Chairman's message

2008 was a decisive year of consolidation after Spectracom and Pendulum Instruments’ acquisitions that propelled the Group in the top 3 of its sector while maintaining its pole position in terms of growth and profitability.

This new year of profitable growth illustrates the virtue of an original managerial approach. Since the foundation of the Orolia Group, an organizational structure similar to a federal state was adopted. Indeed, the Group’s strategy is defined in a centralized way before organizing and delegating the authority and the decision making-process to the Group companies that are on the field whether it is in Neuchâtel, Rochester, Paris or Stockholm. This decentralized management structure and the culture of the Group foster initiatives, open-mindedeness and maintain our employees’ motivations while they constantly refine their understanding of our markets and customers. The dynamics and the quality of our product and service offer, which result from these characteristics, undoubtedly explain our growth and our gains of market share. We are also convinced that the Orolia management approach intrinsically creates value for our shareholders as it permits to leverage four key performance improvement opportunities, which are characteristic of our subsidiaries or targeted acquisitions:

High-tech SMEs specialized in electronic equipments and systems for relatively mature markets such as space or defense and security often present substantial improvement opportunities in terms of management, performance optimization, international development or implementation of an ambitious growth strategy. Accordingly, those companies can benefit from belonging to a Group knowledgeable of their types of activity, that has the ability to understand their technologies, that has sufficient financial strength for their future development, and experienced in international expansion, innovation or merger and acquisition.

Even for businesses with a sound management team and a high level of profitability, the presence of Orolia as a parent can significantly improve their global performance by optimizing their development strategy, by analyzing in greater details costs and revenue sources of their different product lines, and by focusing their management teams on cash generation, risks reduction and shareholder value creation.

As a matter of facts, financial investors are frequently reluctant towards the high-technological sector where it is fundamentally more complex to apprehend the market trends and technological evolutions that can potentially impact the way of running the business. The Orolia management team is both skilled in financial matters and capable of understanding its subsidiaries’ uniqueness and the characteristics of their markets and technologies. Thus Orolia is in a favorable position to weigh the pros and cons regarding new investments, development of new market segments and technologies or even new acquisitions. Being the intermediary with investors who can check and rely on Orolia’s global performances allows the Group to provide strong financial resources to its subsidiaries, therefore supporting their development that could otherwise be restrained by a lack of cash.

A management team with a supportive, decentralized management style is attractive to entrepreneurial managers and to many owners of SMEs who wish to sell their companies but to keep managing it. This gives Orolia the opportunity to make acquisitions in non-competitive, favorable conditions.

Spectracom and Pendulum Instruments’ acquisitions are two good examples of this value-creation alchemy. For instance, since its entry in the Group in August 2007, Spectracom doubled its sales turnover thanks to the cumulated effect of its merger with Orolia’s former subsidiary Temex Sync, and the acquisition of Rapco Electronics in the UK earlier in 2009. Spectracom’s focus (promoted by Orolia) on international development strategy and on the defense market already bears fruit. On the other hand, the Swedish company Pendulum Instruments, which joined the Group in March 2008, benefits from Orolia’s marketing support and is now in a position to accelerate its development strategy by adding new products to its existing test and measurement solutions, such as the frequency distribution systems of Spectracom or other test equipments developed by SpectraTime, which delegate to Pendulum their distribution. Conversely, Pendulum’s position in Asia and Eastern Europe starts to be leveraged by the other Group’s subsidiaries. Those initiatives will continue and intensify all through 2009.

At a time where the world plunged into a considerably deep and wide crisis, common sense commands caution regarding forecasts, all the more so as the visibility on the timing and path to recovery remains extremely uncertain. In this context, we apply the principle “aim for the best, prepare for the worst » by protecting our sales and product development investments, while keeping our other costs as low as practically possible and looking for productivity improvements all through the Group. This attitude explains that, even though we are fully aware of the difficulties affecting the world economy, our objectives for 2009 is still to develop our market shares while maintaining a good level of profitability.

Jean-Yves Courtois, CEO of the Orolia Group