the region.
We seek to increase long-term revenue growth by expanding Besi's addressable markets and market presence via the following initiatives:
• Pick the Winners: Leverage our leadership positions in substrate, wafer level and hybrid bonding process technology to engage with customers at the forefront of leading edge applications such as 5G network compatibility, cloud and high-performance computing, AI, autonomous and electric cars and virtual and augmented reality.
• Provide assembly solutions for new 5G applications and components such as antennas, enhanced 3D imaging, facial recognition, 8+ camera modules and microLED screens.
• Further penetrate the largest global smart phone and electronics supply chains with both high-end and high-quality mainstream products.
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• Capitalize on our first mover advantage in hybrid bonding to gain market share in this important next generation process technology.
• Gain market share from increased usage of high-volume flip chip and TCB assembly processes versus more conventional wire bonding solutions, particularly in high-end memory applications.
• Expand our market share of Korean and Chinese Android mobile customers and of the Japanese automotive supply chain.
• Expand in the local Chinese handset, semiconductor and electronics industries.
• Expand penetration of plating markets including high-end solar and battery plating applications.
The expansion of Besi's addressable markets and revenue potential will be aided by ongoing efforts to further improve our competitive cost position via Asian manufacturing and common platform initiatives and a further reduction of European based costs.
ASIAN PRODUCTION TRANSFER HAS IMPROVED PROFITABILITY AND CASH FLOW
Asian production has significantly expanded
Leading to lower fixed European and NA headcount
Enhance scalability. Reduce structural costs
The semiconductor equipment market has become increasingly more volatile in recent years due to heightened global economic uncertainty, trade tensions, changing end market applications, more seasonal purchasing patterns and shorter lead times for delivery. In response, Besi decided to fundamentally reorganize its global operations and management structure starting in 2007 to streamline operations, transfer production and supply chain activities to its Asian operations, improve returns from its product portfolio, reduce break even revenue levels and increase through cycle profitability. European and North American headcount was significantly reduced, inefficient operations closed and substantially all European production and all tooling capacity were transferred to our Malaysian and Chinese facilities.
In addition, Besi made strategic capital investments over the past decade to expand production in Asia to better service a customer base that migrated from Europe and North America to Asia. In 2020, approximately 83% of revenue was derived from sales to Asian customer locations. In particular, we have funded expansions of our Malaysian and Chinese production facilities and Singapore development/sales and service center over the past five years to expand capacity and better service our Asian customer base.
Reduced break even revenue levels
Improved cash generation
Shipments 1,200100%
800
400
0
2010
MalaysiaChina% Direct
2,000
80% 60% 40% 20% 10% 0%
1,600
1,543
1,523
2020
1,200
800400
0
802 | 1,081 | 1,060 |
-38% | ||
741 | 463 |
2020
2011
Europe/NA Fixed HCAsia Fixed HC
€ millions 300
250
270
€ millions
200 60%
200 40%
150
100 20%
50 0
2011
2011
Revenue Break-even
2020
Cash Flow Ops
CF from Ops/Revenue
162
2020
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In the Besi operating model, all system production, sourcing, product applications engineering, process and software support and tooling/spares operations take place at Besi's Asian locations. All product ownership and new product development remains at our European operations. Only highly customized systems are produced in Europe for which we generate attractive gross margins. In recent years, Besi has diversified its Asian manufacturing and engineering capabilities and significantly increased the scope of operations in China and Singapore to further drive cost reduction, increase capacity, technical and field service support and enhance our local customer presence. Additional selling, general and administrative functions will be transferred over the next five years from Besi's European locations to its operations in Singapore, Malaysia and China.
In addition, we have actively developed and qualified local supply chains for each of our Malaysian and Chinese operations which produce substantially all components, modules and subassemblies used in our assembly and plating system production. The successful development of a flexible Asian supply chain is an important factor in our profitable navigation of volatile semiconductor equipment markets and low capital intensity.
Strategic initiatives were also implemented to:
• Increase the scalability and flexibility of Besi's production model via the use of temporary Asian production personnel and the establishment of a high-quality Asian supply chain network.
• Further reduce European facility space and fixed headcount.
• Simplify and harmonize diverse manufacturing and IT processes.
• Roll out and implement the SAP ERP system to all operations worldwide.
As a result, Besi has significantly reduced labor, material and overhead costs, improved delivery times and inventory turnover and enhanced its local customer presence. We have also been able to upwardly and downwardly scale our operations in response to volatile industry trends during the 2017-2020 period while consistently maintaining gross margins in an approximate range of 55-60%. Increased scalability combined with tight inventory control have also greatly expanded Besi's cash generation capabilities and market share potential.
Besi is targeting approximately € 10 million of cost savings in its 2020-2024 planning period via the following cost reduction initiatives:
Supply Chain |
|
Product Design |
|
Overhead |
|
Successful strategic execution of these initiatives will help ensure the profitable development of our business model over the next decade.
Balance business objectives with social/ecological responsibilities
In 2020, we engaged an independent, third party consulting firm to help us better define our ESG goals and ambitions and establish a more robust ESG framework with specific targets identified to guide our activities for the next decade. This undertaking confirms our commitment to grow Besi's business, supply chain and personnel resources in a responsible and sustainable manner. It also reflects our focus on the health and wellbeing of our employees and the development of environmentally friendly and sustainable products and solutions.
Our ESG priorities focus on the impact of our products, operations and supply chain on the environment and the communities in which we operate. In recent years, we have reduced the environmental impact of our production operations as well as the health and wellbeing of our employees through programs designed to (i) reduce our carbon emissions and increase the share of energy from renewable sources, (ii) eliminate materials, processes and hazardous waste deemed harmful to the environment, (iii) conserve natural resources such as water and electricity and (iv) reduce packaging, waste, transportation and energy consumption. Besi also places emphasis on transportation and packaging activities where we have realized reductions of CO2 emissions and waste. In addition, we have invested in the development of more environmentally friendly products and services to help customers operate more efficiently both in terms of environmental impact and cost savings, for instance by introducing products with fewer and lighter materials. We also analyze and
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investigate ways in which to reduce other environmentally harmful materials such as the usage of lead in our systems. In addition, the far-reaching impact of the COVID-19 pandemic on Besi's global operations has encouraged us to develop new ways of working, communicating, travelling and interacting which can also help reduce our environmental footprint going forward.
Besi is committed to being a good employer and to promote a workplace culture conducive to the achievement of its business and ESG objectives. Our People Wellbeing pillar is based on three priorities: (i) diversity and inclusion, (ii) employee health and safety and (iii) employee engagement and career development. In addition, Besi strives to employ high social and ethical standards and provide inspiring and safe working conditions with competitive employment terms and pay scale. A high level of employee satisfaction is a basic precondition to achieve our revenue and profit growth objectives.
BESI'S ESG STRATEGIC FRAMEWORK
Focus areas
Strategic pillars
What we do
Material topics
Relevant SDGs
For more information on Besi's ESG priorities and targets, please refer to the Environmental, Social and Governance Report.
Acquire companies with complementary technologies and products
In order to provide customers with leading edge process solutions, it is critically important to identify and incorporate new technologies on a timely and continuous basis. As a result, Besi actively identifies and evaluates acquisition candidates that can assist it in (i) increasing process technology leadership, (ii) increasing market share in those assembly markets with the greatest long-term potential such as wafer level packaging,
(iii) enhancing the productivity and efficiency of our Asian manufacturing operations and
(iv) growing less cyclical, "non-system" related revenues from tooling, spares and service.
Besi has made four important acquisitions which have furthered its advanced packaging strategy, accelerated underlying organic growth and generated significant long-term value creation for stakeholders:
• In September 2000, RD Automation (USA) was acquired to advance Besi's product strategy into the front-end assembly process with the addition of flip chip capabilities.
• In January 2002, Laurier (USA) was acquired adding intelligent die sorting capabilities into its product range.
• In January 2005, Besi acquired Datacon (Austria) further extending its presence in the flip chip and die bonding equipment markets and increasing its scale in the assembly equipment market.
• In April 2009, Besi acquired Esec (Switzerland) to expand its position in the mainstream die bonding market, one of the most rapidly growing segments of the assembly equipment business.
Reward shareholders via capital allocation policy
The successful execution of Besi's strategic plan and long-term valuation model has significantly benefited shareholders. Peer leading financial metrics have been achieved in the areas of gross, operating and net margin. Our addressable market share has also increased. In addition, Besi's capital allocation plan has resulted in the distribution to shareholders of € 742 million since 2011 in the form of dividends and share repurchases, of which € 91.3 million was distributed in 2020. Profit generation and capital allocation have also resulted in a peer leading return on average equity of 39.5% in 2020 and an average of 32.7% over the past five years. Finally, shareholders have benefited from an investment in Besi by an increase of 47% over the past year, 71% over the past three years and 584% over the past five years, in their total stock market return (share price appreciation plus dividends). This total return significantly exceeded total returns from an investment in Besi's peer group of assembly equipment companies during such periods.
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Financial Review
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Financial Review
General
BE Semiconductor Industries N.V. ("Besi" or the "Company") is engaged in one line of business, the development, manufacturing, marketing, sales and service of semiconductor assembly equipment for the global semiconductor and electronics industries. Since we operate in one segment and in one group of similar products and services, all financial segment and product line information can be found in the Consolidated Financial Statements.
Besi's revenue and results of operations depend in significant part on the level of capital expenditures by semiconductor manufacturers, which in turn depends on the current and anticipated market demand for semiconductors and for products utilizing semiconductors. Demand for semiconductor devices and expenditures for the equipment required to assemble semiconductors is highly cyclical, depending in large part on levels of demand worldwide for mobile internet, computing, automotive, industrial and medical end-user markets as well as the production capacity of global semiconductor manufacturers. Furthermore, a rise or fall in the sales levels of semiconductor equipment typically lags any downturn or recovery in the semiconductor market due to the lead times associated with the production of semiconductor equipment.
THROUGH CYCLE REVENUE AND GROSS MARGIN TRENDS
€ millions 700
In recent years, Besi has experienced significant upward and downward movements in quarterly order rates due to global macroeconomic concerns, trade tensions and increased seasonality of end-user application revenue. Customer order patterns have become increasingly more seasonal due to the growing influence of more retail oriented electronics applications in the overall demand for semiconductor devices such as smart phones, tablets, wearable devices and automotive electronics. They have been characterized typically by a strong upward ramp in the first half of the year to build capacity for anticipated year end demand followed by a subsequent decline in the second half of the year as capacity additions are digested by customers. Volatile global macroeconomic conditions and seasonal influences have also contributed to the significant upward and downward movements in our quarterly and semi-annual revenue and net income.
Besi's revenue is generated primarily by shipments to the Asian manufacturing operations of leading European, US and Asian independent device manufacturers ("IDMs") and Taiwanese, Chinese, Korean, Japanese and other Asian subcontractors. Sales to individual customers tend to vary significantly from year to year depending on global economic conditions generally and the specific capital expenditure budgets, new product introductions, production capacity and packaging requirements of its customers. For the year ended December 31, 2020, two customers represented more than 10% of our revenue
Gross Margin 70%
600
500 400 300 200 100
0
2006Revenue
2007
2008
2009
Gross MarginRevenue Average
60% 50% 40% 30% 20% 10% 0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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(10.0% and 10.9%) and the largest ten customers accounted for approximately 50% of revenue. In addition, we derive a substantial portion of our revenue from products that have an average selling price in excess of € 300,000 and that have lead times of approximately 4-12 weeks between the initial order and delivery of the product. The timing and recognition of revenue from customer orders can cause significant fluctuations in operating results from quarter to quarter. Besi only recognizes orders upon receipt and acceptance of a firm purchase order.
Corporate and financial structure
Besi's corporate organization consists of a Dutch holding company in which shareholders own ordinary shares and a network of wholly-owned subsidiaries located globally which reflects its product group and business activities. To get a better overview of our largest shareholders, please refer to Shareholder Information.
In general, Besi funds its operations through available cash on hand, cash generated from operations and, in some instances, funds the operations of its subsidiaries through intercompany loans and borrowings under its bank lines of credit. The working capital requirements of its subsidiaries are affected by the receipt of periodic payments on orders from its customers. Although its subsidiaries occasionally receive partial payments prior to final installation, initial payments generally do not cover a significant portion of the costs incurred in the manufacturing of such systems which requires Besi to finance its system production with internal resources and, in certain instances, via bank financing.
Currency exposure
Besi's reporting and functional currency is the euro. In 2020 and 2019, our euro-denominated revenue represented 27% and 32% of total revenue, respectively, while euro-denominated costs and expenses represented 31% and 33%, respectively. As seen in the following table, the substantial majority of Besi's revenue is denominated in US dollars while in 2020, its costs were denominated in a variety of European and Asian currencies. In 2020, 59% of our costs and expenses were denominated in Malaysian ringgit and euro. The remainder of our costs were primarily represented by the Chinese yuan, US dollar, Swiss franc and Singapore dollar. Besi seeks to manage its exposure to currency fluctuations in part by hedging firmly committed orders denominated in US dollars and, in part, by hedging net exposures in its principal transaction currencies. Transaction costs for hedging sales contracts and any profit/loss resulting therefrom are recorded in the line item financial income (expense), net in Besi's Consolidated Statement of Operations.
Given changes in the foreign currency composition of its revenue, costs and expenses, Besi's results of operations are affected by fluctuations in the value of, and relationships between, the euro, the US dollar, Malaysian ringgit, Swiss franc, Chinese yuan and Singapore dollar. In 2020, the depreciation of the US dollar versus the euro negatively affected revenue development, particularly during the second half of the year when it fell by approximately 8%. In contrast, costs and expenses were favorably influenced by a decrease in the value of the Malaysian ringgit, Chinese yuan, Singapore dollar and US dollar versus the euro. Besi's costs denominated in Malaysian ringgit and Chinese yuan can vary on an annual basis depending on the number of units produced at each location.
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Quarterly results of operations
(euro in millions)
Revenue Orders Net income
Q1
Q2
Q3
Q4
2019 TotalQ1
81.4 83.4 9.5
92.7 82.7 18.9
89.7 82.2 19.2
92.4 100.5
356.2 348.7
91.3 118.6
33.7* 81.3* 13.9
Q2
124.3 101.3 39.8
* Includes tax benefits of € 11.2 million and € 11.6 million in 2020 and 2019, respectively.
Q3
Q4
2020 Total
108.3 94.9
109.7 433.6
157.3 472.1
34.0 44.6* 132.3*
Besi's quarterly results of operations in 2020 fluctuated during the year. The trajectory of the semiconductor equipment recovery which began in the fourth quarter of 2019 was significantly altered by the onset of the global COVID-19 pandemic in the spring of 2020. The contraction experienced in the second quarter of 2020 was followed by a retracement back to pre-pandemic levels over the summer and more rapid growth in the second half of the year. Besi's orders increased significantly in the fourth quarter driven by increased demand for mobile, automotive and computing applications and increased capacity investment by Asian subcontractors. Despite quarterly fluctuations in revenue and orders in 2020, profitability increased consistently on a year over year basis due to Besi's market position, flexible supply chain and strategic initiatives to limit personnel and overhead growth.
QUARTERLY REVENUE AND GROSS MARGIN TRENDS
€ millions 150
Gross Margin 80% 75%
125
100
75
50
25
0
124.3
Q1-19
Q2-19 Q3-19
RevenueGross Margin
2020 compared to 2019
Set forth below is a summary of our key income statement highlights for 2020 versus 2019:
Effective tax rate
1 Numbers may not add up due to rounding.
2
3.8%2
(4.1%)2
Effective tax rates in 2020 and 2019 were 11.9% and 10.8% excluding € 11.2 million and € 11.6 million tax benefits recognized in Q4-20 and Q4-19, respectively.
70% 65% 60% 55% 50% 45% 40%
Q4-19
Q1-20
Q2-20
Q3-20
Q4-20
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Revenue/Orders
(euro in millions)
Year ended December 31, 2020 2019
Revenue Orders
IDM Subcontractors
% Change 2020/2019
433.6 472.1 213.3 258.8
356.2 +21.7%
348.7 +35.4%
214.0 (0.3%)
134.7 +92.1%
Besi's revenue increased by € 77.4 million, or 21.7%, in 2020 versus 2019. The increase reflects improved industry conditions and increased shipments for mobile applications due to a new 5G smart phone product cycle and increased investment by Chinese customers. Similarly, orders increased by 35.4% versus 2019 primarily due to increased demand for mobile applications and, to a lesser extent, a resurgence of orders for automotive applications by IDMs in the fourth quarter of the year. In 2020, bookings by IDMs and subcontractors represented approximately 45% and 55%, respectively, of Besi's total orders versus 61% and 39%, respectively, in 2019.
Gross profit
Gross profit increased by € 59.8 million, or 30.1%, versus 2019 primarily due to increased revenue levels and increased gross margin related thereto. Besi's gross margin increased by 3.8 points to 59.6% versus 55.8% in 2019 primarily as a result of our strong advanced packaging market position, more favorable product mix and increased productivity as lower fixed headcount levels helped drive labor efficiencies.
Selling, general and administrative expenses
Total SG&A expenses increased by € 4.3 million, or 6.0%, in 2020 versus 2019. The increase was due primarily to (i) an increase of € 4.8 million in variable compensation primarily related to share-based incentives and (ii) a € 4.4 million increase in sales-based, variable related costs such as commissions and warranty due to higher revenue levels, partially offset by (iii) a € 4.0 million reduction in travel and personnel costs associated with the COVID-19 pandemic. As a percentage of revenue, SG&A expenses decreased from 20.1% in 2019 to 17.5% in 2020.
ORDER TRENDS
QUARTERLY OPERATING EXPENSE TRENDS
€ millions 800
700 600 500 400 300 200 100
0
680.9
2020
2016 2017IDMsSubcontractors
€ millions
35
30
25
20
15
10
Baseline Opex as % of Revenue
60% 33.0
2018
2019
Q1-19 Q2-19
Q3-19
Q4-19 Q1-20 Q2-20
Baseline OpexOther Opex*Baseline Opex % of Revenue
50%
40%
30%
20%
10%
0%Q3-20
Q4-20
* Other Opex includes both short-term and long-term incentive compensation, seasonal effects, restructuring costs, net
R&D capitalization/amortization and certain one-time items.
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Research and development expenses
Besi's R&D spending is primarily focused on advancing its leadership position in advanced packaging process technology and upgrades to its product portfolio on a regular basis. Spending can vary from year to year depending on specific customer roadmaps and the timing of new device introductions. In 2020, gross R&D expenses (excluding the impact of R&D capitalization and amortization) increased by € 3.0 million, or 7.8%, to reach € 41.4 million, or 9.5% of revenue. The increase was due primarily to a 5% R&D headcount increase in support of next-generation development programs in the current industry upcycle. R&D expenses as reported were € 32.9 million in 2020, a decrease of € 2.5 million, or 7.1%, versus 2019. As a percentage of revenue, R&D expenses decreased to 7.6% in 2020 versus 9.9% in 2019, primarily as a result of higher capitalized development costs, net.
Operating income
Operating income reached € 149.9 million in 2020, an increase of 63.1% versus 2019. Similarly, operating margins increased from 25.8% to 34.6% primarily as a result of significantly higher revenue and gross margin levels combined with operating expense growth of only 1.7%.
Final assembly and test 8800 Flip Chip Quantum at Besi APac, Malaysia.
Financial expense, net
The components of financial expense, net, for the years ended December 31, 2020 and 2019, were as follows:
Besi's financial expense, net, decreased by € 1.5 million in 2020 primarily due to (i) lower hedging results due to a decrease of the interest rate differential between our principal transaction currencies and (ii) favorable forex differences, partly offset by (iii) higher interest expense related to the issuance of € 150 million of 0.75% Convertible Notes in August 2020.
Income taxes
Besi recorded an income tax expense of € 5.2 million in 2020 versus an income tax benefit of € 3.2 million in 2019 with effective tax rates of 3.8% and negative 4.1%, respectively. Income tax levels in 2020 benefited from an upward revaluation of € 11.2 million in deferred tax assets in the fourth quarter, principally at Besi's Swiss and US operations due to our improved financial performance and outlook. The 2019 tax benefit was primarily due to the recognition of a deferred tax asset of € 11.6 million in the fourth quarter as a result of changes in Swiss fiscal policy. Besi's effective tax rate was 11.9% and 10.8% in 2020 and 2019, respectively, excluding such benefits.
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Net income |
Besi's net income was € 132.3 million, an increase of € 51.0 million, or 62.7%, versus 2019 primarily as a result of a 21.7% revenue increase, a gross margin improvement of 3.8 points and relatively stable operating expense levels.
QUARTERLY NET INCOME TRENDS
€ millions 50
Net Margin
44.6
40
30
20
10
0
Q1-20 Q2-20
Q1-19 Q2-19 Q3-19
Net IncomeTax benefitQ4-19*Net MarginAdj. Net MarginQ3-20
Q4-20*
* Includes € 11.2 million and € 11.6 million deferred tax benefit recognized in Q4-20 and Q4-19, respectively.
Balance sheet, cash flow development and financing
Cash flow
60%
50%
40%
30%
20%
10%
0%
In 2020, Besi generated cash flow from operations of € 162.0 million which along with cash, cash equivalents and deposits outstanding, was utilized for the following principal purposes:
• € 73.5 million of cash dividends were paid to shareholders.
• € 17.8 million of ordinary shares were purchased and held in treasury.
• € 17.6 million of development expenses were capitalized.
• € 4.2 million of net capital expenditures were made.
In addition, Besi issued € 150 million of 0.75% Convertible Notes in August 2020 from which net proceeds of € 147.8 million were added to cash and deposits. The Convertible Note issuance provides attractive seven-year growth capital, increases our financial flexibility to withstand market volatility and take advantage of future strategic opportunities.
In total, Besi's cash and deposits increased by € 190.3 million to reach € 598.7 million at December 31, 2020. Similarly, our year end net cash position of € 198.7 million (defined as cash, cash equivalents and deposits less total debt) increased by € 68.4 million versus year end 2019 which included the conversion into equity of € 15.0 million of our 2.5% Convertible Notes due 2023.
CASH FLOW GENERATION TRENDS
€ millions
200
180
160
140
120
100
80
60
40
20
0
2016 2017
Total Cash Flow from OperationsAs % of Revenue
Working capital
% of Revenue
184.1
60%
50%
40%
30%
20%
10%
0%
2018
2019
2020
Working capital (excluding cash and debt) decreased by € 0.9 million, or 1.6%, to reach € 55.3 million at December 31, 2020, despite revenue growth of 21.7%. As a percentage of revenue, working capital decreased from 15.8% at December 31, 2019 to 12.8% at year end 2020. Lower working capital investment was primarily due to increased inventory turnover and a reduction in days sales outstanding.
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Capital expenditures
Capital expenditures increased to € 4.2 million in 2020 versus € 2.5 million in 2019 primarily as a result of the construction of a Class 10 cleanroom at Besi Austria. We anticipate that capital expenditures in 2021 will range between € 4 and € 5 million.
Financing
At December 31, 2020, Besi had € 400.0 million of total indebtedness outstanding, of which € 399.4 million related to three issues of Convertible Notes outstanding with a face value of € 435 million and € 0.5 million related to government loans. No other indebtedness was outstanding at such date including amounts owed under Besi's bank lines of credit.
Bank lines of credit
At December 31, 2020, Besi and its subsidiaries had available bank lines of credit aggregating € 97.5 million. At such date, utilization under the lines aggregated € 0.8 million related to bank guarantees. In general, interest is charged at the banks' base lending rates or Euribor/ Libor plus an increment. Most credit facility agreements include covenants requiring Besi and/or its subsidiaries to maintain certain financial levels or financial ratios. Besi and all its applicable subsidiaries were in compliance with all loan covenants at December 31, 2020.
The lines of credit include an € 80 million revolving credit facility with a consortium of European banks (the "Facility"), which matures in 2025. The Facility can be expanded to € 136 million and its maturity extended to 2026. Interest rates on borrowings under the Facility vary per currency utilized and the level of cash balances outstanding and amounts utilized. It ranks pari passu with the Convertible Notes and is secured by guarantees from certain operating subsidiaries. Borrowings under the Facility can be repaid at any time at 100% of principal amount and used for working capital and other corporate purposes. The principal covenants associated with the Facility include a maintenance test of consolidated debt to equity and a limitation on the incurrence of additional permitted indebtedness.
Issuance of Convertible Notes
On December 2, 2016, Besi issued € 125 million principal amount of 2.5% Senior Unsecured Convertible Notes due December 2023 (the "2016 Convertible Notes"). Interest on the 2016 Convertible Notes is payable semi-annually in arrears. The 2016 Convertible Notes will be repaid at maturity at 100% of their principal amount plus accrued and unpaid interest or, if converted, into approximately 6.3 million ordinary shares at a conversion price of € 19.93 (subject to adjustment). The original exercise price of € 43.51 has been adjusted for the two-for-one stock split effective May 4, 2018 and dividends paid subsequent to the date of issuance in accordance with the terms and conditions related thereto. In 2020, € 15.0 million principal amount of the 2016 Convertible Notes were converted into 752,540 ordinary shares. As a result, the principal amount outstanding declined from € 125.0 million to € 110.0 million at year end 2020.
On December 6, 2017, Besi issued € 175 million principal amount of 0.5% Senior Unsecured Convertible Notes due December 2024 (the "2017 Convertible Notes"). Interest on the 2017 Convertible Notes is payable semi-annually in arrears. The 2017 Convertible Notes will be repaid at maturity at 100% of their principal amount plus accrued and unpaid interest or, if converted, into approximately 3.6 million ordinary shares at a conversion price of € 48.68 (subject to adjustment). The original exercise price of € 99.74 has been adjusted for the two-for-one stock split effective May 4, 2018 and dividends paid subsequent to the date of issuance in accordance with the terms and conditions related thereto.
On August 5, 2020, Besi issued € 150 million principal amount of 0.75% Senior Unsecured Convertible Notes due August 2027 (the "2020 Convertible Notes"). Interest on the 2020 Convertible Notes is payable semi-annually in arrears. The 2020 Convertible Notes will be repaid at maturity at 100% of their principal amount plus accrued and unpaid interest or, if converted, into approximately 2.9 million ordinary shares at a conversion price of € 51.56 (subject to adjustment). The net proceeds from the offering totaled € 147.8 million and were added to Besi's cash and deposits.
Besi may redeem each of the outstanding 2016, 2017 and 2020 Convertible Notes at 100% of their principal amount after December 23, 2020 (2016 Convertible Notes), after December 27, 2021 (2017 Convertible Notes) and after August 26, 2024 (2020 Convertible Notes), provided that the market value of its ordinary shares exceeds 130% of the then effective conversion price for a specified period of time. In the event of a change of control (as defined), each noteholder will have the right to require Besi to redeem all (but not less than all) of its Convertible Notes at 100% of their principal amount together with accrued and unpaid interest thereon. In addition, the 2020 Convertible Notes may be redeemed at the option of the holder on August 5, 2025 at their principal amount plus accrued interest.
The terms and conditions governing each of the Convertible Notes contain no incurrence tests nor maintenance covenants which could materially limit Besi's ability to conduct its operations in the normal course. The Convertible Notes were privately offered to institutional investors and are listed on the Deutsche Börse's Freiverkehr market.
Capital allocation
Besi's capital allocation policy seeks to provide a current return to shareholders in the form of cash dividends and share repurchases while retaining a capital base sufficient to fund future growth opportunities.
Dividends
Besi's dividend policy considers the payment of dividends on an annual basis based upon (i) a review of its annual and prospective financial performance, liquidity and financing needs, the prevailing market outlook and Besi's strategy, market position and acquisition strategy and/or (ii) a dividend payout ratio in the range of 40-100% relative to net income to be adjusted accordingly if the factors referred to under (i) so require.
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Due to Besi's earnings and cash flow generation in 2019, the Board of Management proposed and Besi paid a cash dividend to shareholders of € 1.01 per share which resulted in cash payments to shareholders of € 73.5 million.
DIVIDEND TRENDS
Dividend (€) 3.00
2.50
2.00
1.50
1.00
0.50
0.00
Dividend Payout Ratio 120% 115% 110%
Cumulative dividends of € 700.2 million since 2011, or € 9.45 per share*
2.32
2016
Dividend
2017
Dividend Payout Ratio*
105% 100% 95% 90% 85% 80%
2018
2019
2020*
* Calculated on Basic EPS. Includes value of both cash and stock dividends. Includes proposed dividend of € 1.70 per share for approval at 2021 AGM.
Due to Besi's earnings and cash flow generation in 2020, the Board of Management will propose a cash dividend to shareholders of € 1.70 per share for approval at Besi's Annual General Meeting of Shareholders to be held on April 30, 2021.
The payments for the year 2019 and proposed for the year 2020 represent a dividend payout ratio relative to net income of 90% and 94%, respectively.
Share repurchase program
On July 26, 2018, Besi announced a € 75 million share repurchase program through October 26, 2019 (the "2018 Program"). The 2018 Program was initiated for capital reduction purposes and to help offset dilution associated with Besi's Convertible Notes and share issuanceunder employee stock plans. The program has been extended twice, the most recent of which was on July 28, 2020, when it was extended until October 30, 2021. In addition, the total amount of the program increased from € 75 million to € 125 million. From program inception through December 31, 2020, a total of 3.5 million shares have been repurchased at an average price of € 24.05 per share for a total of € 84.8 million.
At present, Besi has shareholder authorization to repurchase up to 10% of Besi's issued share capital as at April 30, 2020 (approximately 8.0 million shares) until October 30, 2021. On October 22, 2020, Besi cancelled 1.5 million of its 7.4 million ordinary shares held in treasury. At December 31, 2020, Besi held approximately 5.7 million shares in treasury equal to approximately 7.3% of its ordinary shares outstanding at a weighted average price of € 16.43 per share.
Besi believes that its cash position, internally generated funds and available lines of credit will be adequate to meet its anticipated levels of capital spending, research and development, debt service requirements, working capital and capital allocation policy for at least the next twelve months.
SHARE REPURCHASE ACTIVITY
€ millions
50
45
40
35
30
25
20
15
10
5
0
2016
Avg Cost per Share (€)
40.0
2017 2018
Share RepurchasesAverage Cost per Share
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2019
2020
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Environmental, Social and Governance Report
REPORT OF THE BOARD
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Environmental, Social and Governance Report
Introducing our enhanced ESG strategy
In 2020, we engaged an independent, third party consulting firm to help us better define our goals and ambitions in the context of our industry, culture and increased scale and establish a more robust ESG framework with specific targets identified to guide our activities for the next decade.
The three strategic pillars which form the foundation of our ESG strategy - Environmental Impact, People Wellbeing and Responsible Business - were the result of an evaluation of the topics deemed most material to the long-term success of Besi and its stakeholders with a particular focus on materiality, clarity and transparency. In addition, we formalized a range of ambitious short and long-term targets and will report on, and monitor our performance against, twelve material topics related to our three strategic pillars.
Targets were developed by reviewing baseline data for the period 2019 and 2020 and by engaging senior management and relevant stakeholders in order to set challenging but achievable goals for 2022 and 2030. Further, targets were set for each site/location globally, tailored to their specific requirements and capabilities. The formulation of new and more wide-ranging targets represents a major step forward to better monitor our ESG progress.
We currently prioritize three of the twelve material topics - energy use and renewable energy, sustainable design and diversity and inclusion - as areas where we can have the most significant positive impact in the short term.
Cleanroom Besi Austria.
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2022 targets* |
Strategic pillars
Material topics
2030 targets*
Priority focus area
15% 10% 100% 25% Reduction in gas usage Reduction in electricity Renewable energy Europe Renewable energy globally | 25% 15% 65% Reduction in gas usage Reduction in electricity Renewable energy globally |
15% 10% Reduction in scope 1 Reduction in scope 3 and 2 carbon emissions carbon emissions | 60% 25% Reduction in scope 1 and 2 carbon emissions Reduction in scope 3 carbon emissions |
8% 5% Reduction in total waste Reduction in hazardous waste | 15% 20% Reduction in total waste Reduction in hazardous waste |
4% Reduction in water consumption | 14% Reduction in water consumption |
Develop priority targets for sustainable system design | Achieve priority targets for sustainable system design |
Diversity and inclusion | Increase % women in workforce to >19% (+2%)Increase % women in management to >20% (+5%)Increase % local nationals in management to >85% (+2%) | Increase % women in workforce to >24% (+6%) Increase % women in management to >25% (+11%) Increase % local nationals in management to >86% (+4%) |
Employee health and safety | Maintain a safety incident record of 0 | |
Employee engagement and career development | Maintain employee engagement >85% Remain above high-tech benchmarkIncrease investment in employee training to >23 working hours per employee per year (+15%) | Maintain employee engagement >85% Remain above high-tech benchmarkIncrease investment in employee training to >47 working hours per employee per year (+133%) |
e Ethics and compliance | Whistleblower procedure in place. Prompt response to violations by Besi senior management | |
Responsible supply chain | 65% 75% 75% 70% Purchasing Volume ("PV") audited PV to sign Self Assessment Questionnaire in our Code of Conduct PV to sign General Work Agreement or General Procurement Contract PV to sign Conflict-Free Sourcing Initiative | 75% 85% 85% 80% PV audited PV to sign Self Assessment Questionnaire in our Code of Conduct PV to sign General Work Agreement or General Procurement Contract PV to sign Conflict-Free Sourcing Initiative |
Community impact | Report on hours volunteered, monetary donations and education projects supported | |
Tax practices | Compliance with tax obligations where factual economic activities take place |
* All targets are based on targeted reductions relative to 2019 baseline levels.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
40 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
ESG governance |
In 2020, we formed an ESG Committee for the execution of our strategy consisting of members of Besi's management team. The Committee regularly reports progress to the Board of Management which has the ultimate responsibility for our ESG strategy. Initiatives, progress and risks are discussed regularly between the Board of Management and the Supervisory Board and are reported in the Annual Report.
Our approach is fully aligned with Besi's hierarchical structure. Day to day responsibility for ESG topics is delegated to product group SVPs and line managers in their respective locations and departments. A portion of their variable compensation is based on performance against certain specific ESG targets.
In addition, we have implemented externally certified ISO 9001 and ISO 14001 management systems to manage quality and environmental topics in our production operations of which health and safety items are included in our ISO 14001 management system. All of Besi's production sites have environment, health and safety ("EHS") officers and committees and a health and safety management system. These committees have representatives from each department who are responsible for the inspection, enforcement and promotion of health and safety matters in the workplace. EHS Committee inspections are conducted quarterly to identify and address any unsafe acts and conditions that may exist. Employees also regularly receive EHS training.
External reporting frameworks
It is important to Besi and its stakeholders that we follow best practice reporting standards. As such, we have reviewed the most appropriate external frameworks to enhance our ESG strategy against which our business will report.
Besi supports the recommendations of the Taskforce on Climate-Related Financial Disclosures ("TCFD"). We are committed to managing the impacts of climate change on our operations and intend to incorporate TCFD disclosures into our reporting going forward. In addition, we believe the industry-specific standards and metrics provided by the Sustainability Accounting Standards Board ("SASB") are appropriate for a company of Besi's size. We have reviewed the relevant SASB industry standards for our business and reported against these requirements wherever possible. We intend to report against the SASB framework in 2021.
Besi also intends to follow the objectives of the United Nations Sustainable Development Goals ("UN SDGs"). We have identified six goals that are relevant to Besi's ESG focus areas and could have the greatest impact on our business. Such goals include:
a | c |
Our key stakeholders
Engagement with stakeholders helps Besi identify the opportunities, issues and risks that affect our business and performance, provides valuable input when assessing our long-term value creation model and is a key priority in our ESG strategy. We listen to the input of our stakeholders, striving to be as responsive as possible and exceed their expectations. Insights are gathered through a variety of channels including dialogue with investors and customers, management reviews, employee surveys and internal and external audits.
Besi's key stakeholders include shareholders, suppliers, customers, employees, local communities, society and local governments. Such stakeholders were identified based on Besi's impact on their interests as well as their ability to influence our strategy and objectives.
41 OF MANAGEMENTREPORT OF THE BOARD
Stakeholder group
REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
How we engage |
Why we engage
Shareholders
• Shareholders expect Besi to protect their investment and provide a competitive return on capital while operating responsibly as a corporate citizen.
• Investor interest in sustainability was a key consideration in our ESG strategy update.
• Both existing and new investors have shown increased interest in ESG and have specific ESG criteria with which to comply.
Suppliers
• Maintaining a responsible supply chain is an important part of our Responsible Business strategic pillar.
• A high quality, flexible and scalable supply chain is critical to our business success and satisfying customer needs in a cyclical business.
• We seek to build long-term, mutually-beneficial relationships with our suppliers.
• We are expanding our outreach so that suppliers can reach Besi's own environmental and ethical standards.
Customers
• Building strong relationships is important to retain and attract customers and to promote revenue growth.
• Providing superior customer support is critical to maintaining relationships.
• Besi's customers are increasingly interested in products that are sustainable, environmentally friendly and ethically produced.
• Our ESG strategy is formulated with sustainable design as a key component.
Employees
• Besi considers satisfied and engaged employees as a key ingredient for its successful growth.
• Employees expect Besi to have high social and ethical standards in the conduct of its business.
• Employees also expect us to provide them with equal treatment and opportunities, safe working conditions and career development potential.
• Shareholders are engaged through an active investor relations program including quarterly and annual conference calls, roadshows, conferences and attendance at Besi's Annual General Meeting ("AGM").
• We maintain close contact with investors in Europe, North America and Asia.
• We conduct regular meetings with investment professionals and encourage them to ask questions during our earnings calls, meetings and at our AGM.
• We engage in important face to face dialogue and receive valuable feedback about our business and ESG topics.
• We engage with suppliers through direct dialogue and constructive audits.
• Besi annually performs third-party external audits for all significant production and development facilities with respect to its ISO 9001 and ISO 14001 capabilities.
• We work together with suppliers to lower our joint environmental footprint, create sustainable products and supply chains and assess and mitigate social, health, safety and ethical risks.
• Customer satisfaction is an important measure to gauge customer fulfillment.
• We have an experienced team of 196 sales and customer service people globally which maintain relationships and engage key customers on topics such as semiconductor device roadmaps, assembly equipment requirements and future market trends.
• Besi conducts annual customer satisfaction surveys to assess existing relationships and identify areas for improvement.
• In our 2020 survey, customer satisfaction rose 5% versus 2019 and ranked over 80% for all criteria. We ranked highest on reliability, durability and equipment performance versus peers.
• We promote an atmosphere of open dialogue between managers and employees. During performance appraisals, both employees and managers are encouraged to voice their concerns in a collegial exchange.
• Employee interests are also communicated in a more institutional way via Works Council representation.
• In Europe, we hold meetings with Works Councils twice a year to listen to the views of employees and communities.
• We conduct Town Hall meetings for all employees at least on a quarterly basis so that they are informed as to current business and financial developments.
• We conduct bi-annual employee engagement surveys.
• In 2020, we conducted a worldwide employee engagement survey on our COVID-19 response.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
42 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Stakeholder group |
Why we engage
How we engage
Local communities and society
Local governments
• Local governments expect compliance with local laws, regulations and care for the health, safety and security of their communities.
• Many countries are paying close attention to ESG topics in light of increased concern over environmental topics.
• Besi relies on the health, wellbeing and stability of local communities in the regions where we operate.
• We aim to have a positive impact on communities through good corporate and employee conduct.
• Society expects Besi to respect national and international laws and regulations, minimize our negative impacts and provide transparency on economic, environmental and social topics.
Besi Shanghai team at Semicon China, June 2020.
• Besi invests in many community projects, particularly in Asia.
• Senior managers review any concerns raised by local communities and try to communicate any issues which may arise to all stakeholders as well as best practices for successful resolution.
• We abide by appropriate social, ethical and environmental standards in our operations.
• Besi meets or exceeds minimum legal and regulatory compliance levels.
• We engage in responsible tax practices.
• We pay our fair share of taxation in all jurisdictions in which we have operations.
• Besi uses European social and ethical standards wherever possible at its operations.
• We do not participate in lobbying activities nor make political contributions in the countries in which we operate.
• We participate in dialogue with local chambers of commerce as appropriate.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
43 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Environmental impact
Material topics
• Energy use and renewable energy
• Carbon emissions
• Waste and hazardous material use
• Water use
• Sustainable design
Besi is committed to reducing its environmental impact, resource consumption and the carbon footprint of its operations which includes an increase in the sustainability of the components and systems we produce. Material topics in this pillar focus on a reduction of carbon emissions and Besi's overall usage of energy, waste, water and hazardous materials. It also focuses on integrating sustainable design processes into our development activities and increasing the utilization of renewable energy sources.
Energy use and renewable energy
We seek to decrease our energy usage via a reduction of fuel and electricity consumption and an increase in the utilization of renewable energy sources. We experienced relative reductions in each of our fuel and overall energy consumption between 2019 and 2020 and are on track to meet our 2022 target reduction levels. Decreased energy usage has resulted from conscious efforts by local managers to reduce energy consumption at our facilities and the increased utilization of renewable energy sources at many of our locations. Some of our energy conservation efforts this year were mitigated by the need to increase fresh air ventilation at many of our office sites in response to the COVID-19 pandemic.
Carbon emissions
A reduction of Besi's carbon footprint is another important component of our ESG strategy. In reporting carbon emission levels, Besi has adopted the standards and methodology put forth by the Greenhouse Gas Protocol ("GHGP"), an independent standard which divides emissions into three scopes:
• Scope 1 emissions cover direct greenhouse gas ("GHG") emissions resulting from day-to-day business activities. This category includes fuel combustion on site such as gas boilers as well as manufacturing, transport and fugitive emissions.
• Scope 2 emissions cover indirect GHG emissions which result from the electricity, heat and steam we purchase from external sources.
• Scope 3 emissions include all other indirect GHG emissions such as those produced by third party travel and freight activities.
Our ambition is to reduce carbon emissions across all three reporting scopes on both an absolute basis and relative to our revenue.
Waste and hazardous material use
We seek to reduce the waste and hazardous waste produced by our operations wherever possible. In all facilities, waste separation systems are in place and the re-use, reduce, recycle concept is well established. The principal focus is the reduction of waste used in the packaging process wherein we use materials such as plastic, wood and cardboard to ensure proper protection.
Water use
Water conservation is another priority as we consumed approximately 33 million liters of fresh water at Besi's production operations in 2020, of which approximately 85% was utilized in our Asian operations. All water we withdraw is consumed in our operations. We do not operate in any regions with a high or very high-water risk as defined by the World Resources Institute.
Sustainable design
We have prioritized sustainable design in our system development efforts and completed life cycle assessments as a means of reducing their environmental footprint while increasing their efficiency and recyclable content. As a result, we can provide customers a low total cost of ownership and an attractive return on initial investment while promoting sustainability themes.
Besi systems can be customized, reconfigured and redeployed for other production purposes over their product lifespan thus extending their useful life, reducing their environmental impact and raw material conservation. Customer utilization of our extensive global network of field service and spare parts also helps them extend the useful life of our systems.
Besi develops high quality, premium priced system solutions for customers offering leading edge reliability, accuracy, throughput, system uptime, yield of defect free devices, longevity and low environmental footprint. Besi's development efforts focus on system efficiency both in terms of environmental impact and productivity/cost savings, with a particular emphasis on:
• Energy efficiency
• The recycling potential of applied production materials
• The recycled content used in our products
• Minimizing the use of hazardous components in our systems
• The exclusion of conflict materials from our design process
We have implemented externally certified ISO 9001 and ISO 14001 management systems to manage quality and environmental issues in Besi's production operations.
44 OF MANAGEMENTREPORT OF THE BOARD
REMUNERATION REPORT
ESG performance and targets
ENVIRONMENTAL TRENDS
REPORT OF THE SUPERVISORY BOARDBOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
Direct emissions tCO2e
tCO2e/€ millions revenue
12,50050
10,848
-17%
2018
2019
2020
Scope 1Scope 2Relative to revenue*
2022
Target
2030
Fuel consumption
GWh 4
KWh/€ millions revenue 20
-30%
0
2
3
1
2022
2018
2019
FuelsRelative to revenue*
Indirect emissions tCO2e
tCO2e/€ millions revenue
1,200,0006,000
-10%
2030
2018
2019 2020
Scope 3Relative to revenue*
2022
Target
Energy consumption
GWh
KWh/€ millions revenue
20100 -10%
2020
Target 2030
10
15
0
5
2018
2019 2020
2022
Renewable energyNon-renewable energyRelative to revenue*Target 2030
* Targets for 2022 and 2030 based on 2019 revenue.
* Targets for 2022 and 2030 based on 2019 revenue.
45 OF MANAGEMENTREPORT OF THE BOARD
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Waste
Tonne
kg/€ millions revenue
-8%
2018 2019
2020
2022
Non-hazardous wasteHazardous wasteRelative to revenue*
Water consumption
Thousands m3
m3/€ millions revenue
40 200
-4%
Target
2030
2018
2019
WaterRelative to revenue*
2020
2022
Target
2030
* Targets for 2022 and 2030 based on 2019 revenue.
* Targets for 2022 and 2030 based on 2019 revenue.
46 OF MANAGEMENTREPORT OF THE BOARD
Material topic
REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
2022 target |
2020 progress update
Energy use and renewable energyCarbon emissions
• Absolute and relative Scope 1 and 2 emissions declined meaningfully.
• Scope 3 absolute and relative emissions declined significantly primarily as a result of reduced travel and freight costs related to the COVID-19 pandemic.
• Carbon emissions also reduced through use of augmented reality software to perform service and installation remotely.
Waste and hazardous material use
• Fuel and energy consumption down on a relative basis versus 2019.
• Our second Dutch facility switched to 100% renewable energy utilization, bringing the number of locations to three operating fully with 100% renewable energy.
• Optimized building energy efficiency (heating, air-conditioning, ventilation systems and settings) at Besi's Chinese, Dutch and Swiss operations resulting in a -3% reduction of local energy consumption and carbon emissions.
• 15% reduction in Scope 1 and 2 carbon emissions
• 10% reduction in Scope 3 carbon emissions
• Waste reduction target not achieved due to the construction of a new cleanroom at Besi Austria which generated 207 MT of non-hazardous waste.
• Relative hazardous waste usage declined significantly.
Water use
Sustainable design
• Conducted life cycle assessments to ascertain the environmental impact of the materials used in our fabricated parts. Also evaluated their recycling potential.
• 15% reduction in gas usage
• 10% reduction in electricity usage
• 100% renewable energy at European operations
• 25% renewable energy utilized globally
• 8% reduction in total waste
• 5% reduction in hazardous waste
• Water usage reduced on a relative basis versus 2019.
• 4% reduction in water consumption
• Develop additional targets for sustainable system design
Case study: 100% renewable energy usage achieved at Besi's Dutch facilities
Besi's Meco Equipment Engineers site in Drunen was the second of our two locations in the Netherlands to be certified as using 100% renewable energy in September 2020, making Besi 100% renewable across the country. The Drunen site received its certification from EECS (European Energy Certificate System), an independent third party. Besi Netherlands, located in Duiven, received its certification in January 2019. The electricity used at both sites comes from European hydro-electric power plants.
Meco Equipment Engineers office, Drunen, the Netherlands.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
47 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Case study: reducing Besi China's freight transportation impact
Besi made greater use of land freight to ship products to customers from its Asia-Pacific facilities as a result of air and sea transportation disruptions caused by the COVID-19 pandemic. The shift to more environmentally friendly transport methods such as trucks and rail reduced freight costs by approximately 25% and Scope 3 emissions by approximately 16%. In addition, we are exploring opportunities to further reduce the environmental impact of our packaging use by decreasing the utilization of plastics and replacing wooden crates with cardboard packaging.
A Besi APac truck en route to Leshan, China via the landbridge created by DB Schenker.
Future priorities
• Achieve 100% renewable energy at Besi Austria and Besi Switzerland by the end of 2021. If successful, 100% of Besi's European energy needs will be supplied by renewable energy sources.
• Expansion of renewable energy use across Asia.
• Relocation of the Meco Equipment Engineers B.V. office in 2021 to reduce energy consumption through more environmentally friendly heating and air conditioning systems.
• Utilize LED lights at all of Besi's Dutch facilities by the end of 2021.
• Complete recycling manual at Besi Netherlands by 2022.
• Expand the sustainable design mindset across the entire global development team.
• Develop roadmap for additional corporate processes and training programs to further advance sustainable system design and development.
• Identify additional opportunities with customers and suppliers to advance sustainable design.
People wellbeing
Material topics
• Diversity and inclusion
• Employee health and safety
• Employee engagement and career developmentBesi is committed to being a good employer and promoting a workplace culture conducive to the achievement of its business and ESG objectives. We comply with all applicable employment laws and regulations in the countries in which we operate. In addition, employees are made aware of their rights including the right to freedom of association and collective bargaining. We seek to be a preferred employer by emphasizing diversity, health, safety and wellbeing of our employees, flexible working arrangements and career growth and development.
Diversity and inclusion
Besi values and encourages cultural, age and gender diversity in its workforce and management, believing it helps broaden our perspective and contribute to growth. Our Code of Conduct emphasizes equal opportunity for all employees and applicants. Diversity and inclusion is a key strategic focus of which gender diversity across all operations is the most immediate current topic.
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MMA (Multi Module Attach) team at Besi Singapore.
ESG performance and targets
PEOPLE AND WELLBEING TRENDS
Female managers % of FTE Managers
30 20 10 0
+4%
2018
Female managers
2019
2020
2022
Target
2030
Female employees % of FTE 30
20 10 0
+2%
2019
2018
Female employees
Employee health and safety
Employee health and safety represents another material topic. Besi monitors incidents in the workplace at all locations worldwide. Incidents are grouped into categories by severity: (i) fatalities, (ii) major absences (of more than four days), (iii) minor absences (of less than four days) and (iv) first aid cases in which employees can resume work immediately after treatment or the following day. Safety hazards at Besi are limited. There were no incidents recorded last year as our production facilities are predominantly clean environments with no heavy chemicals present. In addition, there were no legal proceedings related to health and safety incidents during the year. We are investigating a consolidation of all our current ESH practices that are compliant with local laws and mandated by ISO 14001 under an additional ISO 45001 certification.
Employee engagement and career development
Skilled, engaged and satisfied employees are critical to our success. One of Besi's principal challenges is to attract skilled workers at both our European and Asian operations. As such, a key component of our strategy is training and talent development. Toward this end, we provide a variety of education and training programs and monitor employee engagement and satisfaction across all regional operations.
Local managers % of FTE Managers
100
75
50
25
0
2018
Local managers
2019
2020
2022
Target
2030
Training
2020
2022
Target
2030
Target
2018Training hours
2019
2020
2022
2030
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Headcount trends (FTE)
Employee turnover
Headcount
Temp % of Total
2,00014%
1,500
1,000
500
0
2018
2019
2020
Europe/Na Fixed HCAsia Fixed HCTemporary HCTemp % of Total
Sickness rate
% of Working Days 3
2.1%
2.1%
2018
AsiaEuropeTotal
% of FTE 20
10
0
2018
2019
2020
New hires
% of FTE 20
10 0
13%
8%
6%
2018
2019
2020
2019
2020
50 OF MANAGEMENTREPORT OF THE BOARD
REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
Material topic
Diversity and inclusion
• Diversity initiatives were promoted to improve gender diversity with new hires and promotions at Besi Austria and China driving progress versus targets.
• Additional local hires in China (Leshan and Shanghai) increased the overall % of local managers in our management team.
• Female representation on Besi's Supervisory Board is proposed to increase from 20% to 40% upon confirmation at this year's AGM.
• Proportion of female managers increased on aggregate basis.
Employee health and safetyEmployee engagement and career development
• More frequent management and staff meetings held during pandemic to navigate the crisis, adjust to work at home environment for office personnel and sustain employee engagement.
• Invested in IT systems to facilitate efficient work at home conditions for our employees.
• COVID-19 employee engagement survey was conducted to understand how employees viewed our handling of the pandemic.
• Survey indicated strong level of employee engagement and positive sentiment towards Besi for its response. (See COVID-19 case study below).
• Overall training hours increased by 10% versus 2019 driven by Besi APac.
2020 progress update
• No fatalities nor serious first aid cases were reported.
• Initiatives were implemented to increase the number of training and development programs and hours related thereto to meet future targets.
• Complied with all COVID-regulations and protocols in all jurisdictions in which we operate associated with production, travel, movement, personal interaction and hygiene.
• Instituted on-site temperature checks at all our Malaysian, Chinese and Singapore facilities representing approximately 62% of Besi's workforce.
Case study: improving diversity and inclusion at Besi Austria
Data gathered in 2019 identified that Besi had no female managers at its Radfeld, Austria operations. To improve management diversity, we initiated events such as education trade fairs (e.g. Bildungsmesse) to increase awareness of IT and engineering opportunities targeting women in particular. Since inception of this initiative, the female manager percentage has increased from 0 to 4%. We expect that the more flexible working schedules developed in response to COVID-19 will help encourage further progress in this area.
2022 target
• Increase percentage of women in workforce to >19% (+2%).
• Increase percentage of women in management to >20% (+5%).
• Increase percentage of local nationals in management to >85% (+2%).
• Maintain a safety incident record of zero.
• Maintain employee engagement >85%.
• Remain above high-tech benchmark.
• Increase investment in employee training to >23 working hours per employee per year (+15%).
Case study: COVID-19 pulse survey
Besi hired Willis Towers Watson, an independent global advisory firm, to conduct a worldwide employee survey as a way to evaluate our response to the pandemic. Employees were engaged on topics such as leadership and communications, support, safety and working conditions and overall employee wellbeing. The feedback was encouraging with overall engagement increasing by 6% versus the 2019 biennial survey results. Increased favorable sentiment was noted across most key topics at our principal operations. Besi intends to use the survey findings as a basis to help refine its post-COVID-19 operating model.
Overall employee engagement increased 6% from the most recent biennial survey conducted in 2019
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL |
51 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 |
Future priorities |
• Improve gender diversity across all locations
• Update personnel contracts to incorporate new flexible working possibilities
• Continue to prioritize the health and safety of all employees
• Increase training and development hours
• Attain ISO 45001 certification
Responsible business
Material topics
• Ethics and compliance
• Responsible supply chain
• Community impact
• Tax practices
Besi is committed to operating in a responsible and sustainable manner for the benefit of all stakeholders. We are committed to the UN Universal Declaration of Human Rights and adhere to high ethical standards. We expect the same commitment from key stakeholders, particularly across our supply chain. We also seek to have a positive impact on the communities and countries in which we operate via charitable activities, by following responsible tax practices and by maintaining open, constructive and mutually respectful relations with tax authorities.
Ethics and compliance
The importance of appropriate anti-corruption and human rights policies has increased with the expansion of Besi's Asian operations, supply chain and logistics activities. In this regard, Besi has a Code of Conduct and whistleblower procedure, both of which are available on our website, to guide the activities of our employees and suppliers and to set out responsibilities, procedures and support functions in reporting violations. All employees are required to undertake training and sign our Code of Conduct upon hiring. In addition, all employees at our Chinese operations undertook mandatory training in 2020 with respect to Besi's Code of Conduct. From 2021 onwards, we will conduct mandatory training for all our employees globally on an annual basis. We have also introduced a confidential whistleblowing procedure through which employees can report suspected cases of misconduct. These cases are investigated immediately and overseen by local management or the Board of Management, who have responsibility for approving appropriate corrective measures.
Our Code of Conduct prohibits anti-competitive practices. There were no legal proceedings associated with anti-competitive behavior during the year.
Responsible supply chain
Besi adheres to high ethical standards and expects the same from its suppliers. As such, we have three policies to promote a sustainable supply chain: A Conflict Minerals Policy, a Supply Chain Policy and a Supplier Code of Conduct based on the code set forth by the Responsible Business Alliance ("RBA"). The Code of Conduct is based on international norms and standards including the Universal Declaration of Human Rights, ILO International Labor Standards and the OECD Guidelines for Multinational Enterprises. Besi's Supply Chain Policy and Code of Conduct have been fully in accordance with RBA requirements since 2018. In addition, we seek to align our operations and supply chain with the Restriction of Hazardous Substances ("RoHS") directive. This year, 92% of our relevant purchase volume was compliant with the RoHS directive.
Besi is committed to developing a sustainable supply chain. Our supply chain activities include the sourcing of raw materials, components and semi-finished products from vendors. The issue of conflict minerals is an important topic for supply chain management, particularly in Europe and the United States. We seek to minimize the impact of conflict minerals wherever possible. Besi evaluates suppliers by means of its quarterly business review process under which we regularly conduct performance reviews and key supplier audits. In 2020, we significantly increased the number of performance reviews and audits of our suppliers.
Community impact
Besi supports activities in the local communities in which we operate, particularly in Asia where the assistance is more greatly needed. Further, we support local technical universities through active interchange and dialogue. In 2020, Besi APac continued its long-term commitment to supporting the Ideas Academy, a local education institution, by means of a donation and the organization of a charity bike ride on their behalf.
Tax practices
Besi regards taxation as part of its social responsibility and follows the principle of responsible tax practices whereby the interests of all stakeholders (including customers, shareholders, local governments and communities in the countries in which Besi operates) are taken into consideration. We strive to comply with the letter and spirit of applicable laws, are guided by relevant international standards and do not use 'artificial' structures in tax haven jurisdictions to avoid taxes. This means that taxes are paid where factual economic activities are executed and that transactions should have a business rationale. Furthermore, Besi seeks to develop and maintain open, constructive and mutually respectful relations with local tax authorities based on the principles of transparency and mutual trust.
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REMUNERATION REPORT
ESG performance and targets
REPORT OF THE SUPERVISORY BOARD
RESPONSIBLE SUPPLY CHAIN TRENDS
BOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
Purchase Volume ("PV") Audited
% of PV 100
+4%
50
0
2018
Audited Suppliers
Conflict Free Sourcing Initiative
% of PV 100
+6%
50
0
2019
2020
2022
Target
2030
2018 2019 2020
Conflict Free Sourcing Initiative ("CFSI") Signatories
2022
Target
2030
Self Assessment Questionnaire
% of PV 100
+13%
50
0
2018 2019 2020
Code of Conduct Self Assessment Questionnaire ("SAQ") Signatories
2022
Target
2030
Code of Conduct Supplier Agreements
% of PV
100
50
0
+11%
2018
2019
2020
General Work Agreement ("GWA") or
General Procurement Contract ("GPC") Signatories
Restriction on Hazardous Substances
% of PV 100
+4%
50
0
2018
Audited Suppliers
2019
2020
2022
Target
2030
2022
Target
2030
53 OF MANAGEMENTREPORT OF THE BOARD
Material topic
REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
2022 targets |
2020 progress
• | Whistleblower procedure in place. | |
• | No reported violations of Besi's Code of Conduct. | |
Responsible supply | • | Increased purchase volume ("PV") audited despite pandemic |
chain | • | 62% of PV signed SAQ with respect to our Code of Conduct. |
• | 64% of PV signed supplier GWA or GPC. | |
• | 64% of PV signed CFSI. | |
• | Set targets for 2022 and 2030 related to GWA/GPC, SAQ and CFSI. | |
Community impact | ||
Tax practices |
Ethics and compliance
• | Increase employee participation in training related to Besi's Code of Conduct. | |
• | 65% of PV audited. | |
• | 75% of PV to sign SAQ with respect to our Code of Conduct. | |
• | 75% of PV to sign GWA or GPC. | |
• | 70% of PV to sign CFSI. | |
• Supported local charities during the pandemic. | • | Increase number of hours volunteered, monetary donations and education projects |
• Community outreach was limited given the restrictions on | supported. | |
personal interaction and movement during the pandemic. | ||
• | Compliant with tax obligations where factual economic activities take place. |
• Compliant with tax obligations where factual economic activities take place.
Case study: reducing the impact of conflict minerals in our supply chain
Building on the standard set forth in our Code of Conduct, Besi has formalized long-term targets to minimize the impact of conflict minerals in our supply chain. We support the Responsible Business Alliance Code of Conduct, including its commitment to conflict-free sourcing and the Conflict Free Sourcing Initiative and encourage all suppliers to participate. As part of our commitment, we engage in a rolling three-year supply chain audit program under which we completed audits for 61.4% of Besi's supply chain in 2020. This level was significantly higher than 2019 and prior years with many suppliers willing to undergo audits via Webex during the pandemic.
Future priorities
• Complete audits representing 75% of Besi's purchasing volume by 2030.
• Encourage more suppliers to join the CFSI such that 80% of our purchasing volume has signed by 2030.
• Communicate Besi's ESG strategy and targets to stakeholders in an efficient and transparent manner.
• Progressively adopt best practice ESG reporting standards including alignment with additional external reporting frameworks such as SASB and TCFD.
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Risks and Risk Management
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Risks and Risk Management
Identifying and controlling potential events and risks which may affect Besi's strategy, continuity, business and performance are of the utmost importance for management and the subject of continuous focus. Our risk management efforts extend throughout our processes, people and systems. In recent years, the importance of internal control and risk management systems has grown substantially as a result of Besi's increased size and complexity, changing market conditions and substantial expansion of its business operations outside of Europe. Besi's internal control and risk management systems have been designed to address and help mitigate such risks and risk factors.
In 2020, the most important components of Besi's internal control and risk management system were:
Financial risk management
• An extensive and documented process for preparing Besi's annual budget, quarterly estimates and reports of its monthly financial and non-financial information compared with the budgeted and quarterly estimated information.
• Monthly business reviews with product group and production site managers with respect to their monthly and quarterly bookings, revenue, working capital and results of operations together with discussions of general market, economic, technological, ecological and competitive developments.
• Daily reviews of the foreign currency positions of all significant operating companies.
• Annual documentation and analysis of key risks and the development and control of such risks.
• Weekly management reviews of its business, operations, cash and inventory development.
• Compliance with finance and controlling guidelines governing its financial accounting and reporting procedures.
• Compliance with internal controls over financial reporting that have been implemented in all significant operating companies.
• Regular management review of key staff development.
• Regular analyses of operational risks at the subsidiary level.
• Regular analyses of Besi's capital structure, financing requirements, tax position and transfer pricing system.
All material findings that result from the use of Besi's internal control and risk management system for financial risks are discussed with the Audit Committee and Supervisory Board including the:
• Development of Besi's revenue, orders, results of operations and balance sheet versus budget as well as developments in the global economy and semiconductor assembly equipment market and their impact on Besi's financial results.
• Progress of ongoing strategic initiatives and cost reduction efforts.
• Status of key customer relationships.
• Analysis of orders lost to competitors and the development of Besi's competitors' business.
• Material developments in Besi's research and development activities.
• Foreign currency exchange rate developments.
• Status of its current corporate governance procedures.
• Status of systems and procedures and activities to monitor and evaluate risks from fraud, bribery or corruption in Besi's operations.
In addition to internal controls over financial reporting, the operation of Besi's internal control system is also assessed by the external auditor where deemed relevant in the context of the audit of the annual Financial Statements. The results of this audit are discussed with the Board of Management and the Audit Committee of the Supervisory Board.
Other operational risks such as the hedging of financial exposures, internal financial reporting and transfer pricing are governed by a set of internal Besi guidelines. In addition, insurance policies are in place to cover the typical business risks associated with Besi's operations and are reviewed every year. Besi's policies regarding foreign currency hedging, interest rate, credit, market and liquidity risks are further described in the Financial Statements. In addition, our use of global and diverse information technology systems could expose us to security threats to our data resources and intellectual property from a variety of risks including natural disasters, power outages, cyberattacks, acts of terrorism and malware and/or ransomware infiltration. We have established an information-security program which implements measures to prevent, detect and respond to security threats. Furthermore, in 2020, we focused specifically on raising awareness of the risks and potential risks of cybercrime among our employees.
Besi also evaluates non-financial risks that could affect both its strategy and business operations as well as emerging non-financial risks such as climate change, natural resource conservation, pollution and the circular economy and human challenges such as diversity, human rights and the recruitment of qualified technical personnel. Short and long-term topics are assessed through measures such as materiality analyses, key performance indicators for Scope 1, 2 and 3 emissions, water and waste usage, customer and employee satisfaction metrics, supplier audits and continuous stakeholder dialogue. Besi's non-financial risks are governed by a set of guidelines and instructions.
There were no indications that Besi's internal control and risk management systems did not function properly in 2020. Please refer to Internal Control and Risk Management of the Corporate Governance section for further information.
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Virtual team building day Besi Singapore.
Risk appetite
Besi's risk appetite is primarily based on defined and agreed upon strategies and the individual objectives and initiatives within such strategies. Management believes that Besi's risk appetite is aligned with its strategy and priorities. The Board of Management monitors the operation of its internal control and risk management system and carries out a systematic assessment of its design and effectiveness at which time it also assesses its risks, including residual risks, net of risk mitigating measures. The Board of Management discusses the effectiveness of the design and operation of the internal control and risk management system with the Audit Committee and provides input to the Supervisory Board.
Our risk appetite differs per risk type:
• Strategic risks and risks related to the semiconductor industry: Besi seeks to realize its strategic ambitions and priorities and is willing to accept reasonable risks to achieve such objectives.
• Operational risks: Besi has a variety of operating initiatives and challenges in its strategic planning that require an appropriate level of management attention. We seek to mitigate risks that could negatively affect our realization of operating initiatives and efficiency targets while ensuring that our quality standards are unaffected in the process.
• Financial risks: Besi's financial strategy is focused on generating increased revenue, profit and cash flow from its business model, maintaining a strong financial position and creating long-term value for its shareholders. We seek to mitigate risks which could negatively influence our results of operations, financial condition and access to capital markets while maintaining optimal operating and financing flexibility and an attractive capital allocation policy for the benefit of stakeholders.
• Legal and regulatory risks: Besi strives to be fully compliant with its Code of Conduct and all applicable national and international laws and regulations in the markets and jurisdictions in which it operates. Besi seeks to comply with all environmental and labor laws and uses its best efforts to comply with best practice standards in the jurisdictions in which Besi operates.
Besi does not rank the individual risks identified by management. We believe that all risks described herein have significant relevance and that a ranking process would negate the purpose of a comprehensive risk assessment.
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Risks factors relating to Besi, its industry, its business and its shares
Strategic risks
Besi faces risks related to the COVID-19 pandemic that could significantly disrupt or materially adversely affect its business and financial performance.
The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many governmental authorities have instituted quarantines, work-from-home directives, shelter-in-place orders, social distancing mandates, travel restrictions, border closures, limitations on public gatherings and closures of, or operational limitations on, non-essential businesses that are adversely impacting many industries. There is significant uncertainty surrounding the breadth and duration of business disruptions related to COVID-19 as well as its impact on the global economy and consumer confidence. The pandemic could have a sustained adverse impact on economic and market conditions and trigger a prolonged global economic slowdown, which could decrease spending on semiconductor manufacturing equipment, adversely affect demand for Besi's product offerings and harm Besi's business and operating results.
Significant uncertainty exists as well concerning the impact of the pandemic on the business and operations of Besi's customers in future periods. Until the effects of the pandemic have subsided, Besi's revenue may be negatively impacted in future periods due to a general increase in the length of time necessary to close transactions in the current macroeconomic environment. The uncertainty related to COVID-19 may also result in increased volatility in the financial projections Besi uses as the basis for estimates and assumptions used in its financial statements.
Furthermore, some of Besi's customers have experienced significant adverse effects from the pandemic and related containment and mitigation measures. A significant economic downturn or adverse effects of the pandemic may cause organizations to reduce their expenditures in general or specifically reduce their spending on semiconductor manufacturing equipment. Customers may delay or cancel projects or seek to lower their costs by renegotiating vendor contracts. In addition, Besi's competitors may respond to challenging market conditions by lowering prices in an attempt to make their product offerings more attractive to potential customers.
In light of the uncertain and rapidly evolving situation with respect to COVID-19, we have taken precautionary measures intended to reduce the risk of the virus to our employees, customers, suppliers and the communities in which we operate. These operational changes could have a negative impact on Besi's manufacturing, sales, marketing and customeracquisition efforts, delays in production and sales cycles, delays in the release or delivery of new or enhanced offerings or unexpected changes to such offerings, or operational or other challenges, any of which could significantly disrupt our business and operating results. Additionally, while Besi has not experienced any material disruptions to date, its technological systems or infrastructure may not be equipped to facilitate effective remote working arrangements or operations in compliance with all laws and regulations for its employees in the short- or long-term.
Considerable uncertainty still surrounds COVID-19 and its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses. Although Besi continues to actively monitor the situation across its operations and may take further actions as required by government authorities or as more information and public health guidance become available, the full extent to which COVID-19 affects our business and operating results will depend on future developments, including the duration, spread, severity, and potential recurrence of the pandemic, the timetable and effectiveness of new vaccines designed to mitigate its spread, the impact on our manufacturing operations and sales cycles, our ability to generate new business leads and the impact on our customers, suppliers and employees, all of which are highly uncertain and cannot be predicted.
Besi's business and results of operations may be negatively affected by general economic and financial market conditions and volatile spending patterns by its customers.
Although the semiconductor industry's business cycle can be independent of the general economy, global economic conditions may have a direct impact on demand for semiconductor devices and ultimately demand for semiconductor manufacturing equipment. Accordingly, Besi's business and financial performance are affected, both positively and negatively, by fluctuations in the macroeconomic environment. As a result, the Company's visibility as to future demand is generally limited and its ability to forecast future demand is difficult.
For example, in the third quarter of 2015, Besi experienced an abrupt and rapid reduction in orders as customers digested capacity added in 2014 and the first half of 2015, along with typical downward order pressure from seasonal factors. Similarly, an abrupt decline in demand for mobile applications (in particular order cancellations by a single IDM customer) caused second quarter 2018 orders to decline by 58% relative to the first quarter of 2018. Such order weakness continued in the second half of 2018 and throughout 2019 as customers digested significant capacity added in 2017.
Besi believes that historic volatility in capital spending by customers is likely to persist in the future. In addition, future economic downturns and/or geopolitical events could adversely affect Besi's customers and suppliers which would in turn have an impact on Besi's business and financial condition.
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Besi's business includes significant operations in Europe. Disruptions to European economies could have a material adverse effect on Besi's operations, financial performance, share price and access to credit markets.
Over the past decade, the financial markets have experienced concern as to the ability of certain European countries to finance their deficits, service debt burdens and refinance debt maturities, as well as the effects of a potential default by a European sovereign issuer, its impact on economic growth in emerging markets and other developed markets and its impact on corporations' abilities to access credit and capital markets. Markets have also expressed concern as to the impact of the COVID-19 pandemic on European economies, unemployment levels and any potential long-lasting damage which could ensue as a result of its extended duration.
Besi also may face heightened risks as a result of the withdrawal of the United Kingdom from the European Union, commonly referred to as "Brexit". The future effects of Brexit are uncertain and will depend on the implementation of the Brexit withdrawal agreement and any other agreements the United Kingdom may make to retain access to European Union markets post their separation. Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union and significantly disrupt trade between the United Kingdom and the European Union. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations, including tax laws and regulations, as the United Kingdom determines which European Union laws to replace or replicate.
Given the scale of its European operations and scope of its relationships with customers and counterparties, Besi's results of operations and financial condition could be materially and adversely affected by persistent disruptions in European financial markets, the attempt of a country to abandon the euro, the impact of Brexit, the effects of austerity measures on eurozone economies, the failure of a significant European financial institution, even if not an immediate counterparty to Besi, persistent weakness in the value of the euro, the potential adverse impact on global economic growth and capital markets if eurozone issues spread to other parts of the world as a result of the default of a eurozone sovereign or corporate issuer and by a failure of government actions and vaccines to stop the spread of the COVID-19 pandemic.
Besi may acquire or make investments in companies or technologies that could disrupt its ongoing business, distract its management and employees, increase its expenses and adversely affect its results of operations.
As part of its growth strategy, Besi may from time to time acquire or make investments in companies and technologies. Besi could face difficulties in integrating personnel and operations from the acquired businesses or technology and in retaining and motivating key personnel from these businesses. In addition, these acquisitions may disrupt Besi'songoing operations, divert management resources and attention from day to day activities, increase its expenses and adversely affect its results of operations and the market price of its ordinary shares. In addition, these types of transactions often result in charges to earnings for items such as business unit restructuring, including charges for personnel and facility termination and the amortization of intangible assets or in-process research and development expenses. Any future acquisitions or investments in companies or technologies could involve other risks, including the assumption of additional liabilities, dilutive issuances of equity securities, the utilization of cash and the incurrence of debt.
Acts of war or terrorism could adversely affect Besi's business and results of operations.
Threats or acts of war or terrorism may adversely affect our business. Terrorist attacks in Europe and other regions globally as well as continuing hostilities in the Middle East and elsewhere have created significant instability and uncertainty in the world. In addition, terrorist attacks, including cyberterrorism, that directly impact our facilities or those of our suppliers or customers could have an adverse impact on our sales, supply chain, production capabilities and costs. Any such events could have a material adverse effect on world markets, our business and our results of operations.
Trade, political and economic frictions in the Asia Pacific region could adversely affect Besi's revenue and results of operations.
Due to the complex relationships among China, Japan, Korea, Taiwan and the United States, there is inherent risk that political and diplomatic influences might lead to trade disruptions. In particular, heightened trade tensions and retaliatory tariffs between the United States and China in recent years past could potentially limit or restrict the sale of Besi's semiconductor assembly equipment to China. A significant trade disruption in any area where we do business could have a material adverse impact on our future revenue and profitability. Tariffs, additional taxes or trade barriers may increase our manufacturing costs, decrease margins, reduce the competitiveness of our products or inhibit Besi's ability to sell products or purchase necessary equipment and supplies, all of which could have a material adverse effect on our business, results of operations and financial condition.
In addition, there are risks that governments may, among other things, insist on the use of local suppliers, compel companies to partner with local companies to design and supply equipment on a local basis, require the transfer of intellectual property rights and/or local manufacturing or provide special incentives to government backed local customers to buy from local competitors even if their products are inferior to ours, all of which could adversely impact our revenue, margins and financial condition. Many of these challenges are particularly applicable in China, which is a fast-developing market for the semiconductor equipment industry and an area of anticipated growth for Besi's business. Further, the political and economic climate in China at both the national and regional levels can be fluid
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and unpredictable. China has announced and begun implementation of state-sponsored initiatives to build domestic semiconductor capacity and supply chains. As such, Besi may be at a disadvantage in competing with entities associated with such government efforts based on their lower cost of capital, access to government subsidies and decision making, preferential sourcing practices, stronger local relationships or otherwise.
Semiconductor industry related risks
Besi's revenue and results of operations depend in significant part on demand for semiconductors which is highly cyclical and has increasingly become more seasonal in nature.
Besi's customers' capital expenditures for semiconductor manufacturing equipment depend on the current and anticipated market demand for semiconductors and products using semiconductors. The semiconductor industry is highly cyclical and volatile and is characterized by periods of rapid growth followed by industry-wide retrenchment. These periodic downturns have included, among other things, diminished product demand, production overcapacity, oversupply and reduced prices, all of which have been regularly associated with substantial reductions in capital expenditures for semiconductor facilities and equipment and a reduction of Besi's revenue.
Final assembly area 2200 evo at Besi Leshan, China.
Over the past decade, Besi has experienced significant upward and downward movements in quarterly order rates due to global macroeconomic concerns, the timing of industry capacity additions and seasonality associated with end-user application revenue which materially affected and, in certain instances, adversely affected its revenue, results of operations and orders. Customer order patterns have become increasingly more seasonal due to the growing influence of more retail-oriented electronics applications in the overall demand for semiconductor devices such as smart phones, tablets, wearables and automotive electronics and the timing of new product introductions. As such, typical annual order patterns have been characterized by a strong ramp in the first half of the year to build capacity to meet anticipated year end demand followed by a subsequent decline in the second half of the year as capacity additions are digested by customers.
Due to the lead times associated with the production of semiconductor equipment, a rise or fall in the level of sales of semiconductor equipment typically lags any downturn or recovery in the semiconductor market by approximately three to six months. This cyclicality has had, and is expected to continue to have, a direct adverse effect on Besi's revenue, results of operations and orders. Industry downturns can be severe and protracted and will continue to adversely affect Besi's revenue, results of operations and orders.
Because of the lengthy and unpredictable sales cycle for its products, Besi may not succeed in closing transactions on a timely basis, if at all, which could adversely affect its revenue and operating results.
The average selling price for a material portion of Besi's equipment exceeds € 300,000 and, as a result of such potential investment size, the sales cycles for these transactions are often lengthy and unpredictable. Factors affecting the sales cycle include:
• Customers' capital spending plans, capacity utilization rates, technology roadmaps and budgetary constraints.
• Timing related to the adoption, testing, qualification and introduction of new devices and process technologies and related equipment.
• The timing of customers' budget cycles.
• Customers' internal approval processes.
These lengthy sales cycles may cause Besi's revenue and results of operations to vary from period to period and it may be difficult to predict the timing and amount of any variations. Besi may not succeed in closing such large transactions on a timely basis or at all, which could cause significant variability in its revenue and results of operations for any particular period.
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Recent consolidation activity and industry alliances in the semiconductor industry have further increased customer concentration and the risk of loss.
There has been, and Besi expects that there will continue to be, consolidation within the semiconductor industry resulting in fewer potential customers for its products and services, and, more significantly, the potential loss of business from existing customers that are a party to a merger if the combined entity decides to purchase all of its equipment from one of Besi's competitors. Further industry consolidation could result in additional negative consequences to Besi including increased pricing pressure, increased customer demands for enhanced or new products, greater sales and promotional costs and the potential for increased oversight from regulatory agencies. Any of the foregoing events would have an adverse impact on Besi's business, results of operations and financial condition.
Some of our customers and potential customers are entering into alliances or other forms of cooperation with one another to expedite the development of processes and other manufacturing technologies. One of the results of this cooperation may be the definition of a system or particular tool set for a certain function or a series of process steps that uses a specific set of manufacturing equipment. These decisions could work to Besi's disadvantage if a competitor's equipment becomes the standard equipment for such function or process. Even if Besi's equipment was previously used by a customer, that equipment may be displaced in current and future applications by the equipment standardized through such cooperation. These forms of cooperation may have a material adverse effect on Besi's business, financial condition and results of operations.
In addition, various industries have experienced consolidation and other ownership changes or the emergence of dominant firms and supply chains within those industries, including the smart phone, computing and automotive industries. Any future changes in market structure to industries in which we sell our equipment could decrease the number of potential customers for our product offerings and/or risk an increase in competition for our clients' equipment purchases. Moreover, our competitors may respond to such changes in market conditions by lowering prices and attempting to lure away our customers.
Besi may experience increased price pressure on its product sales.
Typically, Besi's average selling prices for mature products have declined over time. Besi seeks to offset this decline, in part, by continually developing and introducing next generations of its principal products. In addition, it has reduced its cost structure by consolidating and transferring production operations to lower cost areas, expanding its lower cost Asian sources of supply, reducing other operating costs and pursuing product strategies focused on product performance and customer service. If these efforts do not fully offset any such price declines, Besi's financial condition and operating results may be materially and adversely affected.
Besi may fail to compete effectively in its markets.
Besi faces substantial competition on a worldwide basis from established companies based in Japan, Korea, Singapore, China, various other Pacific Rim countries and the United States, many of which have greater financial, engineering, manufacturing and marketing resources than Besi. Besi believes that once a semiconductor manufacturer has decided to buy semiconductor assembly equipment from a particular vendor, the manufacturer often continues to use that vendor's equipment in the future. Accordingly, it is often difficult to achieve significant sales to a particular customer once another vendor's products have been installed. Furthermore, some companies have historically developed, manufactured and installed back-end assembly equipment internally, and it may be difficult for Besi to sell its products to these companies or, in attempting to make sales to such companies, risk exposing Besi's proprietary technology to a potential competitor.
Besi's ability to compete successfully in its markets depends on a number of factors both within and outside its control including:
• Price, product quality and system performance to customer specifications.
• Ease of use and reliability of its products.
• Manufacturing lead times, including the lead times of Besi's subcontractors.
• Cost of ownership.
• Success in developing or otherwise introducing new products.
• Market and economic conditions.
• Local market presence, particularly in Asian markets, and the quality of Besi's after-market sales and service support in each region in which it operates.
In addition, there is substantial competition for qualified and capable personnel who are in high demand, particularly in Asia, which may make it difficult for Besi to recruit and retain qualified employees.
If Besi fails to compete effectively based upon these or other factors, its business and results of operations could be adversely affected.
Besi must introduce new products in a timely fashion and its success is dependent upon the market acceptance of these products.
The semiconductor equipment industry is subject to rapid technological change and new product introductions and enhancements. The success of Besi's business strategy and results of operations are largely based upon accurate anticipation of customer and market requirements. Besi's ability to implement its overall strategy and remain competitive will depend in part upon its ability to develop new and enhanced products and introduce them at competitive price levels in order to gain market acceptance. Besi must also accurately forecast commercial and technical trends in the semiconductor industry so that its products provide the functions required by its customers and are configured for use in
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their facilities. Besi may not be able to respond effectively to technological changes or to specific product announcements by competitors. As a result, the introduction of new products embodying new technologies or the emergence of new or enhanced industry standards could render Besi's existing products uncompetitive from a pricing standpoint, obsolete or unmarketable.
In addition, Besi is required to invest significant financial resources in the development of new products or upgrades to existing products and in its sales and marketing efforts before such products are made commercially available and before Besi is able to determine whether they will be accepted by the market. Revenue from such products will not be recognized until long after Besi has incurred the costs associated with designing, creating and selling such products. In addition, due to the rapid technological changes in its market, a customer may cancel or modify a product before it begins manufacture of the product and receives revenue from the customer. While Besi typically imposes a fee when its customers cancel an order, that fee may not be sufficient to offset the costs Besi incurred in designing and manufacturing such product. In addition, the customer may refuse or be unable to pay the cancellation fee Besi assesses. It is difficult to predict with any certainty the frequency with which customers will cancel or modify their projects or the effect that any cancellation or modification would have on Besi's results of operations.
Besi cannot provide any assurance that it will be successful in developing new or enhanced products in a timely manner or that any new or enhanced products that it introduces will achieve market acceptance.
Besi may not be able to protect its intellectual property rights which could make it less competitive and cause it to lose market share.
Although Besi seeks to protect its intellectual property rights through patents, trademarks, copyrights, trade secrets, confidentiality and assignment of invention agreements and other measures, there can be no assurance that it will be able to protect its technology adequately, that Besi's competitors will not be able to develop similar technology independently, that any of Besi's pending patent applications will be issued or that intellectual property laws will protect Besi's intellectual property rights. In addition, Besi operates internationally and intellectual property protection varies among the jurisdictions in which it conducts business. In certain jurisdictions, the prevention of theft or copying can be challenging. Litigation may be necessary in order to enforce Besi's patents, copyrights or other intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Litigation could result in substantial costs and diversion of resources, distract Besi's management from operating the business and could have a material adverse effect on its business and operating results.
In addition, third parties may seek to challenge, invalidate or circumvent any patent issued to Besi, the rights granted under any patent issued to Besi may not provide competitive advantages and third parties may assert that Besi's products infringe patents, copyrights or trade secrets of such parties. Also third parties may challenge, invalidate or circumvent technology which Besi licenses from third parties. If any party is able to successfully claim that Besi's creation or use of proprietary technology infringes upon their intellectual property rights, Besi may be forced to pay damages. In addition to any damages Besi may have to pay, a court could require Besi to stop the infringing activity or obtain a license which may not be available on terms which are favorable to Besi or at all.
Operational risks
Difficulties in forecasting demand for Besi's product lines may lead to periodic inventory shortages or surpluses.
Besi typically operates its business with limited visibility of future demand. As a result, it sometimes experiences inventory shortages or surpluses. Besi generally orders supplies and otherwise plans production based on internal forecasts for demand. Besi has in the past failed, and may fail again in the future, to accurately forecast demand for its products. This has led to, and may in the future lead to, delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If it fails to accurately forecast demand for its products, Besi's business, results of operations and financial condition may be materially and adversely affected.
Besi depends on its suppliers for critical raw materials, components and subassemblies on a timely basis. If suppliers do not deliver their products on a timely basis, particularly during a large order ramp, our revenue, customer relationships and market share could be materially and adversely affected.
Besi's assembly equipment, particularly its advanced packaging product lines, is highly complex and requires raw materials, components, modules and subassemblies having a high degree of reliability, accuracy and performance. Besi relies on subcontractors to manufacture many of these components and subassemblies and, in certain instances, on sole suppliers for such items, on a timely basis as our order ramps can be steep and industry cycle times are decreasing. As a result, Besi is exposed to a number of significant risks, including:
• Decreased control over the manufacturing process for components, modules and subassemblies.
• Changes in our manufacturing processes in response to changes in the market, which may delay our shipments.
• Potential for inadvertent use of defective or contaminated raw materials.
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• The relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, modules, components or parts in the volumes Besi requires and at acceptable quality levels, prices and timetables.
• The potential inability of suppliers to meet customer demand requirements during volatile cycles.
• Reliability or quality issues with certain key components, modules and subassemblies provided by single source suppliers as to which Besi may not have any short-term alternative.
• Shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including the COVID-19 pandemic, work stoppage or fire, earthquake, flooding or other natural disasters.
• Delays in the delivery of raw materials, modules or subassemblies, which, in turn, may delay shipments to our customers.
• Loss of suppliers as a result of consolidation of suppliers in the industry, bankruptcy or insolvency.
• The potential copying or theft of proprietary designs for unauthorized use or sale to third parties including competitors.
If Besi were unable to deliver products to its customers on time and at expected costs for these or any other reasons, or it were unable to meet customer expectations as to cycle time, or it were unable to maintain acceptable product quality or reliability, then its business relationships, market share, financial condition and operating results could be materially and adversely affected.
Undetected problems in Besi's products could directly impair its financial results.
If flaws in design, production, assembly or testing of its products (by Besi or its suppliers) were to occur, Besi could experience a rate of failure in its products that could result in substantial repair, replacement or service costs and potential damage to its reputation. Continued improvements in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors to Besi's future growth. There can be no assurance that Besi's efforts to monitor, develop, modify and implement appropriate tests and manufacturing processes for its products will be sufficient to permit it to avoid a rate of failure in its products that results in substantial delays in shipments, significant repair, replacement or service costs and/or potential damage to its reputation, any of which could have a material adverse effect on Besi's business, results of operations and financial condition.
Costs of product defects and errata (deviations from product specifications) due to, for example, problems in Besi's design and manufacturing processes could include:
• Writing off the value of inventory.
• Disposing of products that cannot be fixed.
• Retrofitting products that have been shipped.
• Providing product replacements or modifications.
• Defending against litigation.
Besi's use of global and diverse information technology systems could result in ineffective or inefficient business management and could expose it to security threats to its data resources and intellectual property.
Besi currently utilizes a variety of information technology ("IT") systems to run its global operations. At present, Besi's operations rely on a range of different software systems to manage its sales, administrative and production functions. Some of these systems are proprietary and others are purchased from third party vendors. In addition, some of these systems are maintained on-site by Besi personnel while others are maintained off-site by third parties.
Epoxy process engineer setting up recipe for new product at Besi Singapore.
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We maintain and rely extensively on IT systems and network infrastructures for the effective operation of our business and protection of our technological resources. We also hold large amounts of data in data center facilities around the world upon which our business depends. We could experience a disruption or failure of our systems, or of the third-party hosting facilities or other services that we use. Such disruptions or failures could include a major earthquake, fire, cyber-attack, act of terrorism or other catastrophic event, as well as power outages or telecommunications infrastructure outages, or a decision by one of our third-party service providers to close facilities that we use without adequate notice or other unanticipated problems with the third-party services that we use, including a failure to meet service standards. As a highly automated business, any such disruptions or failures could (i) result in the destruction or disruption of any of our critical business operations, controls or procedures, or IT systems, (ii) severely affect our ability to conduct normal business operations, including delaying completion of sales and provision of services, (iii) result in a material weakness in our internal control over financial reporting, (iv) harm our reputation and (v) adversely affect our ability to attract and retain customers, any of which could materially adversely affect our future operating results.
Besi believes that there has been a global increase in IT security threats and higher levels of professionalism in computer crime which pose a greater risk to the confidentiality, availability, distribution and integrity of its internal data and information. Besi relies on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential information. A disruption, infiltration or failure of our IT systems or any of our data centers could occur as a result of technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers, physical break-ins, the actions of state actors, industrial espionage, fraudulent inducement of employees, or customers to disclose sensitive information such as user names or passwords, and employee or customer error or malfeasance.
A security breach could result in unauthorized access to or disclosure, modification, misuse, loss, or destruction of our or our customer's data (including proprietary design information, intellectual property, or trade secrets). Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches and implement adequate preventative measures. Any security breach or successful denial of service attack could result in a loss of customer confidence in the security of our products and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, compromise our competitive technological position, require us to spend material resources to investigate or correct the breach, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and materially adversely affect our operating results.
Any significant disruption in Besi's operations could reduce the attractiveness of its products and result in a loss of customers.
The timely delivery and satisfactory performance of Besi's products are critical to its operations, reputation and ability to attract new customers and retain existing customers. Besi's administrative, design and systems manufacturing are located all over the world, including locations in the Netherlands, Malaysia, Singapore, Austria, China and Switzerland. Some of Besi's facilities are in locations that have experienced severe weather conditions, fire, natural disasters, flooding, political unrest and/or terrorist incidents. If the operations at any of its facilities were damaged or destroyed as a result of any of the foregoing, or as a result of other factors, Besi could experience interruptions in its service, delays in product deliveries and it would likely incur additional expense in arranging new production facilities which may not be available on timely or commercially reasonable terms, or at all. Any interruptions in Besi's operations or delays in delivering its products could harm its customer relationships, damage its brand and reputation, divert its employees' attention, reduce its revenue, subject it to liability and cause customers to cancel their orders, any of which could adversely affect Besi's business, financial condition and results of operations. It is unclear whether Besi's insurance policies would adequately compensate it for any losses that it would incur as the result of a production or service disruption or delay.
Besi is largely dependent upon its international operations.
Besi has manufacturing and/or sales and service facilities and personnel in the Netherlands, Austria, Malaysia, Korea, Hong Kong, Singapore, China, the Philippines, Taiwan, Thailand, Switzerland and the United States. Its products are marketed, sold and serviced worldwide. In addition, 90% of its sales in 2020 were to customers outside of Europe and 69% of its employees were located in facilities outside of Europe at year end 2020.
Besi's operations are subject to risks inherent in international business activities including, in particular:
• General economic, banking and political conditions in each country.
• The overlap of different tax structures and potentially conflicting interpretations of tax regulations.
• Management of an organization spread over various countries.
• Currency fluctuations which could result in increased operating expenses and reduced revenue and foreign currency controls.
• Greater difficulty in accounts receivable collection and longer collection periods.
• Difficulty in enforcing or adequately protecting Besi's intellectual property in foreign jurisdictions.
• Unexpected changes in regulatory requirements, compliance with a variety of foreign laws and regulations, including restrictions on immigration, travel, or availability of visas, including restrictions imposed in response to the COVID-19 pandemic.
• Less developed and predictable legal systems.
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• Tariffs, import and export licensing requirements, trade restrictions, restrictions on foreign investments and changes in freight rates.
• Political unrest and terrorist activities in the countries in which it operates.
• Ethical issues such as corruption, bribery and human rights violations.
Also each region in the global semiconductor equipment market exhibits unique characteristics that can cause capital equipment investment patterns to vary significantly from period to period.
Besi's Asian operations represented approximately 83% of its revenue in 2020 and 68% of its employees at year end 2020. Geographically focused disruptions or failures, such as natural disasters, acts of terrorism, geopolitical conflict or other localized catastrophic events as well as power outages or telecommunications infrastructure outages in our Asian operations could have a material adverse effect on our business and results of operations.
In addition, compliance with foreign laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include anti-bribery laws and local laws prohibiting corrupt payments to governmental officials. Although we have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners, and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products and services to one or more countries, and could also materially damage our reputation and our brand.
Recent regulations and increased customer focus on the usage of conflict minerals in product supply chains may force us to incur additional expenses, make our supply chain more complex and result in damage to Besi's customer reputation.
US, European and Chinese regulatory authorities have established initiatives with respect to the usage by corporations of certain minerals and metals, known as conflict minerals, in their products, regardless of whether these products are manufactured by third parties. These regulations require companies to conduct due diligence and disclose whether such minerals originate from the Democratic Republic of Congo ("DRC") and/or certain adjoining countries. The implementation of such regulations could adversely affect the sourcing, availability and pricing of minerals used in the manufacture and assembly of semiconductor devices. However, since Besi's supply chain is complex, verification of the origins of these materials in our products through such due diligence procedures initiated by us may be difficult and costly and may not be possible at all, which may harm Besi's reputation. In such event, we may also face difficulties in satisfying customers who require that all our
product components be certified as conflict-free.[Please refer to Besi's Conflicts Mineral and Supply Chain Policy in the ESG section of this Annual Report.
Besi is subject to environmental rules and regulations in a variety of jurisdictions.
We are subject to a variety of governmental regulations related to the use, storage, discharge and disposal of chemical by-products of, and water used in, our manufacturing processes. Environmental claims or the failure to comply with any present or future regulations could result in the assessment of damages or imposition of fines against Besi, the suspension of production or the cessation of operations. New regulations could require us to acquire costly equipment or to incur other significant expenses. Any failure by us to control the use or adequately restrict the discharge of hazardous substances could subject Besi to future liabilities.
Our business may be harmed if we fail to attract and retain qualified personnel.
Besi's future success depends in significant part on the continued contribution of its senior executive officers and key employees including a number of specialists with advanced university qualifications in engineering, electronics, software and computing. In addition, we need to ensure that we can attract and retain other qualified management, technical, sales and support personnel for operations, particularly to help expand Asian production and technical capabilities.
Besi's business and future operating results also depend on the continuous monitoring and adjustment of our Asian production capacity given increased seasonal influences on order rates. We believe that our ability to increase the manufacturing capacity of subsidiaries has from time to time been constrained by the limited number of available skilled technical and production personnel. Competition for such personnel is intense and competition may be amplified by evolving and periodic restrictions on immigration, travel or availability of visas for skilled technology workers, including restrictions imposed in response to the COVID-19 pandemic. The loss of any key executive or employee or the inability to attract and retain skilled executives and employees as needed could adversely affect our business, financial condition and results of operations.
Asian production and personnel expansion could expose us to additional risks related to corruption and human rights issues in the region.
In recent years, we have significantly increased our production, engineering and supply chain capabilities in Asia (Malaysia, China and Singapore) to increase Besi's local presence and make our operations more efficient. Asian personnel represented 68% of our total headcount at year end 2020 and revenue from Asian customers represented approximately 83% of consolidated revenue. As a more active Asian participant, we may be confronted with issues of corruption and human rights violations which are significant topics in the region. In addition, our expanded operations in Asia could expose us to the risk of fraud or bribery in our supply chain activities.
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Financial risks |
Besi's historical financial results have fluctuated significantly and may continue to do so in the future.
Besi's quarterly revenue, orders and operating results have fluctuated significantly in the past and may continue to do so in the future. Besi believes that period to period comparisons of its operating results are not necessarily indicative of future operating results. Factors that have caused Besi's operating results to fluctuate in the past and which are likely to affect them in the future, many of which are beyond its control, include the following:
• The impact of the COVID-19 pandemic on our customers, suppliers and employees.
• Global macroeconomic trends and geopolitical events which may influence levels of gross domestic product, purchasing power and consumer confidence of various regions, including both developed and lesser developed countries, and may affect the willingness of our customers to invest in new production capacity.
• The number and frequency of new electronics introductions, particularly for retail applications such as mobile, computing and automotive end-user markets.
• The volatility and seasonality of the semiconductor industry and its impact on semiconductor equipment suppliers.
• Industry capacity utilization, pricing and inventory levels.
• The timing of new customer device introductions and production processes which could require the addition of new assembly equipment capacity.
• The length of sales cycles and lead-times associated with Besi's product offerings.
• The timing, size and nature of Besi's transactions.
• The financial health and business prospects of Besi's customers.
• The impact on potential orders from consolidation trends among semiconductor producers.
• The proportion of semiconductor demand represented by corporate and retail end-user applications.
• Besi's ability to scale its operations on a timely basis consistent with demand for its products.
• The ability of Besi's suppliers to meet its needs for products on a timely basis.
• The success of Besi's research and development activities.
• The market acceptance of new products or product enhancements by Besi or its competitors.
• The timing of new personnel hires and the rate at which new personnel becomes productive.
• Changes in pricing policies by Besi's competitors.
• Changes in Besi's operating expenses.
• Besi's ability to adequately protect its intellectual property.
• Besi's ability to integrate any future acquisitions and any restructuring charges related thereto.
• The fluctuation of foreign currency exchange rates.
Because of these factors, investors should not rely on quarter to quarter comparisons of Besi's results of operations as an indication of future performance. In future periods, Besi's results of operations could differ from estimates of public market analysts and investors. Such discrepancies could cause the market price of its securities to decline.
Besi's orders at any particular date may not be indicative of its future operating results.
Besi's orders aggregated € 472.1 million in 2020. Orders are subject to customer cancellation at any time upon payment of a negotiated cancellation fee. During market downturns, semiconductor manufacturers historically have cancelled or deferred additional equipment purchases. Besi's bookings may also be influenced by seasonal factors which typically cause order levels to decline in the second half of the year from peak levels reached in the first half year. Orders can also be affected by customer cancellations. For example, orders declined by 34.8% in the second quarter of 2018 versus the first quarter of 2018 primarily due to the cancellation by a single customer of € 28 million in orders.
Because of the possibility of changes in delivery schedules, expedited cycle times, cancellations and delays in product shipments, Besi's orders at any particular date may not be representative of actual revenue for any succeeding period. Besi's current and future dependence on a limited number of customers increases the revenue impact of each customer's delay or deferral activity.
Final testing of the first AMS-X machine at the Besi Netherlands site in Duiven for shipment to a customer in Thailand.
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Besi may not be able to adjust its costs and overhead levels quickly enough to offset revenue declines that it may experience in the future.
Besi's business is characterized by high fixed cost levels, including personnel, facility and general and administrative costs as well as expenses related to the maintenance of its manufacturing equipment. Besi's expense levels in future periods will be based, in large part, on its expectations regarding future revenue sources and, as a result, its operating results for any given period in which material orders fail to occur, are delayed or deferred could vary significantly. Due to the nature of such fixed costs, Besi may not be able to reduce its fixed costs sufficiently or in a timely manner to offset any future revenue declines. Besi's inability to align revenue and expenses in a timely and sufficient manner will have an adverse impact on its gross margins and results of operations.
A limited number of customers have accounted for a significant percentage of Besi's revenue, and its future revenue could decline if it cannot maintain or replace these customer relationships.
Historically, a limited number of Besi's customers have accounted for a significant percentage of its revenue. In 2020, two customers represented 10.9% and 10.0% of Besi's revenue and its largest 10 customers accounted for 50.5% of its revenue. Besi anticipates that its results of operations in any given period will continue to depend to a significant extent upon revenue from a relatively limited number of customers. In addition, Besi anticipates that the composition of such customers will continue to vary from year to year so that the achievement of its long-term goals will require the maintenance of relationships with existing customers and obtaining additional customers on an ongoing basis. Besi's failure to enter into and realize revenue from a sufficient number of customers during a particular period could have a significant adverse effect on Besi's revenue.
In addition, there are a limited number of customers worldwide interested in purchasing semiconductor manufacturing equipment and an even more limited number of major customers and supply chains for specific end market applications such as smart phones, tablets, wearables, laptops, computers and automotive electronics. As a result, if only a few potential customers were to experience financial difficulties or file for bankruptcy protection or if there were further customer or supply chain consolidation, the semiconductor equipment manufacturing market as a whole, and Besi's revenue and results of operations specifically, could be negatively affected.
Besi's results of operations have in the past and could in the future be affected by currency exchange rate fluctuations.
The following tables set forth Besi's revenue and costs and expenses by principal functional currency for 2020, 2019 and 2018:
Besi's principal reporting currency is the euro. In 2020, 2019 and 2018, Besi's revenue denominated in euro represented 27%, 32% and 33% of its total revenue, respectively, while its costs and expenses denominated in euro represented 31%, 33% and 29%, respectively, each year. The majority of its revenue is denominated in US dollars while in 2020, its costs were denominated in a variety of European and Asian currencies. In 2020, 59% of Besi's costs and expenses were denominated in Malaysian ringgit and euro. The remainder of its costs were primarily represented by the Swiss franc, Chinese yuan, US dollar and Singapore dollar.
Due to its global operations and differences in the foreign currency composition of its revenue and costs and expenses, Besi's results of operations could be adversely affected by fluctuations in the values of, and the relationships between, the euro, the US dollar, Swiss franc, Malaysian ringgit, Chinese yuan and Singapore dollar. Besi seeks to manage its exposure to currency fluctuations in part by hedging firmly committed sales contracts denominated in US dollars. While management will continue to monitor its exposure to currency fluctuations and may use financial hedging instruments to minimize the effect of these fluctuations, Besi cannot assure that exchange rate fluctuations will not have a material adverse effect on its results of operations or financial condition.
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Besi's principal competitors are domiciled in countries utilizing primarily US dollars and/or Japanese yen as their principal currencies for the conduct of their operations. Besi believes that a decrease in the value of the US dollar and US dollar linked currencies or Japanese yen in relation to the euro could lead to intensified price-based competition in its markets resulting in lower prices and margins and could have a negative impact on its business and results of operations.
Our business, reputation and financial position may be harmed by unethical behavior and non-compliance with Besi's Code of Conduct.
Besi seeks to conduct its business in accordance with internationally recognized standards and best practices. We have adopted social, ethical and environmental standards for our operations that typically exceed minimum legal and regulatory compliance levels and applied European social and ethical standards wherever possible. Besi has established a Code of Conduct which governs the behavior of our employees worldwide on matters such as corruption and human rights behavior as well as integrity and ethical behavior, all of which are important values to the Company.
However, we might still encounter unethical behavior and breaches to our Code of Conduct due to intentional fraudulent behavior by individual employees. Issues can arise unintentionally as well as from a lack of adherence to appropriate rules and regulations. Unethical behavior and misconduct could lead to fines, penalties and claims by injured parties as well as material financial loss and damage to the reputation of Besi and its stakeholders.
Ordinary share related risks
Anti-takeover provisions could delay or prevent a change of control including a takeover attempt that might result in a premium over the market price for Besi's ordinary shares.
Besi's articles of association provide for the possible issuance of preference shares. In April 2000, Besi established the foundation "Stichting Continuïteit BE Semiconductor Industries" (the "Foundation") whose board consists of four members, three of whom are independent of Besi. Besi has granted the Foundation a call option pursuant to which the Foundation may purchase preference shares in a maximum amount equal to the total number of Besi's ordinary shares outstanding at the time of exercise of the option minus one. If the Foundation were to exercise the call option, it may result in delaying or preventing a takeover attempt including a takeover attempt that might result in a premium over the market price for Besi's ordinary shares.
We may not declare dividends at all or in any particular amount in any given year.
Besi aims to pay an annual dividend in accordance with its dividend policy and seeks to increase its annual dividend over time. On an annual basis, the Board of Management (with Supervisory Board approval) will submit a proposal for approval at the Annual General Meeting of Shareholders with respect to the amount of dividend to be declared for the prior financial year. The proposal in any given year will be subject to (i) Besi's review of its annual and prospective financial performance and liquidity and financing needs, the prevailing market outlook, its strategy, market position and acquisition strategy and/or (ii) a target dividend payout ratio in the range of 40-100% relative to net income to be adjusted accordingly if the factors referred to under (i) so require.
Accordingly, the Board of Management may decide not to pay a dividend, or a lower dividend, with respect to any particular year in the future which could have a material adverse effect on the price of Besi's ordinary shares.
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Shareholder Information
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Shareholder Information
Euronext Amsterdam listing
Besi's ordinary shares are listed on Euronext Amsterdam and are included in the Euronext AMX index. The stock symbol is BESI and the ISIN code is NL0012866412.
At December 31, 2020 2019
Number of ordinary shares, net of shares held in treasury
72,865,911
72,212,422
Average daily shares traded* 695,213 809,816
Highest closing price (in euro)
Lowest closing price (in euro)
Year end share price (in euro)
* Includes Euronext and all secondary markets.
49.58 35.12 21.33 17.50 49.58 34.46
BESI MARKET INFORMATION
Symbol/Index |
|
Market Cap* |
|
Dividend Policy |
|
* As of December 31, 2020.
AVERAGE DAILY VOLUME AND LIQUIDITY
Nasdaq International Designation
Besi's Level 1 ADRs are traded in the OTC markets (symbol: BESIY) and have participated in the Nasdaq International Designation program since December 2015. Investors in Besi's Level 1 ADRs can find real-time quotes, news and financial information about Besi atwww.nasdaq.com.
Convertible Note listings
At December 31, 2020, Besi had outstanding € 110 million of 2.5% Senior Unsecured Convertible Notes due 2023 (the "2016 Convertible Notes"), € 175 million of 0.5% Senior Unsecured Convertible Notes due 2024 (the "2017 Convertible Notes") and € 150 million of 0.75% Senior Unsecured Convertible Notes due 2027 (the "2020 Convertible Notes"), all of which are listed on Deutsche Börse's Freiverkehr market (ISIN XS1529879600, XS1731596257 and XS2211511949, respectively),www.boerse-frankfurt.de.
Besi's equity structure
At the Annual General Meeting of Shareholders on April 26, 2018, the General Meeting of Shareholders approved a stock split of Besi's shares which was effectuated on May 4, 2018 whereby each issued ordinary share was split into two shares. Besi's authorized share capital now consists of 160,000,000 ordinary shares and 160,000,000 preference shares. In October 2020, Besi cancelled 1.5 million of its 7.4 million ordinary shares held in treasury. At December 31, 2020, the number of issued and outstanding ordinary shares was 78,567,842 of which Besi held 5,701,931 shares in treasury.
The foundation "Stichting Continuïteit BE Semiconductor Industries" (the "Foundation") has been granted an option to acquire preference shares, which would, if the option were exercised, allow the Foundation to acquire a maximum of 50% of the total issued share capital including the preference shares.
Volume (thousands)
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
1,199
2020
2016
2017
Avg. Daily VolumeLiquidity
2018
Issuance of ordinary shares and pre-emptive rights
Avg Vol * Avg Price (€ thousands)
32,000
27,500
22,000
16,500
11,000
5,500
0
2019
Ordinary shares may be issued pursuant to a resolution of the General Meeting of Shareholders. The General Meeting of Shareholders may grant the authority to issue ordinary shares to the Board of Management for a maximum period of five years. After such designation, the Board of Management may determine the issuance of ordinary shares subject to the approval of the Supervisory Board. The foregoing applies accordingly to the granting of rights to subscribe for ordinary shares but shall not be applicable to the issuance of ordinary shares to a party exercising a previously acquired right to subscribe for ordinary shares.
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Currently, the General Meeting of Shareholders has delegated its authority to the Board of Management until May 14, 2022, subject to the approval of the Supervisory Board, to issue ordinary shares and grant rights to subscribe for ordinary shares up to a maximum of 10% of Besi's issued share capital as at April 30, 2020.
Holders of ordinary shares have a pro-rata, pre-emptive right in relation to any ordinary shares issued, which right may be limited or excluded. Such shareholders have no pro-rata pre-emptive right with respect to (i) any ordinary shares issued against contributions other than in cash, (ii) any issuance of preference shares, or (iii) any ordinary shares issued to employees (including members of the Board of Management). The foregoing applies accordingly to the granting of rights to subscribe for ordinary shares but shall not be applicable to the issuance of ordinary shares to a party exercising a previously acquired right to subscribe for ordinary shares. On the basis of a designation by the General Meeting of Shareholders, the Board of Management has the power, subject to the approval of the Supervisory Board, to limit or exclude the pre-emptive right in relation to any ordinary shares issued and rights to subscribe for ordinary shares granted until May 14, 2022, subject to the 10% maximum as described above. The designation may be renewed for a maximum period of five years. In the absence of such designation, the General Meeting of Shareholders has the power to limit or exclude such pre-emptive right.
Issuance of preference shares
The provisions in Besi's articles of association for the issuance of preference shares are similar to the provisions for the issuance of ordinary shares described herein. However, an issuance of preference shares will require the prior approval of the General Meeting of Shareholders if it would result in an outstanding number of preference shares exceeding 100% of the number of outstanding ordinary shares and the issuance is effected pursuant to a resolution of a corporate body other than the General Meeting of Shareholders, such as the Board of Management. Furthermore, within two years after the first issuance of such preference shares, a General Meeting of Shareholders will be held to determine the repurchase or cancellation of the preference shares. If no resolution to repurchase or cancel the preference shares is adopted, another General Meeting of Shareholders with the same agenda must be convened and held within two years after the previous meeting and this meeting will be repeated until no more preference shares are outstanding. This procedure does not apply to preference shares that have been issued pursuant to a resolution by the General Meeting of Shareholders.
In connection with the issuance of preference shares, it may be stipulated that an amount not exceeding 75% of the nominal amount ordinarily payable upon issuance of shares may be paid only if the Company requests payment.
Besi's virtual AGM on April 30, 2020.
The Foundation
Under the terms of an agreement entered into in April 2002 between the Company and the Foundation, the Foundation has been granted a call option, pursuant to which it may purchase a number of preference shares up to a maximum of the total number of outstanding ordinary shares at the time of exercise of the option minus one. This call option agreement was revised in May 2008 to comply with applicable laws. The purpose of the Foundation is to safeguard the interests of the Company, the enterprise connected therewith and all the parties having an interest therein and to exclude as much as possible influences which could threaten, among other things, the Company's continuity, independence and identity. Until the call option is exercised by the Foundation, it can be revoked by the Company, with immediate effect. The aim of the preference shares is, amongst other things, to provide a protective measure against unfriendly take-over bids and other possible influences that could threaten the Company's continuity, independence and identity, including, but not limited to, a proposed resolution to dismiss the Supervisory Board or the Board of Management.
The Foundation was established in April 2000. The board of the Foundation currently consists of four members, three of whom are independent of Besi and one of whom is a former member of the Supervisory Board. Please refer to the chapter Other Information for additional information about the Foundation and its board members.
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Voting rights |
Each share (whether it is an ordinary share or a preference share) carries the right to cast one vote. Resolutions by the General Meeting of Shareholders require the approval of an absolute majority of votes validly cast, unless otherwise required by Dutch law or Besi's articles of association.
Repurchase and cancellation of shares
The Board of Management may cause the Company to repurchase for consideration any class of shares in its own share capital which have been paid-up, subject to certain provisions of Dutch law and Besi's articles of association, if (i) the shareholders' equity less the payment required to make the acquisition does not fall below the sum of the paid-up and called part of the issued share capital and any reserves required to be maintained by Dutch law or Besi's articles of association and (ii) the Company and its subsidiaries would thereafter not hold shares (in pledge) with an aggregate nominal value exceeding 50% of the Company's issued share capital. Shares held by the Company or any of its subsidiaries will have no voting rights and the Company may not receive dividends on shares it holds in its own share capital. Any such repurchases may only take place if the General Meeting of Shareholders has granted the Board of Management the authority to effect such repurchases, which authorization may apply for a maximum period of 18 months. The Board of Management, with the approval of the Supervisory Board, is currently authorized to repurchase up to 10% of Besi's issued share capital as at April 30, 2020 through October 30, 2021.
FC Quantum software engineers testing new features in the lab at Besi Singapore.
Upon a proposal of the Board of Management, with the approval of the Supervisory Board, the General Meeting of Shareholders has the power to reduce the Company's issued share capital by means of cancelling shares held in treasury or by reducing the nominal value of the shares by way of an amendment of the Company's articles of association. Any such proposal is subject to the relevant provisions of Dutch law and Besi's articles of association. Upon the proposal of the Board of Management, with the approval of the Supervisory Board, the General Meeting of Shareholders agreed to authorize the cancellation of ordinary shares held in treasury of up to a maximum of 10% of the Company's issued share capital as at April 30, 2020. In accordance therewith, the Board of Management was authorized to determine the exact number of ordinary shares to be so cancelled. Pursuant to this resolution, Besi cancelled 1.5 million of its 7.4 million ordinary shares held in treasury during October 2020.
Change of control provisions in significant agreements
Each of Besi's 2016, 2017 and 2020 Convertible Notes contain change of control provisions under which in the event of a change of control of Besi (as defined), the holder of a Convertible Note will have the right to require Besi to redeem that Convertible Note at 100% of its principal amount together with accrued and unpaid interest thereon. In addition, Besi's revolving credit facility entered into in July 2019 with a consortium of banks contains a provision requiring the repayment of all borrowings outstanding upon a change of control of Besi (as defined) at 100% of its principal amount outstanding. At December 31, 2020, there was no change of control provision contained in any other of Besi's material agreements.
Dividend policy
Besi considers the payment of dividends on an annual basis based upon (i) a review of its annual and prospective financial performance, liquidity and financing needs, the prevailing market outlook and Besi's strategy, market position and acquisition strategy and/or (ii) a dividend payout ratio in the range of 40-100% relative to net income to be adjusted if the factors referred to under (i) so require.
Due to Besi's earnings and cash flow generation in 2019, the Board of Management, with the approval of the Supervisory Board, proposed and Besi paid a cash dividend to shareholders equal to € 1.01 per share for 2019 which resulted in cash payments to shareholders of € 73.5 million. Due to Besi's earnings and cash flow generation in 2020, the Board of Management will, with the approval of the Supervisory Board, propose a cash dividend to shareholders equal to € 1.70 per share for 2020 for approval at Besi's Annual General Meeting of Shareholders to be held on April 30, 2021. The payments for the year 2019 and proposed for the year 2020 represent a dividend payout ratio relative to net income of 90% and 94%, respectively.
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Ownership interests in the ordinary shares
Under the Dutch Financial Supervision Act (Wet op het financieel toezicht, "Wft"), the following parties have notified the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, "AFM") of their share interests in the Company equal to or exceeding 3%:
BlackRock, Inc.
BE Semiconductor Industries N.V. Wellington Management Group LLP
Capital Research and Management Company Goldman Sachs Group, Inc.
Schroders Plc
1 Voting rights as per the filing were 12.79%.
Notification effective
February 8, 2021
October 1, 2020
January 11, 2021
February 15, 2021
2 As of December 31, 2020, the Company holds 7.3% in treasury shares.
3 Represents voting rights held by the institution as per the AFM filing.
The Company's investor outreach also includes meetings with retail investors, research analysts, private investors, journalists and media outlets to help communicate the Besi story to the investment community and general public. Shareholders are also engaged through quarterly and annual conference calls and participation at Besi's Annual General Meeting of Shareholders.
April 16, 2011
July 23, 2020
Share interest
12.39% 1
4.96% 3
4.90% 3
3.19%
3.07% 3
5.12% 2
Investors in Europe and North American markets are increasingly considering sustainability and Environmental, Social and Governance ("ESG") themes as part of their investment process. Investors are requesting more ESG information from us than in previous years particularly in the areas of conflict minerals, climate change, fossil fuels, direct emissions and human rights within the supply chain. Shareholders expect Besi to protect their investment and provide a competitive return on invested capital while operating in a sustainable and responsible manner as a good corporate citizen. Besi has engaged in important face to face dialogue with such stakeholders and received valuable feedback about its business and ESG issues in its 2020 investor relations program.
Important investor relations dates in 2021 that are currently planned (subject to change) are as follows:
A list of share and voting interests in the Company of 3% or more can be found on the AFM | April 30, 2021 | 2021 first quarter results |
website:www.afm.nl. | April 30, 2021 | Annual General Meeting of Shareholders at 10.00 a.m. |
July 27, 2021 | 2021 second quarter results | |
Analysts | October 26, 2021 | 2021 third quarter results |
The following sell side analysts cover Besi's shares: | February 2022 | 2021 fourth quarter and annual results |
ABN AMRO | Stéphane Houri | Prevention insider trading |
Arete Research | Martin Alipiev | Besi has implemented a Code of Conduct governing the use of inside information by the |
Berenberg | Trion Reid | members of the Supervisory Board, the member of the Board of Management and any |
Bryan, Garnier & Co. | Frédéric Yoboué | other designated persons, including key staff members. In addition, there is a separate |
Degroof Petercam | Michael Roeg | Code of Conduct governing the use of inside information by Besi employees generally. |
Deutsche Bank | Rob Sanders | Designated persons have agreed in writing to observe the relevant Code of Conduct |
ING | Marc Hesselink | concerning the reporting and regulation of transactions in Besi securities (and other |
Insinger Gilissen | Jos Versteeg | designated securities) and the treatment of price-sensitive information. Besi has appointed |
Kempen | Nigel van Putten | a compliance officer who is responsible for monitoring compliance with the Codes of |
Kepler Cheuvreux | Peter Olofsen | Conduct and communication with the AFM. |
Investor relations | Besi Incentive Plan | |
Besi may grant performance shares on an annual conditional basis to the member of the | ||
Board of Management, key employees and officers under the current Besi Incentive Plan. | ||
Further information on this subject is given in the Remuneration Report. |
Besi uses a range of activities to initiate and maintain contact with investors. After publication of its annual and quarterly results, roadshows are held in Europe and the United States to meet existing and potential new institutional investors. Planned roadshows and presentations can be found on the Besi website. Contacts with institutional investors are further maintained by means of conference calls, conferences and investor visits.
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Besi share price development
TOTAL SHAREHOLDER RETURN
REPORT OF THE SUPERVISORY BOARD
2020 Total Shareholder Return* Besi vs. Peer Group and SOX Index
60.0%52.9%
BesiPeer Group Average
PHLX Semiconductor (SOX)
• Total shareholder return includes reinvestment of dividends.
BOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS
Total Cumulative Shareholder Return* Besi vs. SOX Index 2016-2020
700%
600% 500% 400% 300% 200% 100% 0.0%
584.3%
BesiPeer Group AveragePHLX Semiconductor (SOX)
• Besi returns calculated in euro. Philadelphia SOX returns calculated in US dollars.
• Peer group average consists of Kulicke & Soffa, ASM PT, Disco Corp., Towa, Tokyo Seimitsu.
Source: Morningstar
FINANCIAL STATEMENTS 2020
BESI'S SHARE PRICE VS. SOX INDEX AND STOXX EUROPE 600 INDEX (Since January 1, 2018 until December 31, 2020; rebased to 100)
225
125
+123.1%
25
Jan-18
Mar-18
Besi
Source: Capital iQ
Jun-18
Sep-18
Dec-18
Mar-19
SOXSTOXX Europe 600
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
BESI'S SHARE PRICE VS. SOX INDEX AND STOXX EUROPE 600 INDEX (Since January 1, 2020 until December 31, 2020; rebased to 100)
150
100
50
Jan-20
Feb-20
Besi
Source: Capital iQ
Mar-20
Apr-20
May-20
SOXSTOXX Europe 600
Sep-20
Dec-20
+51.1%
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
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Corporate Governance
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Corporate Governance
Besi acknowledges the importance of good corporate governance, the most important elements of which are transparency, independence and accountability. Important corporate governance developments in applicable jurisdictions are followed closely and rules are implemented where appropriate.
Besi's ordinary shares are listed on Euronext Amsterdam. Accordingly, Besi complies with all applicable listing rules of Euronext Amsterdam.
Besi applied the Dutch Corporate Governance Code as revised in 2016. Deviations from the Dutch Corporate Governance Code are explained below under Explanation of Deviations from the Dutch Corporate Governance Code. The Dutch Corporate Governance Code can be found atwww.mccg.nl.
Board of Management
The role of the Board of Management is to manage the Company and its affiliated enterprises and to ensure their continuity, which includes, among other things, (i) the formulation of a long-term value creation strategy, (ii) the identification, analysis and management of the risks inherent in the business and associated with the long-term value creation strategy and initiatives related thereto, (iii) the establishment of Besi's risk appetite and implementation of measures necessary to mitigate any risks undertaken and (iv) a due regard for environmental, social and governmental issues that are relevant to Besi and the global communities in which it operates.
In discharging their role, members of the Board of Management shall be guided by the interests of the Company and its affiliated enterprises as well as the interests of the Company's shareholders and other stakeholders. Members of the Board of Management are required to put the interests of the Company ahead of their own interests and to act critically and independently when carrying out their responsibilities. The Board of Management is also charged with establishing and maintaining internal procedures which ensure that all relevant information is provided to the Board of Management and the Supervisory Board in a timely manner.
The Company's articles of association provide that certain resolutions of the Board of Management require the prior approval of the Supervisory Board. Pursuant to Dutch law and the Company's articles of association, any decisions of the Board of Management involving a major change in the identity or character of the Company and/or its affiliated enterprises are subject to the approval of the General Meeting of Shareholders.
Appointment and replacement of members of the Board of Management
Members of the Board of Management are appointed by the General Meeting of Shareholders. A resolution of the General Meeting of Shareholders to appoint a member ofthe Board of Management requires an absolute majority of the votes validly cast in the event and to the extent the appointment occurs pursuant to, and in accordance with, a proposal of the Supervisory Board. Such resolution requires at least two thirds of the votes validly cast representing more than one third of the issued share capital in the event and to the extent the appointment does not occur pursuant to, and in accordance with, a proposal thereto of the Supervisory Board.
Members of the Board of Management may at any time be suspended or dismissed by the General Meeting of Shareholders. A resolution for suspension or dismissal of a member of the Board of Management requires an absolute majority of the votes validly cast in the event and to the extent the suspension or dismissal occurs pursuant to, and in accordance with, a proposal of the Supervisory Board. Such resolution requires at least two thirds of the votes validly cast representing more than one third of the issued share capital in the event and to the extent the suspension or dismissal does not occur pursuant to, and in accordance with, a proposal thereto of the Supervisory Board. Members of the Board of Management may also be suspended by the Supervisory Board.
Remuneration Report
The Remuneration Report is included in a separate section in this Annual Report.
Conflicts of interest - members of the Board of Management
Any appearance of a conflict of interest between the Company and members of the Board of Management should be prevented. If a member of the Board of Management has a direct or indirect personal conflict of interest with the Company, he or she shall not participate in the deliberations and the decision-making process of the Board of Management for such matter. If, as a result thereof, no resolution of the Board of Management can be adopted, the resolution may be adopted by the Supervisory Board. No conflict of interest of material significance to Besi and/or the member of the Board of Management was reported in 2020.
Supervisory Board
The role of the Supervisory Board is to supervise the policies executed by the Board of Management and the general affairs of the Company and its affiliated enterprises and to assist the Board of Management by providing advice. In discharging their role, Supervisory Board members shall be guided by the interests of Besi and its affiliated enterprises as well as the interests of Besi's shareholders and other stakeholders. Supervisory Board members are required to put the interests of Besi ahead of their own interests and to act critically and independently vis-a-vis one another, the Board of Management and any particular third party interests involved. Further, the Supervisory Board also has due regard for environmental, social and governmental issues that are relevant to Besi. The Supervisory Board annually evaluates its own functioning.
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Each member of the Supervisory Board is currently considered independent within the meaning of best practice provision 2.1.8 of the Dutch Corporate Governance Code. Each Supervisory Board member has the specific expertise required for the fulfilment of his or her duties. The composition of the Supervisory Board shall be such that the requisite expertise, background, competencies and independence are present for it to carry out its duties properly. The Supervisory Board shall aim for a diverse composition with respect to experience, background, competencies, education, nationality, age and gender. A Supervisory Board member shall be reappointed only after careful consideration. The profile criteria referred to above shall also be taken into account in the event of a reappointment.
Regulations governing the Supervisory Board ("Regulations Supervisory Board") are posted on Besi's website:www.besi.com.
Appointment and replacement of members of the Supervisory Board
Members of the Supervisory Board are appointed with due observance of the requisite profile for the size and composition as adopted by the Supervisory Board from time to time, subject to the provisions of Dutch law and Besi's articles of association.
Members of the Supervisory Board are appointed by the General Meeting of Shareholders. A resolution for appointment requires an absolute majority of the votes validly cast in the event and to the extent the appointment occurs pursuant to, and in accordance with, a proposal of the Supervisory Board. Such resolution requires at least two thirds of the votes validly cast representing more than one third of the issued share capital in the event and to the extent the appointment does not occur pursuant to, and in accordance with, a proposal thereto of the Supervisory Board.
Members of the Supervisory Board may be suspended or dismissed at any time by the General Meeting of Shareholders. A resolution for suspension or dismissal requires an absolute majority of the votes validly cast in the event and to the extent the suspension or dismissal occurs pursuant to, and in accordance with, a proposal of the Supervisory Board. A resolution for suspension or dismissal requires at least two thirds of the votes validly cast representing more than one third of the issued share capital in the event and to the extent the suspension or dismissal does not occur pursuant to, and in accordance with, a proposal thereto of the Supervisory Board.
Supervisory Board committees
The Supervisory Board has two committees: the Audit Committee and the Remuneration and Nomination Committee. The function of the committees is to prepare and facilitate the decision-making of the Supervisory Board. The terms of reference of the committees are posted on Besi's website:www.besi.com.
Remuneration Supervisory Board
The General Meeting of Shareholders shall determine the Remuneration of the Supervisory Board members with due observance of the Remeration Policy for the Supervisory Board that was adopted at the Annual General Meeting of Shareholders held on April 30, 2020. The remuneration of the members of the Supervisory Board is fixed and does not depend on the results of the Company. In addition, Besi does not grant Supervisory Board members any personal loans, guarantees or advance payments. The Remuneration Report contains the information prescribed by applicable law on the level and structure of the remuneration of individual Supervisory Board members.
Further, none of the members of the Supervisory Board personally maintains a business relationship with Besi other than as a member of the Supervisory Board. As at December 31, 2020, none of the members of the Supervisory Board owned shares of the Company.
Conflicts of interest - members of the Supervisory Board
Any appearance of a conflict of interest between the Company and Supervisory Board members should be prevented. If a member of the Supervisory Board has a direct or indirect personal conflict of interest with the Company, he or she shall not participate in the deliberations and the decision-making process of the Supervisory Board for such matter. The Supervisory Board is responsible for resolving conflicts of interest regarding members of the Board of Management, members of the Supervisory Board and majority shareholders. If all members of the Supervisory Board are conflicted, then the Supervisory Board shall remain authorized to adopt resolutions. No conflicts of interest of material significance to Besi and/or the members of the Supervisory Board were reported in 2020.
Diversity
The Supervisory Board has a diverse composition in terms of experience, background, competencies, education and nationality and is on all those points in line with the objectives of its profile and diversity policy. Although gender diversity is high on the agenda, the Supervisory Board's current composition of an 80/20 male/female ratio is not in compliance with its profile and diversity policy pursuant to which it is the Supervisory Board's aim to achieve that at least one third of its members are men and at least one third of its members are women, nor in compliance with the pending legislative proposal introducing a diversity quota. Diversity in general and gender diversity in particular are important factors in the selection process of Supervisory Board candidates. When considering new candidates, the Supervisory Board will retain an active and open attitude with respect to the selection of female candidates. Gender is, however, only one factor of diversity. The qualifications of a particular person and the requirements for the position shall in principle always prevail over all other factors and considerations when filling a vacancy, unless otherwise required by Dutch law. The proposed appointments for approval at the AGM to be held at April 30, 2021 of Dr Oliphant and Ms Eckstein as Supervisory Board
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members will enhance the gender diversity of the Supervisory Board in 2021 and will bring the Supervisory Board's male/female ratio to 60/40. This ratio will be in compliance with the Supervisory Board's profile and diversity policy as well as with the legislative proposal introducing a diversity quota.
At present, the Board of Management consists of one person who is Besi's Chief Executive Officer and Chairman of the Board of Management. As such, there is currently no diversity policy or target for the Board of Management.
Directors and Officers insurance policy
Members of the Board of Management and the Supervisory Board and certain senior management members are covered under Besi's Directors and Officers' insurance policy. Although the insurance policy provides for broad coverage, members of the Board of Management and the Supervisory Board and certain senior management members may be subject to uninsured liabilities. Besi has agreed to indemnify members of the Board of Management and the Supervisory Board and certain senior management members against certain claims brought against them in connection with their position with the Company provided that such individual acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Besi and, with respect to any criminal action or proceedings, such individual had no reasonable cause to believe his or her conduct was unlawful.
Shareholders and the General Meeting of Shareholders
Good corporate governance requires the participation of shareholders. It is in the interest of the Company that as many shareholders as possible participate in Besi's decision-making at the Annual General Meeting of Shareholders or any Extraordinary General Meeting of Shareholders. Pursuant to Dutch law and the Company's articles of association, any decisions of the Board of Management involving a major change in the identity or character of the Company and/or its affiliated enterprises are subject to the approval of the General Meeting of Shareholders.
The Board of Management provides shareholders and other parties in the financial markets with equal and simultaneous information about matters that may influence Besi's share price. Contacts between the Board of Management on the one hand and the press, analysts and shareholders on the other hand should be handled and structured carefully. Besi should do nothing which might compromise the independence of analysts in relation to the Company and vice versa.
The Board of Management and the Supervisory Board shall provide the General Meeting of Shareholders with the information that it requires for the exercise of its powers subject to such limitations allowable under applicable law. If price-sensitive information is providedduring a General Meeting of Shareholders or if a response to shareholders' questions has resulted in the disclosure of price-sensitive information, then such information will be made public without delay.
Good corporate governance requires significant attendance by shareholders at Besi's General Meeting of Shareholders. Therefore, Besi is actively involved in proxy solicitation as a means of increasing the attendance and participation of its shareholders at its General Meeting of Shareholders.
Amendment of Besi's articles of association
Besi's articles of association may be amended by a resolution of the General Meeting of Shareholders. A resolution of the General Meeting of Shareholders to amend the articles of association may only be adopted at the proposal of the Board of Management, which proposal requires the approval of the Supervisory Board. Those who have convened a General Meeting of Shareholders at which a proposal to amend the articles of association will be brought up for discussion must deposit simultaneously with the convocation a copy of the proposal in which the proposed amendment has been included at Besi's office for inspection by every person entitled to attend the General Meeting of Shareholders until the end of the relevant meeting. The persons entitled to attend the General Meeting of Shareholders must be given the opportunity to obtain a copy of the proposal free of charge. The proposal will also be published on Besi's website:www.besi.com.
External audit
The Board of Management is primarily responsible for the quality and completeness of any publicly disclosed financial reports. The Supervisory Board oversees the Board of Management as it fulfills this responsibility.
The General Meeting of Shareholders appoints the external auditor. The Supervisory Board submits a nomination for the appointment of the external auditor to the General Meeting of Shareholders upon the advice of the Audit Committee and the Board of Management. It negotiates the terms of engagement of the external auditor, including their remuneration, upon the proposal of the Audit Committee and after consultation with the Board of Management. The Chairman of the Audit Committee acts as the principal contact for the external auditor if, during the performance of its audit, it discovers or suspects an instance of misconduct or an irregularity. The external auditor attends the meeting of the Supervisory Board at which the report of the external auditor is discussed. The external auditor also discusses the findings and outcomes of its audit work and the management letter with the Audit Committee and the Board of Management simultaneously.
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Internal control and risk management
Besi has an internal control and risk management system that is suitable for the Company. The form and structure of this system is outlined under Risks and Risk Management.
The Company's internal control and risk management function operates under the responsibility of the Board of Management and is monitored on an ongoing basis. The Board of Management reviews the effectiveness of the design and operation of the internal control and risk management system twice a year as part of Besi's internal control procedures.
Besi's internal control system consists of a formal framework defining key risks and key controls over financial reporting, an internal control charter outlining audit systems and procedures as well as the internal control and audit plan for the year. Operational, IT, compliance, tax and fraud controls are included in this framework. The internal control system over financial reporting also contains clear accounting rules. It has been implemented in substantially all operations and material subsidiaries and supports common accounting and regular financial reporting in standard forms.
In 2020, Besi's finance staff carried out all planned internal control activities and reported its findings to the Board of Management and the Audit Committee. In 2018, Besi hired an independent audit firm to help identify and monitor potential risks of fraud, bribery and corruption in its Asian supply chain, logistics and purchasing activities and further enhanced its internal control procedures during 2019 and 2020. In addition, it has enhanced its global internal audit function in recent years as well as systems and procedures in such areas in view of increased business and risk management activities at Besi's Chinese, Malaysian and Singapore operations. In 2020, Besi hired an independent audit firm to monitor and identify any internal control risks at Besi's Asian operations as a result of the COVID-19 pandemic.
In consideration of the above factors, the Board of Management states that for the year ended December 31, 2020:
• This Annual Report provides sufficient insights into any failings in the effectiveness of Besi's internal control and risk management systems.
• Besi's internal control and risk management systems provide reasonable assurances that the financial reporting contains no material inaccuracies.
• It is justified that Besi's financial reporting is prepared on a going concern basis considering the current state of affairs.
• This Annual Report refers to those material risks and uncertainties which are relevant to Besi's continuity for the twelve months following the preparation of this Annual Report.
Explanation of deviations from the Dutch Corporate Governance Code Deviations from the Dutch Corporate Governance Code are listed and explained below.
Provision 1.3.1
Since the internal audit function is the responsibility of the Board of Management, the appointment and dismissal of the senior internal auditor by the Board of Management is not submitted for approval to the Supervisory Board. Instead, the Supervisory Board only oversees the appointment and dismissal of the senior internal auditor.
Provision 1.4.2
The sensitivity of the Company's results to material changes in external factors is not provided for competitive reasons. For a detailed description of material risks, reference is made to Risks and Risk Management.
Provision 2.2.1
The Company respects the rights of the member of the Board of Management who was a member at the time of the first implementation of the Dutch Corporate Governance Code. For that reason, there was no adjustment of his employment agreement.
Provision 2.3.2
In order to simplify and enhance the efficiency of Besi's governance structure, the Supervisory Board decided to reduce the number of committees to two: the Audit Committee and the Remuneration and Nomination Committee.
Provision 3.2.3
The Company respects the rights of the member of the Board of Management who was a member at the time the Dutch Corporate Governance Code came into force. For that reason, it did not adjust his employment agreement as it was signed prior to that date.
Provision 4.2.3
The Company acknowledges the importance of disclosing material information to all shareholders similarly at the same moment in time. It is currently not practically possible to make every meeting and presentation to analysts and investors accessible to all shareholders. As far as practicably possible, meetings and presentations will be announced and posted on Besi's website:www.besi.com.
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Disclosures required by the Dutch Decree Article 10 of the Takeover Directive Under the Dutch Decree Article 10 of the Takeover Directive, the Company, being a company whose securities are admitted to trading on a regulated market, must disclose the following information in its Annual Report:
• As of December 31, 2020, the Company's issued share capital consisted exclusively of ordinary shares. Information about the Company's share capital structure can be found in Besi's equity structure in the Shareholder Information section and in Note 21 Equity of the Notes to the Financial Statements. Information on the rights and obligations attached to such shares can be found in the Company's articles of association.
• The Company has not imposed any limitations on the transfer of ordinary shares. The Company's articles of association do stipulate a blocking procedure for the transfer of preference shares. Further, the Company is not aware of any shares having been exchanged for depositary receipts for shares.
• The Company is not aware of any agreements with shareholders which may result in restrictions on the transfer of shares or the exercise of any voting rights.
• Information concerning ownership interests in the Company's ordinary shares as per AFM notification can be found in the Shareholder Information section under Ownership interests in the ordinary shares.
• There are no special control rights attached to the shares.
• There is no system of control regulating any scheme granting employees' rights to acquire shares in the share capital of the Company or of a subsidiary where the control rights are not exercised directly by the employees.
• No restrictions or deadlines apply to the exercise of voting rights.
• The Company's articles of association contain the following information:
• The appointment and dismissal of members of the Board of Management or Supervisory Board members which are also summarized in Appointment and replacement of members of the Board of Management and Appointment and replacement of members of the Supervisory Board.
• The amendment of the Company's articles of association which is also summarized in Amendment of Besi's articles of association.
• The powers of the Board of Management.
• The issuance of shares in the share capital of the Company and the repurchase of shares in the share capital of the Company (including the powers of the Board of Management related thereto) which are also summarized in Issuance of ordinary shares and pre-emptive rights, Issuance of preference shares and Repurchase and cancellation of shares.
• The Company is not a party to any material agreements which take effect or are altered or terminated upon a change of control of the Company following a takeover bid other than (i) the agreement between the Company and the Foundation by which the Foundation has been granted a call option as is summarized in Besi's equity structure and The Foundation contained in the Shareholder Information section and in Preference Shares contained in the Other Information section and (ii) in the indentures governing Besi's € 97.5 million bank lines of credit and in each of its Convertible Notes due 2023, 2024 and 2027.
• There is no agreement between the Company and the member of the Board of Management if their employment ceases because of a takeover bid.
Director's Statement of Responsibilities
In accordance with statutory provisions, the Board of Management states, to the best of its knowledge, that:
• The Financial Statements provide a true and fair view of the assets, liabilities, financial position and result for the financial year of Besi and its subsidiaries included in the consolidation as a whole.
• The Report of the Board of Management provides a true and fair view of the position at the balance sheet date and of the performance of the business during the financial year of Besi and its subsidiaries, details of which are contained in the Financial Statements. The Report of the Board of Management provides information on any material risks to which Besi is exposed.
Board of Management Richard W. Blickman
February 18, 2021
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Remuneration Report
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Remuneration Report
This Remuneration Report provides an overview of Besi's:
• Remuneration Policy
• Remuneration structure
• Application of the Remuneration Policy in 2020
• Remuneration of the Board of Management
• Proposed amendments to the Remuneration Policy 2020-2023
• Remuneration of the Supervisory Board
The Company has successfully attracted and retained executives who are capable of leading and overseeing the Company at all levels. The Remuneration Policy is designed to facilitate this process. This Remuneration Report is drafted in accordance with article 2:135b of the Dutch Civil Code and the Dutch Corporate Governance Code.
The Remuneration and Nomination Committee (the "Committee") oversees all remuneration decisions. The Supervisory Board, upon proposal by the Committee, determines the criteria with which to measure the performance of the Board of Management considering their roles and responsibilities. For determining the remuneration of the Board of Management, the Committee is also informed of the remuneration scheme of the direct reports to the Board of Management including the applicable Short-Term and Long-Term Incentive Plans related thereto. Remuneration paid to such direct reports are fully aligned with the performance conditions under the Remuneration Policy.
Besi is committed to fair and responsible remuneration as we believe that all employees are integral to our success. We therefore consider the remuneration of the Board of Management and the Supervisory Board in the context of the remuneration of all Besi employees, including associated pay ratios. Over time, we have made adjustments to our Remuneration Policy to reflect our commitment to develop fair, responsible and transparent compensation plans. Furthermore, the Supervisory Board pro-actively engages with shareholders on matters regarding our Remuneration Policy and invites shareholder feedback whenever there are reasonable objections or concerns.
In implementing the Remuneration Policy, the Committee analyzes the possible outcomes of its variable remuneration elements and how they may affect the total remuneration of the Board of Management. In this respect, the Committee evaluates the development of the Company's underlying share price as well as the risks to which variable remuneration may expose the Company such as the Company's financial performance, business, strategy and ESG execution. Variable remuneration is primarily linked to predetermined, assessable and quantifiable targets which are predominantly of a sustainable nature. It is also linked to Besi's strategy including associated business objectives, values, purpose and vision, all of which are aligned with long-term shareholder value creation.
The dynamic environment in which Besi participates requires the implementation of our Remuneration Policy based on our common values and vision. Our common values help Besi provide a uniform response to internal and external challenges so that we achieve business goals in a fair and equitable manner. For this purpose, we have developed a Code of Conduct which addresses our responsibilities to the Company and to each other and what our stakeholders may expect from us. It is available on our website for further review (www.besi.com). In determining the actual remuneration of the Board of Management, the Committee assesses its actual performance relative to Besi's strategy and Code of Conduct. The Committee also takes into account the impact of the overall remuneration of the Board of Management relative to the pay differentials within the Company and obtains the views of the Board of Management with respect to the level and structure of remuneration.
Remuneration Policy
The Remuneration Policy applicable for the years 2020 up to and including 2023 for the Board of Management (the "Remuneration Policy 2020-2023") was approved by the Annual General Meeting of Shareholders held on April 26, 2019. The Remuneration Policy 2020-2023 was developed in view of changes in legislation, market developments, external market best practices and best practice provisions of the Dutch Corporate Governance Code. During the Annual General Meeting of Shareholders held on April 30, 2020 (the "2020 AGM"), the "Remuneration Principles and Procedures underlying the Remuneration Policies applicable for the years 2020 up to and including 2023 for the Board of Management and the Supervisory Board" were proposed for approval. This proposal received a simple majority of the votes cast but did not receive the required voting majority of 75%. As a result of input received from shareholders in connection with the 2020 AGM, certain amendments to the Remuneration Policy 2020-2023 will be proposed to the Annual General Meeting of Shareholders to be held on April 30, 2021 (the "2021 AGM") as described in "Proposed amendments to the Remuneration Policy 2020-2023" elsewhere in this Remuneration Report.
In addition to the "Remuneration Principles and Procedures underlying the Remuneration Policies applicable for the years 2020 up to and including 2023 Policy for the Board of Management and the Supervisory Board", the Annual General Meeting of Shareholders was asked to provide an advisory vote on the Remuneration Report 2019 at the 2020 AGM. Such proposal received the required simple majority of the votes cast.
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The Supervisory Board seeks to achieve three broad goals in connection with Besi's Remuneration Policy and decisions regarding individual compensation:
• The Supervisory Board structures the Company's remuneration programs in a manner that it believes will enable Besi to retain, motivate and attract executives who are capable of achieving its business objectives.
• The Supervisory Board establishes remuneration programs that are designed to reward the Board of Management for the achievement of specified business objectives or related to the member's particular business unit. By linking remuneration to specific goals, the Supervisory Board believes that it creates a performance-oriented environment for the Company's executives.
• The Company's remuneration programs are intended to provide the Board of Management with an equity interest in the Company so as to link a portion of executive remuneration with the long-term performance of Besi's ordinary shares and to align their interests with those of shareholders.
The Supervisory Board regularly (i) reviews Besi's business and strategic objectives, (ii) undertakes risk assessments, (iii) assesses Besi's overall performance with respect to its business and strategic objectives and (iv) considers the performance of the individual member of the Board of Management compared to specific business objectives. Based on these considerations, the Supervisory Board then determines a balanced mix between fixed and variable remuneration components. It also determines a set of key performance indicators linked to variable remuneration components that are aligned with the Company's business and strategic objectives.
In its evaluation of the efficacy of Besi's Remuneration Policy, the Supervisory Board uses a third-party consulting firm to conduct scenario analyses of the variable remuneration components under the policy including the usage of the Monte Carlo stochastic model for the expected Total Shareholder Return ("TSR") performance analysis. The probability of vesting and pay-out of the performance share awards have also been taken into account in the scenario analyses. The Supervisory Board has set the performance targets based on the outcome of the scenario analyses, pay differentials, the executive's position within Besi and the internal pay ratio. In 2020, the internal pay ratio was 42 (2019: 37) based on the annual total remuneration of the Chief Executive Officer relative to the average total remuneration of all other full-time employees as reported in accordance with IFRS (excluding additional performance share awards). Furthermore, when drafting the remuneration proposal for the member of the Board of Management, the Supervisory Board annually considers the views of the member of the Board of Management regarding the level and structure of his own remuneration. The member of the Board of Management is not present when the Committee discusses his fixed and variable pay components.
Remuneration structure
The total remuneration package and pay mix for the member of the Board of Management is established on an annual basis by the Supervisory Board upon proposal by the Committee and consists of five components based on the goals set forth below:
1. Base Salary
2. Short-Term Incentive (annual performance-based cash bonus)
3. Long-Term Incentive (annual conditional award of performance shares and additional performance share awards)
4. Pension
5. Other Benefits
The above components are regularly compared to a remuneration reference group of companies selected based on industry, size, profitability, market capitalization and geography. The following companies are included in this remuneration reference group as adjusted for any acquisition or stock delisting related thereto.
Remuneration Reference Group
Aixtron SE AMG N.V.
ASM International N.V. Axcelis Technologies, Inc. Brooks Automation, Inc. Cohu, Inc.
Corbion N.V. Entegris, Inc
Ichor Holdings, Inc. IMCD N.V.
Jenoptik AG Kendrion N.V.
Koninklijke Wessanen N.V. Kulicke & Soffa Industries, Inc. MTS Systems Corporation Siltronic AG
TKH Group N.V.
Ultra Clean Holdings, Inc. Veeco Instruments, Inc. Xperi Corporation
The composition of this remuneration reference group will be reviewed by the Supervisory Board on a regular basis and updated, if necessary, to ensure an appropriate composition. Any substantial changes to the composition of the remuneration reference group will be subject to the approval of the Annual General Meeting of Shareholders.
In establishing remuneration for the Board of Management, the Supervisory Board consults PwC, a professional external remuneration consultant, in carrying out its duties. The Supervisory Board conducts a remuneration benchmark survey every two years and verifies that the consultant selected does not similarly provide advice to the Board of Management so that no conflicts of interest exist.
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1. Base salary |
Each year, the Supervisory Board reviews the annual base salary for the member of the Board of Management and considers whether to adjust his base salary level. The base salary of the member of the Board of Management will be determined in relation to the median and 90th percentile base salary levels of the remuneration reference group. The Supervisory Board also considers the historic salary levels of the individual and the nature of the individual's roles and responsibilities in positioning the base salary level relative to the remuneration reference group.
2. Short-Term Incentive (annual performance-based cash bonus)
The annual cash bonus opportunity is linked to the achievement of predetermined performance conditions based on financial, non-financial and ESG objectives as determined by the Supervisory Board. The following performance measures apply:
• Net income expressed as a percentage of revenue
The financial measure net income is preferred over other financial ratios for the Short-Term Incentive because net income is:
• A key indicator in evaluating Besi's overall performance for the year and therefore an important contributor to shareholder value.
• A key factor given the cyclical market in which Besi operates.
• A financial measure that can be influenced by the member of the Board of Management.
• A key component utilized to help determine Besi's stock market valuation.
• Personal performance of the member of the Board of Management
The annual criteria to measure the personal performance of the member of the Board of Management are at the sole discretion of the Supervisory Board. As such, the Supervisory Board focuses on a variety of business, strategic, financial and ESG targets that are considered important for the upcoming year and that help contribute to sustainable value creation in the medium- and long-term in line with Besi's strategy.
The Committee will propose annually to the Supervisory Board financial, non-financial and ESG goals to measure the performance of the member of the Board of Management.
The total annual cash bonus opportunity for the member of the Board of Management shall be determined on the basis of the following performance/pay-out grid.
Short-Term Incentive: | At minimum |
Performance versus pay-out | performance |
(below threshold) | |
Net income as % of revenue | 0% |
Personal performance targets | 0% |
Total annual bonus pay-out | 0% |
70% 105%
30% 45%
100% 150%
3. Long-Term Incentive (annual conditional award of performance shares and additional performance share awards)
The Long-Term Incentive consists of a conditional award of performance shares. The award represents a conditional right to receive a certain number of Besi shares depending on the achievement of predetermined financial performance objectives set by the Supervisory Board over a three-year performance period, subject to continued service, which include:
• Net income as a percentage of revenue over three calendar years
Net income as a percentage of revenue over the three-year performance period is considered a key measure for creating sustainable long-term shareholder value.
• Relative Total Shareholder Return ("TSR") over three calendar years
The development of Besi's share price including the reinvestment of dividends during a three-year performance period will be compared to a comparator group of 19 listed companies operating in the semiconductor equipment industry in which three-month share price averaging will be applied at the start and at the end of the TSR performance period. The TSR over the three-year performance period is also considered a key measure for indicating the development of shareholder value and Besi's TSR relative to its peers in the semiconductor equipment industry. It is also an appropriate performance measure to align the interests of the Board of Management with those of shareholders. The composition of the comparator group will be reviewed and adjusted by the Supervisory Board if circumstances arise which could affect the comparability of the companies involved, particularly in the event of a merger, acquisition or material change of business. Adjustments to the comparator group, including replacements, will be based on predetermined internal guidelines. The TSR comparator group currently consists of the following companies:
TSR comparator group (excluding Besi)
Aixtron SE
Applied Materials, Inc. ASM International N.V. ASML Holding N.V.
ASM Pacific Technology Ltd. Axcelis Technologies, Inc. Brooks Automation, Inc. Cohu, Inc.
DISCO Corporation Entegris, Inc.
Kulicke & Soffa Industries, Inc. Lam Research Corporation
Nova Measuring Instruments Ltd. Onto Innovation, Inc.1 FormFactor, Inc.2 SÜSS MicroTec SE Tokyo Electron Ltd. Tokyo Seimitsu Co., Ltd. Veeco Instruments, Inc.
1 Following the completion of the merger between Nanometrics, Inc. and Rudolph Technologies, Inc. on October 25, 2019,
Nanometrics, Inc. was replaced by Onto Innovation, Inc., the successor post-merger entity.
2
Shinkawa Ltd, was renamed Yamaha Motor Robotics following its business Integration into Yamaha Motor Robotics Holdings. Shinkawa was delisted on May 25, 2020 and replaced by FormFactor, Inc. in the TSR comparator group.
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Conditional award
The at target number of performance shares conditionally awarded will be determined by the Supervisory Board based on a ratio equal to (i) 175% of the individual's gross annual base salary divided by (ii) the average closing price of Besi's shares for all trading days in the calendar quarter immediately preceding the start of the three-year performance period.
Vesting of performance shares
The number of shares that become unconditional (which vest) will be determined at the end of the three-year performance period depending on Besi's actual performance during such period. Vested shares are subject to a two-year lock-up period which means that the member of the Board of Management will have to retain such shares for two years following the vesting date. However, he will be allowed to sell shares sufficient to cover the income tax liability related to the vesting of the performance shares. The actual number of performance shares which will vest at the end of the three-year performance period will be determined based on the following grid:
Long-Term Incentive: | At minimum | ||
Performance versus vesting | (below | ||
threshold) | |||
Net income as % of revenue1 | 0% | 50% | 75% |
Relative TSR performance2 | 0% | 50% | 75% |
Total number of shares vesting | 0% | 100% | 150% |
1 Half of the vesting of the conditional awards is linked to Besi's net income relative to its revenue over the three-year performance period.
2
Half of the vesting of the conditional awards is linked to Besi's relative TSR performance over the three-year performance period.
The vesting range of the performance shares awarded subject to Besi's net income as a percentage of revenue is between 0% and 75% of the total number of performance shares awarded to the individual. The performance shares awarded from 2020 onwards subject to Besi's TSR performance are based on the actual absolute ranking of Besi within the comparator group and vest in a range between 0% and 75% of the total number of performance shares awarded to the individual. Vesting is determined based on the following schedule, whereby straight-line vesting percentages are being applied on a pro rata basis between rank 12 and rank 3 for awards made as from 2020:
Besi TSR ranking relative to comparator group
Vesting percentage
Top 3
Rank 6
75% 50% (at target)Rank 12 25%
Rank 13 - Rank 20 0%
Performance adjustment
After evaluating the three-year performance period for awards made in 2018 and 2019, the Supervisory Board may at its absolute discretion upwardly or downwardly adjust the number of performance shares that will vest by a maximum of 20%. This discretionary performance adjustment may be applied by the Supervisory Board to reflect the Company's overall performance and market developments and further aligns the interests of the Board of Management with those of shareholders. In accordance with the Remuneration Policy 2020-2023, this performance adjustment was eliminated as from 2020 onwards.
Clawback and ultimate remedium
The Short-Term Incentive and Long-Term Incentive components for the Board of Management are subject to clawback provisions. In addition, risk assessment tests are in place and measures are included in the variable remuneration documentation for the Board of Management to ensure that shareholders' interests are protected. In this respect, the Supervisory Board holds the discretionary authority to reclaim all or part of the Short-Term Incentive and Long-Term Incentive if such variable remuneration has been made based on incorrect financial data or other data or in the case of fraud, gross negligence, willful misconduct or any activity detrimental to the Company. This clawback is applicable to both the vested and unvested part of the Long-Term Incentive components.
The Short-Term Incentive and Long-Term Incentive components for the Board of Management are also subject to ultimate remedium clauses under which the Supervisory Board can adjust the value of the conditional variable remuneration components downwards as well as upwards. The adjustment can be made if the Supervisory Board is of the opinion that an unfair result would be produced due to extraordinary circumstances.
Additional performance share awards
The Supervisory Board may, at its absolute discretion and upon the recommendation of the Committee, award up to a maximum of 120,000 additional performance shares to the Board of Management in the event of extraordinary achievements or exceptional performance in a year. Market developments and the views of society are also considered in addition to the performance of the Company and the Board of Management. In case of a market downturn or a high underlying share price, the Supervisory Board may consider a maximum 20% downward adjustment to the additional performance shares awarded.
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Additional performance shares awarded are subject to a five-year lock-up period, which means that the Board of Management will have to retain them for five years following the award date. However, the Board of Management is allowed to sell shares sufficient to cover the income tax liability following the transfer of the additional performance shares. Additional performance share awards may also be subject to additional terms and conditions as determined by the Supervisory Board.
If the number of Long-Term Incentive performance shares awarded under the Remuneration Policy 2020-2023 vest between at target and maximum performance levels (stretched performance), such stretched performance shares awarded will be deducted against the 120,000 maximum additional performance shares that can be awarded to the Board of Management at the discretion of the Supervisory Board. Furthermore, in case the Supervisory Board in any year decides to apply an upward adjustment of the number of vested Long-Term Incentive performance shares granted up to and including 2019 (as referred to under Performance Shares Adjustment above), such adjustment will be deducted against the 120,000 maximum additional performance shares.
The Company intends to eliminate the discretionary component associated with the award of up to a maximum of 120,000 additional performance shares as part of a proposal to amend its Remuneration Policy 2020-2023 at the 2021 AGM. It is intended that such awards for extraordinary performance will instead be linked to the achievement of a variety of defined financial and non-financial targets.
Final assembly AMS-LM at Besi Leshan, China.
Number of shares available
The aggregate total number of performance shares available under Besi's Long-Term Incentive arrangement (for all participants including the Board of Management) shall not exceed 1.5% of the total number of outstanding shares as at December 31 of the year prior to the year in which the performance shares are awarded.
4. Pensions
Different pension arrangements are provided to the Board of Management based on their salaries, local customs and the rules existing in their countries of origin. A defined contribution scheme is in place for statutory directors, of whom the CEO is currently the only one. Due to legislative changes enacted in the Netherlands as from the beginning of 2015, part of the pension contribution is no longer tax exempt. As such, in order to provide for a market competitive pension arrangement for Dutch members of the Board of Management, the pension contribution is now based on a premium ladder as in effect from 2014. However, commencing in 2015, a portion of this contribution is funded directly to the personal pension account of the statutory director as a tax-exempt contribution and the remaining balance is paid to the statutory director as a taxable pension allowance which can be used by the statutory director to build up his net pension on a voluntary basis.
5. Other benefits
Other benefits awarded to the Board of Management are linked to base pay and in line with general prevailing market practice. These other benefits include expense compensation, medical insurance and social security premiums.
Loans
As a matter of policy, the Company does not provide loans to members of the Board of Management.
Employment contracts/service contracts
Service contracts with any new member of the Board of Management will in principle be entered into for a period of four years. Existing employment contracts for members of the Board of Management with an indefinite period of time will not be replaced by contracts with a limited period or by contracts with different conditions. The current notice period applicable to the member of the Board of Management is six months.
Severance payment
The remuneration paid to members of the Board of Management in the event of dismissal may not exceed the individual's gross annual base salary (fixed component). If the maximum of one year's salary would be manifestly unreasonable for a member of the Board of Management who is dismissed during his first term of office, such member of the Board of Management shall be eligible for severance pay not exceeding two times his annual base salary.
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Application of the Remuneration Policy in 2020
The Supervisory Board, upon the recommendation of the Committee, applied the Remuneration Policy in 2020 without exception as set forth below. The only member of the Board of Management in 2020 was Richard W. Blickman, Besi's CEO.
1. Base salary
At the end of 2019, the base salary of the CEO was reviewed, taking into consideration the remuneration reference group. The Committee analyzed and considered the outcome of this review and recommended to the Supervisory Board a base salary for the CEO set between the median and 90th percentile levels of the remuneration reference group, as outlined in the Remuneration Policy 2020-2023. The Supervisory Board, upon the recommendation of the Committee, decided that the 2020 base salary of the CEO would remain unchanged at € 600,000, equal to the base salary applicable for both 2018 and 2019.
At the end of 2020, the base salary of the CEO was reviewed, taking into consideration the remuneration reference group. The Committee analyzed and considered the outcome of this review and recommended to the Supervisory Board a base salary for the CEO set between the median and 90th percentile levels of the remuneration reference group, as outlined in the Remuneration Policy 2020-2023. The Supervisory Board, upon the recommendation of the Committee, decided that the 2021 base salary of the CEO will remain unchanged at € 600,000.
2. Short-Term Incentive
The Short-Term Incentive (annual performance-based cash bonus) awarded to the member of the Board of Management is based on the following predetermined performance conditions: (i) net income as a percentage of revenue and (ii) personal performance of the member of the Board of Management expressed in certain non-financial and ESG goals that were considered important for 2020. The Committee reviewed at year end the quality of the predetermined financial, non-financial and ESG performance goals and the sustainable value delivered in order to determine the Short-Term Incentive awarded for 2020.
The total annual cash bonus for the member of the Board of Management was as follows.
Short-Term Incentive: Performance versus pay-out | At maximum |
performance | |
(in euros) | |
(a) Net income as % of revenue | 630,000 |
(b) Personal performance targets | 270,000 |
(c) Total annual bonus pay-out | 900,000 |
(a) Net income as a percentage of revenue
Besi's 2020 net income as a percentage of revenue was 30.5%. The performance achieved was well above the maximum pre-defined target range set. Upon the recommendation by the Committee, the Supervisory Board awarded the member of the Board of Management for the first financial performance condition a cash bonus equal to 105% of his annual base salary, or € 630,000, for the year 2020.
(b) Personal performance of the member of the Board of Management
The Committee reviewed the performance realized by the member of the Board of Management in relation to five equally weighted and pre-defined personal non-financial and ESG performance objectives representing 30% of the total cash bonus. These five pre-defined personal, non-financial and ESG performance objectives were:
1. The implementation of Besi's strategic plan 2020-2024, including ten COVID-19 related initiatives.
2. The implementation of career development and succession planning for Besi's management team and key staff.
3. The execution of <10 nanometer and hybrid bonding research and development programs with key industry players.
4. The enhancement of ESG programs including ambitions, short-, medium- and long-term targets and reporting metrics related thereto.
5. The development of initiatives to reduce European infrastructure costs via European facility relocation/consolidation.
During 2020, the Committee regularly reviewed the progress of the pre-defined personal, non-financial and ESG performance objectives. Additional objectives were set during the year due to the outbreak of the COVID-19 pandemic. While STI non-financial targets are set prior to the performance year, the Committee decided that the addition of such COVID-19 targets was relevant given their importance to Besi's short- and long-term success.
Based on the strategic updates provided, the effectiveness and progress of the objectives set were tested and monitored by the Supervisory Board during the year. An overall assessment was also completed after year end 2020 including a review of customer satisfaction, strategic plan execution and effectiveness, ESG development and cost reduction initiatives achieved. Based upon the review, it was judged that the execution of strategic initiatives proved to exceed the challenging goals and timelines initially set, including the successful execution in the fourth quarter of 2020 of a hybrid bonding joint development agreement with Applied Materials, Inc. Furthermore, the Committee noted success relative to the additional COVID-19 initiatives and timelines set with respect to the continuity of Besi's supply chain, production and customer deliveries, installation and service amidst unprecedented disruptions to the business caused by the pandemic. This was measured by Besi's superior financial performance, working capital management and
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cash flow generation during the pandemic and achievement or over achievement of quarterly financial guidance to investors and analyst expectations set at the beginning of the year (pre-COVID-19), as well as increased customer satisfaction as highlighted in our annual survey. In addition, IT, personnel and management initiatives with respect to the implementation of work from home procedures proved to be very successful resulting in favorable employee retention and satisfaction as measured by the results of a special COVID-19 pulse survey conducted. Targets set for succession planning and ESG progress were also reviewed. The Chief Executive Officer proved to have initiated progress and overachieved targets on both such topics, in particular with respect to the new ESG program and goals related thereto for 2022 through 2030 as explained in further detail elsewhere in this Annual Report.
BESI VALUE CREATION: 2020/2019
(in millions, except share price)
2020
2019
Revenue
€ 433.6€ 356.2
Gross Margin
Net Income Net Margin ROAE Share Price
€ 132.3
59.6%
30.5%
39.5%
55.8%€ 81.322.8%24.2%+15.3 pts
€ 49.58€ 34.46
Δ
Highlights
+21.7% +3.8 pts +62.7% +7.7 pts
• Renewed revenue and net income growth amidst COVID-19 pandemic
• Peer leading financial metrics maintained
• Return on average equity increased to 39.5% (+15.3 pts)
• Share price increased by 43.9%. Total return 46.8%
+43.9%
• Signed hybrid bonding joint development agreement
• Enhanced ESG program. Set long-term targets
In addition, the Chief Executive Officer enhanced Besi's liquidity, market presence and financial position via the issuance of € 150 million of 0.75% Convertible Notes due 2027. The offering took advantage of market opportunities, further enhanced our position with customers who view Besi as an important partner in their development efforts and provided additional liquidity to deal with external challenges in the future such as the pandemic. Finally, our cost reduction programs and targets set were achieved which helped result in an only 1.7% increase in operating expenses in the face of 21.7% revenue growth achieved in 2020.
In the aggregate, the Committee review found that the Chief Executive Officer attained his goals even despite the unprecedented challenges to Besi's business model created by the outbreak of the COVID-19 pandemic. In the face of such a sudden and external threat, the Committee noted a resilient, flexible and sustainable organization capable of addressing the multi-faceted business, societal and human challenges posed by the pandemic.
Based on this review and upon the recommendation by the Committee, the Supervisory Board decided to award the member of the Board of Management a cash bonus related to his personal performance equal to 45% of his annual base salary for 2020, or € 270,000.
(c) Total Short-term Incentive
The sum of the financial, non-financial and ESG targets comprising the total cash bonus for the year 2020 equaled € 900,000, or 150% of the gross annual base salary, of the member of the Board of Management.
The Supervisory Board, upon the recommendation of the Committee, unanimously decided on such cash bonus based on the Company's superior revenue and net income growth, cash flow generation and return on average equity despite the outbreak of the COVID-19 pandemic. It was also based on Besi's share price appreciation, progress in strategic plan execution, peer leading financial metrics, new hybrid development partnerships realized and progress on ESG and sustainability goals.
3. Long-Term IncentiveConditional award
As from 2014, the Long-Term Incentive (annual conditional award of performance shares and additional performance share awards) is subject to continued employment and based on the following predetermined performance conditions: (i) net income as a percentage of revenue over three calendar years and (ii) the development of Besi's share price including the reinvestment of dividends during a three-year performance period compared to a comparator group of 19 listed companies operating in the semiconductor equipment industry.
Conditional grants outstanding | Vesting period | ||
as of December 31, 2020 | 2018-2020 | 2019-2021 | 2020-2022 |
Conditionally awarded at target | 18,026 | 32,887 | 31,920 |
Year of vesting | 2021 | 2022 | 2023 |
Range of shares potential vesting (0-150%) | 0-27,039 | 0-49,331 | 0-47,880 |
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The at target number of conditional performance shares awarded was calculated based on the gross annual base salary of the member of the Board of Management divided by the average closing share price for all trading days in the last calendar quarter of the year immediately preceding the start of the three-year performance period. The number of shares that will actually vest will be based on the above mentioned predetermined performance conditions.
Vesting of performance shares
The vesting of the conditional performance shares for the member of the Board of Management for the 2018-2020 performance share award period was based on the following:
(i) Net income as a percentage of revenue over the three-year performance period of 26.6% overachieved the target resulting in a maximum vesting of 75% of this part of the performance shares awarded (50% of the total award made). The performance achieved was well above the maximum pre-defined target range set; and
(ii) Besi ranked at the 9th position within the TSR comparator group resulting in a vesting of 25% of this part of the performance shares awarded (50% of the total award made).
As a result, 100% of the 18,026 shares related to the 2018 performance share award will vest on April 30, 2021, subject to the member of the Board of Management's continued employment until such date. The vested shares are subject to a two-year lock-up period except for the shares that may be sold to cover the withholding/income tax liability upon vesting of the performance shares.
The following table presents the summary of the applicable performance incentive zones and the performance realized for the Short-Term Incentive and Long-Term Incentive awards for 2020:
Performance criteria applicable for STI and LTIRelative weightingThreshold levelsTarget levels and corresponding awardPerformance incentive zones (as % of base salary)Maximum performance levels and corresponding awardPerformance realized and actual award outcome 2020
R.W. Blickman, CEOR.W. Blickman, CEOSTI - net income as % of revenue ("NIR") (NIR Performance incentive zone between 5% and 20%)
Personal performance (see above)
LTI - net income as % of revenue
(NIR Performance incentive zone between 5% and 15%)
LTI - Relative Total Shareholder Return (performance incentive zone depending on actual ranking of Besi in reference group, see above)
LTI - Performance adjustment
Additional performance shares (see below)
70%Below threshold (0%),
vesting starting at threshold levels
30%Below threshold (0%),
vesting starting at threshold levelsTarget performance
(30%); € 180,000
50%
At threshold (25%);
4,507 shares Below threshold (0%)
50%
At threshold (25%);
4,506 shares Below threshold (0%)At target (50%)
9,013 shares
20%Minimum (-20% of award):
-3,605
Target performance
(70%); € 420,000
At target (50%)
9,013 sharesMaximum performance
(45%); € 270,000
Maximum performance
(75%); 13,520 sharesMaximum performance
(75%); 13,520 sharesAt max (+20% of award);
+3,605
Maximum performance
(105%); € 630,000
Maximum performance (105%);
€ 630,000
Maximum performance (45%);
€ 270,000
Vesting at maximum level 75%; 13,520 sharesVesting at threshold level 25%; 4,506 shares
No performance adjustment
103,000 shares
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Additional performance share awards for the member of the Board of Management Under the Remuneration Policy 2020-2023, the Supervisory Board may, upon the recommendation of the Committee, award additional performance shares to the member of the Board of Management for extraordinary achievements or exceptional performance, up to a maximum of 120,000 shares.
In January 2020, the Supervisory Board awarded the member of the Board of Management 103,000 additional performance shares. This award was made following the review, inter alia, of quantitative and qualitative financial and strategic/non-financial performance criteria applied for determining whether overperformance was achieved. The financial criteria utilized related to the following financial metrics: (i) Besi's absolute net margin, return on average equity and cash flow efficiency targets for one-year and three-year average periods and (ii) Besi's relative gross margin, net margin and return on average equity as compared to ASM Pacific Technologies and Kulicke & Soffa Industries, Besi's two most directly comparable public company peers with whom we compete. The non-financial criteria utilized related to specific strategic operating initiatives in accordance with Besi's strategic plan 2015-2019 and ESG goals.
The conditional award of additional performance shares was made, in part, due to the recognition of the following business developments:
• The continued successful implementation of Besi's business and ESG strategy.
• Active measures implemented to significantly reduce headcount and overhead in alignment with volatile market conditions.
• The achievement of peer leading gross and net margins of 55.8% and 22.8%, respectively, despite a significant industry downturn and a revenue decrease of 32.2%.
• Overperformance relative to challenging STI and LTI targets.
• The continued expansion of the performance gap between Besi and its peers in terms of key financial metrics such as gross margin, net margin, average return on equity and cash flow generation relative to revenue in a difficult market environment.
• Continued implementation of an attractive capital allocation plan whereby approximately € 167 million was distributed to shareholders even during an industry downcycle.
As a result of the activities and leadership of the member of the Board of Management, the Company is fit for purpose, has successfully retained and enhanced its position (i) as a technological leader in the highly cyclical assembly equipment industry with timely and sustainable forward strategic thinking as to Besi's internal development, (ii) in the assembly equipment market and with its key customers, and (iii) relative to its direct competition. Other items have also been considered in addition to the Company's performance and performance of the member of the Board of Management such as market developments and the views of society. The extraordinary award vested on January 23, 2020 as approved by the Supervisory Board. The vested shares are subject to a five-year
lock-up period which means that the member of the Board of Management will have to retain such shares for five years following the vesting date.
The award is also supported by an analysis of Besi's performance versus its direct competitors in the assembly equipment market (ASM Pacific Technology and Kulicke & Soffa Industries), the median of all industry peers used in our TSR comparator group and the median of all companies used in our remuneration reference group. This analysis includes both one-year and three-year rolling performance periods wherein return on average equity, gross margin and the ratio of cash flow as a percentage of revenue are also considered, reviewed and analyzed in addition to the net income as a percentage of revenue metric as applied under the Remuneration Policy.
As compared to the TSR comparator group, Besi's performance consistently tracks the 90th percentile for the one-year and three-year periods examined. This substantiates the Company's very strong performance over the past seven years in both significant industry up and downcycles and was an important consideration in setting and determining the member of the Board of Management's performance under the Remuneration Policy. In addition, the charts below present Besi's growing outperformance gap versus its direct assembly equipment peers on all metrics analyzed. Both ASM Pacific Technology and Kulicke & Soffa Industries have consistently performed more in line with market median levels which also contributes to the extraordinary performance achieved and considered for awarding the additional performance shares.
The charts below clearly indicate the success of Besi's strategic execution and the strong development of its financial metrics in a challenging industry environment for the award period. They also highlight Besi's superior performance versus each of its TSR and remuneration reference group peers and growth in its outperformance versus its most direct peers. All such factors help underpin the Supervisory Board's rationale in awarding the additional performance shares to the Chief Executive Officer.
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
90 OF MANAGEMENT | REPORT | SUPERVISORY BOARD | SUPERVISORY BOARD MEMBERS | STATEMENTS 2020 | INFORMATION |
PERFORMANCE COMPARED TO THE TSR REFERENCE GROUP
Net Income/Revenue
35%
30%
Besi
20%
25%
15%
Median
10%
0%
5%
2013Besi
2014ASM PT
2015K&S
2016
2017
2018
Peer median90th percentile
Cash Flow from Operations/Revenue
40% 35% 30% 25% 20% 15% 10% 5% 0%
90th %
Besi
Median
2019
Gross Margin
60%
55%
Besi
40% 35% 30% 25%
50%
45%
2020
2013Besi
2014ASM PT
2015K&S
2016
2017
2018
Peer median90th percentile
2019
2020
2013Besi
2014ASM PT
2015K&S
2016
2017
2018
Peer median90th percentile
2019
2020
Net Income/Revenue (3yr)
30%
Besi
25%
90th %
20%
Cash Flow from Operations/Revenue (3yr)
40% 35% 30%
Besi
90th %
10%
15%
0%
5%
25% 20% 15% 10% 5% 0%
2011-13Besi
2012-14ASM PT
2013-15
K&S
2014-16
2015-17
2016-18
Peer median90th percentile
2017-19
Gross Margin (3yr)
60%
55%
Besi
90th %
50%
45%
Median
40%
35%
30%
25%
2018-20
2011-13Besi
2012-14ASM PT
2013-15
K&S
2014-16
2015-17
2016-18
Peer median90th percentile
2017-19
2018-20
2011-13Besi
2012-14ASM PT
2013-15
K&S
2014-16
2015-17
2016-18
Peer median90th percentile
2017-19
2018-20
Return on Equity
40% 35% 30% 25% 20% 15% 10% 5% 0%
40% 35% 30% 25% 20% 15% 10% 5% 0%
Median
2013Besi
2014ASM PT
Source: Datastream
2015K&S
2016
2017
2018
Peer median90th percentile
Return on Equity (3yr)
Besi
2019
2020
2011-13Besi
2012-14ASM PT
2013-15
K&S
2014-16
2015-17
2016-18
Peer median90th percentile
2017-19
2018-20
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PERFORMANCE COMPARED TO THE REMUNERATION REFERENCE GROUP
Net Income/Revenue
35% 30% 25% 20% 15% 10% 5% 0% -5%
40% 35% 30% 25% 20% 15%
Besi
2013Besi
2014
2015
2016
Peer median90th percentile
2017
2018
2019
2020
Net Income/Revenue (3yr Avg.)
35% 30% 25%
Besi
90th %
20% 15% 10% 5% 0% -5%
2011-13Besi
2012-14
2013-15
2014-16
Peer median90th percentile
Cash Flow from Operations/Revenue
10% 5% 0%
2013Besi
2014
2015
2016
Peer median90th percentile
2017
2018
2019
2020
Cash Flow from Operations/Revenue (3yr Avg.)
40% 35%
30% 25% 20% 15% 10% 5% 0%
Besi
90th %
2015-17
Gross Margin
65% 60% 55%
Besi
50% 45% 40% 35% 30% 25%
90th %Median
2013Besi
2014
2015
2016
Peer median90th percentile
2017
2018
2019
2020
Gross Margin (3yr Avg.)
60%
55%
Besi
50%
45%
90th %
40% 35% 30% 25%
Median
2016-18
2017-19
2018-20
2011-13Besi
2012-14
2013-15
2014-16
Peer median90th percentile
2015-17
2016-18
2017-19
2018-20
2011-13Besi
2012-14
2013-15
2014-16
Peer median90th percentile
2015-17
2016-18
2017-19
2018-20
Return on Equity
45%
40%
35%
30%
25%
20%
10%
-5%
15%
0%
5%
40% 35% 30% 25% 20% 15% 10% 5% 0% -5%
Besi
2013 | 2014 | 2011-13 | 2012-14 |
Besi | Peer median | Besi | Peer median |
90th percentile
Source: Datastream
Return on Equity (3yr Avg.)
Besi
2015
2016
2017
2018
2019
2020
2013-15
2014-16
2015-17
2016-18
2017-19
2018-20
90th percentile
REPORT OF THE BOARD | REMUNERATION | REPORT OF THE | BOARD OF MANAGEMENT AND | FINANCIAL | OTHER |
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The following table presents the shares awarded or due to the member of the Board of Management for the last five reported financial years and unvested or subject to a holding period as at December 31, 2020:
Clawback and ultimate remedium
In accordance with Dutch law and the Remuneration Policy, the Short-Term Incentive and Long-Term Incentive components for the member of the Board of Management are subject to clawback provisions and ultimate remedium clauses. During 2020, no circumstances were identified by the Supervisory Board that could result in any adjustments or clawback.
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4. Pensions |
Prior to 2015, a defined contribution scheme with an annual contribution (based on a maximum allowed percentage of base salary for tax purposes) was in place for the member of the Board of Management. As a result of the legislative changes applicable for Dutch pension arrangements as from January 1, 2015, the Committee reviewed Besi's pension policy for the members of the Board of Management during 2014.
Based on the outcome of this review, as from January 1, 2015, pension contributions for the member of the Board of Management have continued to be based on contributions applicable for 2014. However, a portion of this contribution is now funded directly to the personal pension account of the member of the Board of Management as a tax-exempt contribution and the remaining balance is now paid as a taxed pension allowance, which can be used by the member of the Board of Management to build up his pension on a voluntary basis.
5. Other benefits
Other benefits include expense compensation, medical insurance and social security premiums.
BESI PAY-TSR ALIGNMENT (2015-2020)
Indexed to 2015. Base = 100 800
700 600 500 400 300 200 100
0
2015 2016 2017 2018Besi Total ReturnCEO Total Comp
Median Rem Reference Group Total Return (Datastream)
Remuneration of the Board of Management
Remuneration of the member of the Board of Management recognized by the Company for the years ended December 31, 2020 and 2019 was as follows:
(in euros, except for performance shares) | ||
Base salary | 600,000 | 600,000 |
Annual cash bonus | 900,000 | 600,000 |
Other benefits1 | 230,260 | 239,475 |
Total cash benefits | 1,730,260 | 1,439,475 |
Pension contribution2 | 35,904 | 33,159 |
Equity compensation benefits: Incentive Plan3 | 938,690 | 791,569 |
Total remuneration, excluding discretionary elements | 2,704,854 | 2,264,203 |
Equity compensation benefits: additional performance shares4 | 3,944,900 | 2,270,400 |
Total remuneration | 6,649,754 | 4,534,603 |
Conditional performance shares awarded5 | 31,920 | 32,887 |
1 Other benefits include expense compensation, medical insurance, employer social security contributions and for 2020 and 2019 a taxable pension allowance of € 181,740 and € 181,008, respectively.
2 The pension arrangements for the member of the Board of Management are defined contribution plans. The Company does not have any further pension obligations beyond an annual contribution.
3 Expenses recognized in 2020 and 2019 for performance shares awarded from 2018 to 2020 made under the Incentive Plan as determined in accordance with IFRS.
4 Expenses recognized in 2020 and 2019 for the additional performance share award of 103,000 shares which vested on January 23, 2020 and of 120,000 shares which vested on January 17, 2019, as determined in accordance with IFRS.
5 Performance shares for 2020 and 2019 may vest in 2023 and 2022, respectively, subject to continued service and the actual performance during the performance period 2020-2022 and 2019-2021, respectively.
Other remuneration information
The actual cash remuneration paid by the Company and the value of the vested equity remuneration to the Board of Management for the years ended December 31, 2020 and 2019 were as follows:
(in euros)
Base salary Fringe benefits
Total fixed remunerationYear ended December 31, 2020 2019
600,000 600,000
230,260 239,475
830,260 839,475
One-year variable 4,844,900 2,870,400
2019
2020
Equity compensation benefits: Incentive Plan 1,354,939 2,325,093
Total variable remuneration 6,199,839 5,195,493
Pension expense Total remuneration
Proportion of fixed and variable remuneration
35,904 7,066,003 12%/88%
33,159 6,068,127 14%/86%
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The following table presents the items used to evaluate remuneration and Company performance over the last five reported financial years:
Year ended December 31,
Director's actual cash remuneration and value of equity remunerationR.W. Blickman, CEOCompany performance
Board of Management Annual change
Net income as % of revenue realized
Total shareholder return (base 2015 = 100%)
Average actual cash remuneration and value of equity remuneration Full-time equivalent basis of employees, excluding CEO (in thousands) Annual change
2020
7,066,003 16%
30.5% 688%
68.2
5%
2019
6,068,127 -33%
22.8% 465%
64.8
0%
2018
9,096,692 15%
25.9% 234%
64.7 -2%
2017
2016
7,911,037
5,857,080
35% 12%
29.2% 17.4%
410% 179%
66.2 61.9
7% 3%
Loans
At the end of 2020, no loans, advances or guarantees were outstanding to the CEO in accordance with the Remuneration Policy.
Proposed amendments to the Remuneration Policy 2020-2023
As a result of input received from shareholders in connection with the 2020 AGM, we conducted a review of the Remuneration Policy 2020-2023 with a specific focus on key areas of shareholder concern. We engaged an independent consulting firm to help us analyze the additional performance share awards of Besi's Long-Term Incentive compensation plan for members of the Board of Management as well as our pay for performance metrics relative to comparable peers. In addition, we reviewed the composition of our remuneration reference group given the significant change in Besi's financial profile, market presence, profitability and market capitalization since the time the remuneration reference group was first constructed ten years ago. Upon the completion of the review, meetings were conducted in the second half of 2020 between members of the Supervisory Board and key institutional shareholders both in Europe and the United States.
The proposals focus primarily on the elimination of the discretionary basis upon which additional performance shares can be awarded to members of the Board of Management and the composition of our remuneration reference group and its impact on our pay for performance alignment. The Supervisory Board also agreed to implement a minimum shareholding requirement for members of the Board of Management equal to three times their base salary. Such proposed elements would further align management's interests with those of Besi's shareholders.
Set forth below is a summary of the principal proposals for approval at Besi's 2021 AGM.
Proposed change to Additional Performance Shares (effective 2021) | Proposed change Remuneration Reference Group (effective 2021) |
|
|
The Supervisory Board believes that the financial and non-financial program components and specific targets associated therewith reward exceptional performance, both with respect to defined internal metrics as well as versus the performance of direct peers. They are also strongly aligned with the strategic initiatives set forth in Besi's strategic plan 2020-2024 as well as with stakeholders' interests associated with Besi's long-term, sustainable value creation.
95 OF MANAGEMENT
REPORT OF THE BOARD
OTHER | |||||
INFORMATION | |||||
2018 | |||||
L.J. Hijmans van den Bergh - Chair | 79,200 | 53,900 | - | - | - |
D.J. Dunn - Member and chair Remuneration and Nomination Committee | 66,000 | 66,000 | 64,088 | 60,000 | 60,000 |
N. Hoek - Member and chair Audit Committee | 66,000 | 66,000 | 44,967 | - | - |
C. Bozotti - Member | 62,700 | 62,700 | 31,350 | - | - |
M. ElNaggar - Member | 68,700 | 70,700 | 60,884 | 57,000 | 57,000 |
Former members of the Supervisory Board: | |||||
T. de Waard | - | 26,400 | 76,800 | 72,000 | 72,000 |
K.W. Loh | - | 26,900 | 60,884 | 57,000 | 57,000 |
J.E. Vaandrager | - | - | 20,000 | 60,000 | 60,000 |
Total remuneration | 342,600 | 372,600 | 358,973 | 306,000 | 306,000 |
REMUNERATION REPORT
REPORT OF THE SUPERVISORY BOARD
Remuneration Supervisory Board members
BOARD OF MANAGEMENT AND SUPERVISORY BOARD MEMBERSFINANCIAL STATEMENTS 2020
The remuneration of the members of the Supervisory Board is reviewed on an annual basis. Effective April 30, 2020, the General Meeting of Shareholders approved the Remuneration Policy of the Supervisory Board. The Remuneration Policy was applied in 2020 as set forth below.
The total cash remuneration of the members of the Supervisory Board for the five years ended December 31, 2020 was as follows:
The current remuneration of Supervisory Board members is as follows:
• Member of the Supervisory Board, including committee membership(s): € 62,700.
• Member of the Supervisory Board and Chair of a committee: € 66,000.
• Chairman of the Supervisory Board: € 79,200.
• Meeting attendance fees, including conference calls: none.
• Intercontinental travel allowance: € 6,000 for physical attendance at a minimum of three meetings.
The members of the Supervisory Board are not entitled to any performance or equity related compensation and are not entitled to any pension allowance or contribution.
Loans
At the end of 2020, no loans, advances or guarantees were outstanding for any of the members of the Supervisory Board.
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Report of the Supervisory Board
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Report of the Supervisory Board
Besi is pleased to present its 2020 Annual Report prepared by the Board of Management. The Annual Report includes Besi's Financial Statements as prepared by the Board of Management for the financial year ended December 31, 2020. At its meeting on February 18, 2021, the Supervisory Board approved these Financial Statements. Ernst & Young Accountants LLP ("EY"), independent external auditors, duly examined the 2020 Besi Financial Statements and issued an unqualified opinion thereon.
The Supervisory Board recommends that the General Meeting of Shareholders adopts the 2020 Financial Statements as submitted by the Board of Management and approved by the Supervisory Board. The Board of Management, with the approval of the Supervisory Board, has also submitted a proposal to declare a cash dividend of € 1.70 per share for the year ended December 31, 2020.
Supervision
Besi has a two-tier board structure consisting of a Board of Management and a Supervisory Board that is responsible for supervising and guiding the Board of Management. The Board of Management is currently comprised of one member, Mr Richard Blickman. The Supervisory Board is currently comprised of five members, all of whom are considered independent within the meaning of best practice provision 2.1.8 of the Dutch Corporate Governance Code. In the opinion of the Supervisory Board, the independence requirements referred to in best practice provisions 2.1.7 to 2.1.9 (inclusive) of the Dutch Corporate Governance Code have been fulfilled.
Name | Year elected | Term end |
Mr Lodewijk Hijmans van den Bergh, Chairman | 2019 | 2023 |
Mr Douglas Dunn, Vice Chairman | 2019 | 2021 |
Ms Mona ElNaggar | 2020 | 2022 |
Mr Niek Hoek | 2018 | 2022 |
Mr Carlo Bozotti | 2018 | 2022 |
At the Annual General Meeting of Shareholders held on April 30, 2020, Ms Mona ElNaggar was reappointed to the Supervisory Board for a two-year term. Ms ElNaggar intends to resign her position as a member of the Supervisory Board prior to the end of her current term to pursue other interests. Her resignation will become effective at such time that Ms Eckstein's appointment as a Supervisory Board member (as described below) becomes effective.
In addition, Mr Douglas Dunn, Vice Chairman of the Supervisory Board, will not seek re-appointment for another term upon the expiration of his current two-year term at Besi's Annual General Meeting of Shareholders to be held on April 30, 2021. Mr Dunn served as a member of Besi's Supervisory Board for twelve years.
The Supervisory Board proposes to nominate Dr Laura Oliphant to be appointed as a Supervisory Board member for a four-year term at Besi's Annual General Meeting of Shareholders to be held on April 30, 2021. Ms Oliphant (58) is a venture capital investor and technology veteran with significant experience in the semiconductor, semiconductor equipment and software industries. Currently, Ms Oliphant is an independent consultant with Serendibite Partners, where she provides expertise to early-stage businesses, Fortune 500 companies and venture capital firms. Prior thereto, Ms Oliphant served as CEO of Translarity, Inc., a venture backed, advanced probe card startup. Between 2001 and 2016, Ms Oliphant served as an investment director in Intel Capital, and between 1991 and 2001, she served in various capacities at Intel Corporation in the Technology and Manufacturing Group, including as a supply chain program manager and senior process engineer. She received her PhD in Chemical Engineering from the University of California, Berkeley where her research focused on plating technologies. Currently, Ms Oliphant also serves on the board of directors of Aehr Test Systems (NASDAQ), Feasible Inc., Novelda AS and Numascale AS. She is considered independent for the purposes of the Dutch Corporate Governance Code.
In addition, the Supervisory Board proposes to nominate Ms Elke Eckstein to be appointed as a Supervisory Board member for a four-year term at Besi's Annual General Meeting of Shareholders to be held on April 30, 2021 with effect as of September 1, 2021. Ms Eckstein (56) currently serves as CEO and President of ENICS Group Electronics, an electronics manufacturing services company based in Zürich, Switzerland, a position she has held since 2019. Prior thereto, she served in senior management positions at a variety of global semiconductor, photonics and electronics firms in Germany, USA, France and Taiwan, including Weidmüller Group, Osram AG, Global Foundries, AMD, Altis Semiconductor, Infineon AG and Siemens AG. Ms Eckstein is considered independent for the purposes of the Dutch Corporate Governance Code.
Composition and diversity
The Supervisory Board considers its current composition to be aligned with its objective for an adequate spread of knowledge and experience amongst its members in relation to the technological and global character of Besi's business as well as an adequate level of knowledge and experience in financial, economical, technological, social and legal aspects of international business and government and public administration. The Supervisory Board believes that it has the requisite expertise, background, competencies and independence to carry out its duties properly and that all members of the Supervisory Board have sufficient time to spend on their respective duties and responsibilities.
The Supervisory Board currently has a diverse composition in terms of experience, background, competencies, education and nationality and is on all those points in line with the objectives of its profile and diversity policy. Although gender diversity is high on
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Meeting attendance by individual Supervisory Board members was as follows: |
the agenda, the Supervisory Board's current composition of an 80/20 male/female ratio is not in compliance with its profile and diversity policy pursuant to which it is the Supervisory Board's aim to achieve that at least one third of its members are men and at least one third of its members are women, nor in compliance with the pending legislative proposal introducing a diversity quota. Diversity in general and gender diversity in particular are important factors in the selection process of Supervisory Board candidates. When considering new candidates, the Supervisory Board will retain an active and open attitude with respect to the selection of female candidates. Gender is, however, only one factor of diversity. The qualifications of a particular person and the requirements for the position shall in principle always prevail over all other factors and considerations when filling a vacancy, unless otherwise required by Dutch law.
The proposed appointments of Ms Oliphant and Ms Eckstein as Supervisory Board members will enhance the gender diversity of the Supervisory Board in 2021 and will bring the Supervisory Board's male/female ratio to 60/40. This ratio will be in compliance with the Supervisory Board's profile and diversity policy as well as with the legislative proposal introducing a diversity quota.
Meetings and attendance
In 2020, the Supervisory Board held six meetings, of which four were combined meetings of the Supervisory Board and the Audit Committee. As a result of the COVID-19 pandemic and the implementation of stay at home orders, only the meeting in February was a physical meeting. All other meetings were held virtually. The Supervisory Board also held a virtual half day meeting with Besi's management team and local management of Besi APac, Besi Leshan and Besi Singapore. In addition, because of the COVID-19 pandemic and to keep track of the latest developments related thereto, the Supervisory Board held virtual bi-weekly update meetings as from April until June (eight additional meetings in total) and virtual monthly update meetings as from August onwards (two additional meetings in total).
In 2020, the Audit Committee held four meetings to discuss the topics set forth below and the scope and results of EY's audit of the Financial Statements. EY attended virtually two meetings of the Audit Committee in 2020. The Audit Committee separately met with EY once without the presence of the Board of Management.
The Remuneration and Nomination Committee met once in 2020 to discuss the topics set forth below. The member of the Board of Management was not present during this meeting.
Name | Supervisory | Audit | Remuneration |
Board | Committee | and Nomination | |
Committee | |||
Mr Lodewijk Hijmans van den Bergh, Chairman | 6/6 | 4/4 | 1/1 |
Mr Douglas Dunn, Vice Chairman | 6/6 | 4/4 | 1/1 |
Ms Mona ElNaggar | 4/6 | 3/4 | 1/1 |
Mr Niek Hoek | 6/6 | 4/4 | 1/1 |
Mr Carlo Bozotti | 6/6 | 4/4 | 1/1 |
As from the moment Ms Oliphant was prospectively appointed to the Supervisory Board on August 1, 2020, she attended all meetings of the Supervisory Board, including all additional bi-weekly/monthly update meetings.
Supervisory Board meeting topics
Key topics discussed by the Supervisory Board during 2020 included:
• Besi's annual budget as well as quarterly revised estimates related thereto.
• Quarterly business reviews and a review and discussion of Besi's 2020 annual budget with the Board of Management, certain members of senior management and key Besi staff.
• Semi-annual reviews of current strategic planning initiatives and the principal risks associated therewith as well as the implementation of Besi's long-term value creation strategy.
• Besi's technology roadmap and related research and development programs.
• The ongoing transfer of operations from Europe to Asia and reductions to Besi's cost structure.
• The general risks associated with Besi's operations.
• The ongoing operational development of Besi's processes, procedures, ERP and IT systems.
• The assessment and review provided by the Board of Management of the structure and operation of Besi's internal control and risk management systems as well as any significant changes thereto.
• Potential strategic alliances and acquisitions including the hybrid bonding joint development agreement signed with Applied Materials, Inc.
• ESG related topics including a review and enhancement of Besi's current policies and the Environmental, Social and Governmental Report included in this Annual Report.
• The placement of € 150 million of senior unsecured Convertible Notes due 2027.
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BE Semiconductor Industries NV published this content on 19 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 March 2021 09:01:05 UTC.
