Message to Shareholders
We carried out a transformational reassessment of your company last year. We considered the megatrends impacting the industrial goods markets—globalization, growing sophistication and interconnection of machinery and equipment, growing computing power—and re-examined our long-range direction. Based on our reassessment, we updated our vision for the Company and established a set of aggressive objectives to make that vision a reality. Reaching those goals will be challenging, but we firmly believe it is achievable.
Sun has long been a leader in compact hydraulics, most notably in cartridge valve technology (CVT). During our business reassessment process, we recognized the need to move beyond our industry-leading cartridge valves and consider a broader scope of technologies to complement our current product line. Accordingly, we focused our updated long-term strategy on achieving global technology leadership by delivering a range of innovative products and services for the industrial goods sector. This thinking led us to acquire Enovation Controls in December 2016. The addition of Enovation expands our electronic and digital capabilities, giving us access to new, highly specialized markets and customers seeking complete machine control. Additionally, Enovation brings a strong talent pool with a proven track record of new product development and technical innovation, complementing Sun’s current competencies.
Given this business expansion, your company will now operate with two reporting segments: hydraulics and electronics. The hydraulics segment consists of all the historical Sun companies except High Country Tek (HCT). We refer to the hydraulics business as Sun CVT. The electronics segment consists of Enovation Controls and HCT. HCT’s business is very much aligned with Enovation’s; we anticipate synergy between the two of them.
Sun CVT made significant operational strides during 2016. We completely redesigned its development process to emphasize the distinction between innovative and sustaining engineering. In addition, we significantly increased its direct customer interaction worldwide by hiring field application specialists to work with both distribution channel partners and end-use customers in developing new business. Committed to continuous improvement in all our operations and marketplace activities, we established challenging key performance indicators (KPIs)—metrics that show how effectively a company is achieving its objectives—for our product manufacturing and other operations. Our KPIs at a consolidated level are sales growth by region and operating margins while each location measures safety, quality, delivery and productivity. Finally, but perhaps most importantly, we expanded our leadership team to establish key global roles for engineering, product development, sales and operations which will be critical for achieving scalability and growth.
The current year is off to a good start from a demand perspective. We see signs of improvement in the global economy and specifically in some of our most important end markets. To capitalize on that improvement and reach our goals, we know we have to work not only harder but also smarter. We will be better able to identify growth opportunities through closer interaction with the marketplace. We believe there is nothing more important than getting in front of the customer and understanding his or her needs. There are parts of the globe that we have not yet penetrated which we intend to pursue with local distribution partners. Finally, we will continue to search for M&A opportunities that bring us technology advancements from good, solid companies.
While we have made good strides in the last year, we have a long way to go. We welcome the Enovation team to our organization and look forward to the opportunities that lie ahead. I am proud of our global team members—they have worked well together to make some difficult, but necessary, changes that will benefit our stakeholders over the long term. Rest assured, we are aggressively working toward our goal of $1 billion in sales by 2025 while maintaining superior profitability and financial strength. We thank you for your confidence and support.
CEO and President
March 31, 2017