SPS IPC Drives 2017 Phoenix Contact – Key partner on the road to a smarter world

Ladies and Gentlemen:

Welcome to the press conference of Phoenix Contact on occasion of the SPS IPC Drives 2017.

Phoenix Contact is concluding a highly successful business year by presenting a technological highlight at this exhibition: the industrial controller PLCnext Control. This marks the start of the global launch of the new, open PLCnext Technology, after a six-month early-adopter phase. From here on, this new dimension in automation technology will be actively used for a full range of industrial applications. PLCnext leads the way into a new era of automation solutions for the smart world of Industrie 4.0. The technology is a synergy between the openness and flexibility of the operating systems of smart devices, and the safety and robustness of traditional controllers.

Phoenix Contact's dynamic revenue growth, which currently amounts to 11.5 percent, recently pushed the company's global revenue over the threshold of two billion euros - ten years after a revenue of one billion euros was reached for the first time. The foundation of this market dynamic is the early introduction of a sustainable strategy and structure program under the name “Agenda 2023”, which describes the company's direction for the future.

The global restructuring of the company into three largely autonomous business areas (BA) acting on their own responsibility, with a clear focus on market and customer segments, establishes the prerequisites for a high level of customer orientation and integration into customer processes. Additionally a business segment parallel to the core business was created: The new segment for innovative business fields makes it possible to identify the disruptive business potentials currently arising in the wake of the increasing digitalisation at an early stage and to respond with the necessary foresight.

Economic situation

Looking back on 2016, the Phoenix Contact Group, like the rest of the automation industry, showed only modest growth. With a revenue increase of three percent and a total revenue of 1.977 billion euros, we narrowly missed the revenue target of two billion euros. It should be kept in mind that, due to negative currency effects, the growth in euro was lower than the market growth, which was a moderate five percent. If one takes a look at the revenue development through the last year, it becomes apparent that the fourth quarter of 2016 already brought a noticeable market upturn. This positive trend solidified in 2017, resulting in both the market growth and the growth in euro being around 11.5 percent this year. Over the course of the year, the currency effects largely cancelled each other out.
In some respects, the market development has been quite turbulent - in some significant areas, the growth exceeded 20 percent. This resulted in considerable challenges in the supply chain. In this situation, meeting the expectations of the customers remains Phoenix Contact's top priority, and thus we were still able to always uphold a high-standard delivery service.

A look at the development of the global revenue shows that the growth rates are good. This applies relatively uniformly and across all markets. After three weak years, the Chinese market has significantly improved and now shows double-digit growth. The situation in the USA is similar. In 2016, the business development in the USA stagnated at the rate of 2015, but 2017 has brought significant growth at a rate in the upper single-digit range. The good growth that Europe enjoyed in 2016 continues unchanged and is also in the upper single-digit range. With a 30 percent share of the worldwide revenue, Germany is still the most important market for Phoenix Contact. The current growth in Germany is extraordinary. For the first time in years, our revenue increase exceeds 10 percent.

To meet the needs arising from the significant market-driven development in sales, we invested in production accordingly. We have markedly increased the production capacity this year, for example, by commissioning two new production halls with 23,000 m² floor space at the Nowy Tomysl location in Poland.

In total, the costs for investments will this year once again be around seven percent of the worldwide revenue, with R&D costing roughly six percent. The number of employees will increase by 1200 in 2017, to a total of more than 16,000. Approximately 500 of these new hires will be in Germany.

Currently there are no signs that the positive market development is slowing down. We are assuming a revenue growth slightly above ten percent and, therefore, an absolute growth of more than 200 million euros and a revenue of 2.2 billion euros at the end of the year.

Agenda 2023 – Basis for the digital transformation

A core aspect of Agenda 2023, which defines the direction of the company, is the merging of business units into business areas (BA). A significant success factor of the BA structure is the fact that the business areas are, to a high degree, independent business entities. This includes complete responsibility for the commercial success. By merging responsibilities for shaping the product portfolio, global production, the marketing strategy and sales, “companies within companies” were created, with all the benefits that that entails. A new management level, organized in the form of BA boards, stands side-by-side with the executive board of the Phoenix Contact Group to govern this corporate approach. The executive vice presidents of the group are responsible for group-wide synchronisation of the strategies and processes, as well as the utilisation of synergy potential. Institutionally, the executive board of the group and the BA boards come together in the so-called “Executive Committee.” This organ consists of the four members of the group executive board, as well as the presidents of the three BA-Boards: Dirk Görlitzer (ICE), Thorsten Janwlecke (DC) and Ulrich Leidecker (IMA). This management level is completed by the president of the USA holding, Jack Nehlig and the president of the China holding, Jiandang Gu, as well as the head of Corporate Development and New Businesses, Andreas Rau.

New business fields as a new business area

The new corporate structure also forms the foundation for Phoenix Contact's targeted and consistent transformation into a digital company. An important component of this is the new business area called “New Business Fields,” which focuses exclusively on building up new, future-oriented business fields. Here, free from the “constraints” of the core business, an innovation and start-up culture is promoted, with the freedom to explore new experiences and learning curves. This area serves as incubator for new business models, as home for new business fields and as inspiration for innovations. Here the subsidiary Phoenix Contact Innovation Ventures plays an important role. This company-internal corporate venture fund invests in start-up companies working in fields related to digitalisation and automation. In 2017, the company made the following new investments:

In February, shares of smart B Energiemanagementtechnik GmbH were purchased. The Berlin-based company develops innovative methods for energy measurement and consumption analysis. In May 2017, the investment in Blue Inductive GmbH was sealed in Freiburg. The company offers technology and products in the field of contactless energy transmission. Thus, the portfolio of Innovation Venture GmbH currently consists of five minority shareholdings.

To get wider access to potential partnership options, Phoenix Contact Innovation Ventures invested in two externally managed technology funds. Firstly in the High-Tech Gründerfonds HTGF III from Bonn, and secondly as industrial anchor investor in the Technologiefonds OWL from Paderborn.

Internal start-up for additive manufacturing

Protiq GmbH is an internal start-up that is part of the Phoenix Contact Group. The company specialises in a range of services and products for additive manufacturing that are offered via an online platform. In addition to building up a new business field, the aim is to gain experience in handling and operating online marketplaces. Protiq provides a digital customer interface where all interaction takes place. This includes everything from processing of the customer's 3D data to an extensive material selection and online price calculation to the logistic and payment process. Today, this platform is a real marketplace. Here, other providers offer complementary technology or even directly compete with the services provided by Protiq. It has become a true eco system for additive manufacturing.

Solutions for a smart world

Providing a digital product portfolio is a focal point in the digitalisation strategy of Phoenix Contact. This applies for all product areas, and in particular to the BA Industry Management and Automation (IMA).

Digitalisation in automation technology is not a new topic. Industrial control and communication technology has been digital for the past 30 years. The new dynamic associated with this term is the comprehensive and ubiquitous intelligent networking of all things, products, machines, processes and people, combined with almost limitless computer power.

Thus network technology and intelligent control technology with a high degree of adaptability become key technologies for the digitalisation. In both these fields, Phoenix Contact is placing the focus on innovation and investment. To shape these technologies to the benefit of the customer and implement them, a high level of application expertise is increasingly required. To meet this need, the so-called “Vertical Market Management (VMM)” was created within the framework of Agenda 2023. This industrial management is active in four vertical markets: process industry, energy production, factory automation, and infrastructure. It is being expanded by increasing both the capacities and the required competence.

Solutions for smart buildings

Industrie 4.0 and the Internet of Things (IoT) are not just industry topics, but instead influence all aspects of our networked lives. By taking over Sysmik GmbH from Dresden in 2015, Phoenix Contact already positioned itself for Building IoT solutions for intelligent and networked buildings.

A core element of building networking is the interaction between energy, building and property management. As the installed basis is usually highly proprietary, the Niagara Framework from Tridium is of particular importance. It provides patented technologies for object normalisation. The devices used are presented as neutral objects in building automation – regardless of the manufacturer and the bus system used to network them. Even across large, distributed sites, the objects are available to the management level in neutralised form and can be evaluated. Sysmik GmbH has been a leading technology partner of Tridium in Europe for many years and has added Niagara technology to the Inline I/O fieldbus system of Phoenix Contact that is suitable for industrial use. Thus the bridge between general building automation to integrated building, factory and property automation has been built.

In Phoenix Contact's newly built Industry Solution Centre, which was inaugurated in May 2017, these approaches have been consistently applied for the first time. The result is an architecturally and technologically transparent building with 18,000 m² office and laboratory space. The use of state-of-the-art technologies ensures low operating costs and maximum convenience for the users. The range encompasses the regenerative energies, combined heat and power units, storage systems for heat, cold and electrical energy, charging concepts for electro-mobility, as well as augmented reality solutions that assist the maintenance staff by projecting all relevant key figures directly into the system.

The building has space for 600 workstations for development, marketing, and engineering. With an investment volume of 32 million euros, it also represents a clear commitment to consistent implementation of the industrial solution provider's strategy.

For its own global property and building management, Phoenix Contact counts on the Internet of Things. The company's own product portfolio for building technology offers future-proof solutions that are used to make the digitalisation in facility management a reality, as part of the global digitalisation strategy of the company. The experience gained here flows back into the expansion of the product portfolio and is applied to the benefit of the customer.

The industrial solutions of Phoenix Contact include technologies that are of interest to the commercial building sector. To target these customers, we expanded the Building & Infrastructure Automation unit. In particular, we were motivated by the decision of the EBZ Business School in Bochum, which offers degrees in real estate management, to use technology of Phoenix Contact on their new university campus. The EBZ chose Phoenix Contact and our Emalytics platform from a large range of providers. Emalytics bundles technologies for field level integration, energy, building, and property management and offers dashboards and reporting in the Proficloud.

Here Phoenix Contact is a competent contact partner for the integral planning, implementation, management and modernisation of buildings. Building IoT thus becomes another pillar of the group-wide digital transformation and the corporate group's consistent focus on being a partner and pioneer in the networked society.

Solutions for smart energy

Since Phoenix Contact was founded, the vertical market segment of the energy industry has been a central area of application for our products, in applications from energy production to transport and distribution. This market faces significant changes as a result of the energy revolution and the new possibilities provided by the digitalisation. At Phoenix Contact, we have set ourselves the goal of also playing a decisive role in the smart applications of the future. By purchasing two companies, we expanded our product range with key elements and integrated extensive application know-how into the corporate group. With the takeover of Mauell Netzleittechnik GmbH from Velbert on April 1, 2017 and NSE AG, a manufacturer of protective devices based in Wohlen in Switzerland, on May 31, 2017, Phoenix Contact significantly expanded its offer for intelligent energy networks.

The cornerstones are formed by the essential functions required in network management: switching and protection. In the Phoenix Contact Group, the first function is covered by Mauell Netzleittechnik, which now operates under the name Phoenix Contact Energy Automation GmbH, and the second by NSE AG. The takeovers increased the staff count for this area by around 100 employees. Additionally an energy-specific component range, which forms the core of the portfolio, was gained, which means that complete solutions for complex projects can be provided. Phoenix Contact thus is a partner and solution provider for the energy revolution. From efficient wiring technology to control devices using PLCnext Technology, a wide range of services and products are offered to provide an essential contribution to sustainable, ecological and economic energy supply.

In addition to complete automation of transformer stations, the development and implementation of the decentralised, intelligent distribution network will be one of the most important challenges of the future, as the increased infeed of regenerative energy also increases the volatility of the network.

PLCnext Technology meets the energy sector's calls for manufacturer-independent platforms. It improves the IT security and software ergonomics, as well as integration of modular applications of different providers.

These measures have not gone unnoticed by the market, as is evidenced by the latest award: Innogy SE, subsidiary of RWE, honoured Phoenix Contact with the innovation award for outstanding innovations in the energy and building sector.

Development of network technology

Network technology is the key technology of the industrial digitalisation. The “digital nervous system” (Bill Gates) has been a core competence of Phoenix Contact for a long time. Building on our experience in fieldbus technology, we introduced the first Ethernet infrastructure components to the market in the mid-1990s and started to establish a product line for network infrastructure. In 2003, we entered into a strategic partnership with Etherwan, a company from Taiwan, and step-by-step built up an extensive program for unmanaged switches. The technology and manufacturing know-how of Etherwan, paired with our knowledge of the technical and applicative requirements of industrial automation, has led to a powerful and competitive product portfolio. This is supplemented by a self-developed program that provides managed switches for various performance classes. The partnership with Etherwan has proven itself to be stable and highly synergetic. In May of this year, we acquired 100 percent of the shares in Etherwan and thus cemented our competence in this field.

The specialist for industrial network technology was founded in 1996 in the USA and expanded its focus on the technological hotspot Taipei at an early stage. The takeover of Etherwan and its US subsidiary in Anaheim, CA, adds around 200 new employees working in development, engineering, sales, and marketing to the Phoenix Contact Group. In addition to products that are developed and manufactured for us, Etherwan also has an own portfolio of media converters and network components. These continue to be sold under their own brand, mainly in the video surveillance sector and transport industry.

Growth of Phoenix Contact Cyber Security

An important factor of the network infrastructure and digitalisation is network security. To address this need, Phoenix Contact concluded a strategic partnership with Innominate Securities Technologies AG in 2006, and later took over the company in 2008. In January 2016, the stock company was renamed to Phoenix Contact Cyber Security AG. The Berlin subsidiary is consistently being developed into a cybersecurity competence center of the Phoenix Contact Group.

In December 2016, the corporation moved into a new building in the Adlershof Technology Park, one of the hotspots of the start-up scene. With an effective area of 2200 m², the new premises provide space for around 60 workstations, as well as a laboratory, seminar rooms and representational areas. The close proximity to the research and study scene of the Humboldt University, as well as to high-tech start-ups, is an additional benefit.

Today, our network technology spectrum ranges from media converters and Ethernet switches for all performance classes to cyber security. From wired and wireless applications to cloud-based network management, everything is covered. Development divisions and manufacturing facilities in Bad Pyrmont, Harrisburg (PA), Toronto and Taipei ensure global presence and worldwide access to technology. The 150 million euros in revenue generated with network infrastructure components play a significant role in the financial results of the corporate group. Due to the digitalisation, this product group will continue to grow disproportionately.

PLCnext control technology provides the highest level of openness and flexibility

One year ago, at this very spot, Phoenix Contact introduced the term “PLCnext Technology” and presented a concept that intends to answer technological questions that arise within the context of current and future applications with the highest possible level of openness.

Today, there are already more networked devices than there are people, and the trend is accelerating. The traditional automation pyramid is being replaced by networked structures and cloud technologies. The requirements on the security, openness, and interoperability of these systems are increasing. Additionally, innovation cycles are being drastically shortened and different development tools and processes are needed to meet the increasingly demanding “time to market”.

These developments have to be taken into account. Today, one year after introducing the PLCnext Technology, Phoenix Contact presents the first industrial controller that is based on PLCnext Technology: PLCnext Control, which carries the order designation AXC F 2152.

What makes this controller so special that it can be considered to be the start of a new era in automation?

The PLCnext Control product family starts with a dual-core hardware architecture with 512 MB memory and a system clock rate of 800 MHz. In comparison to conventional PLC technology, this is impressive - but that is not the core innovation. The current device from the PLCnext Control family has been tailored to the market for decentralised, modular small-scale controllers. The first controllers of the high-end series will follow in 2018.

The device from the PLCnext Control family is based on an embedded Linux architecture, with a core that has been expanded to include real-time capability. Linux operating systems have established themselves all over the world and offer advantages such as system integrity, stability, and secure communication, paired with optimal openness and flexibility. These benefits can now be utilised in industrial automation as well. Linux also offers the best portability to various hardware platforms and makes scaling or the use of future processor architecture possible.

The open platform for different programming languages

Even in the early development phase, the advantages of an open platform became apparent. Experts of the Phoenix Contact Group were able to make necessary modifications to the real time section of the operating system core by themselves. A decisive step which would have been unthinkable in a proprietary world. Here the many years of experience that Phoenix Contact Cyber Security AG has with Linux-based operating systems also helped. The security devices of the subsidiary are also Linux-based and regularly require special measures during the so-called “hardening” of the system architecture, which is of particular relevance in control technology as well.

The core of the PLCnext Technology uses this robust operating system positioned one level higher in the system architecture. It is important to optimally condition the strengths of the hardware and operating system for the user and to simultaneously make the applications performant, robust, communicative and, above all, secure.

Until recently, controller programming - assuming it is deterministic in principle - was only possible using defined PLC programming languages. Here PLCnext technology significantly simplifies the engineering: It represents an open platform on which multiple developers, from different generations and programming disciplines or domains, can work in parallel on one control program. While PLC programmers are programming the sequential control system of a system or machine in IEC 61131, individual system components, such as elements with optical pattern recognition or signal analysis, can be programmed in a high-level language in parallel. This happens in the respective programming environment and with the programming tools of the respective domain.

Unlike previously, the various program sequences must not be integrated into an IEC 61131 task for them to run in a deterministic fashion. The Taskhandling Execution Synchronisation Manager (ESM) of PLCnext Technology, on which the patent is pending, makes it possible to combine programs from a range of development environments with one another or within tasks, yet have them behave like homogeneous IEC 61131 code. This automatically makes high-level languages deterministic as well. Task handling therefore supports a mix of IEC 61131, high-level, and model-based languages.

ESM ensures that programs in different tasks run with the required temporal determinism and that these tasks are also synchronised with each other. What's new is that these tasks can be receiving input from various programming domains. The individual tasks can even consist of programming elements that originate from different programming domains. This provides almost unlimited creative freedom for new programming approaches and new applications.

Software and expertise from the open source community can also be used. In addition, services and apps from the cloud can be easily integrated in order to expand the control functionality. The second technological aspect is the consistency of the data of the process image. In PLCnext, this is handled by the “Global Data Space“ (GDS),” for which a patent has also been filed.

Using sophisticated mechanisms with internal port and data buffer structures, the GDS ensures that the individual program elements receive the precise and consistent data image that is crucial for running the respective program successfully. The significance of data consistency becomes clear if one images a scenario with four tasks that might be distributed among different processor cores, with the tasks in turn consisting of programming elements from different programming domains, with different priorities, task cycle times and interdependencies between the tasks. Regardless of the priority of a task and the code blocks used in the task, a consistent process image is present during the entire task cycle. This safeguards that a task works unvaryingly and in ways that make sense, even if a measurement value changes during the task processing. Each task thus has a consistent process image, so that secure and meaningful task results are obtained. This applies not only to the realtime section of the controller, but also to the usable non-real time section, in which Java elements can be carried out for example.

In addition to the ESM and GDS core elements of the PLCnext Technology, the controller has all features of a modern controller. This means an OPC UA server has been implemented, as well as system, user, and fieldbus managers, diagnostic loggers, trace controllers, PC Worx Engineer HMI, and automatic access to Proficloud, which is free of charge for the first year.

In 2018, the first system extensions will follow, such as integration of the safety technology.

Early adopters successfully make use of the open concept

Within the framework of a new early adopter program, which was launched at the Hannover Messe 2017, the first Phoenix Contact customers were able to get experience with PLCnext Technology. More than 100 customers from twenty countries participated in the program and simultaneously used new support and cooperation approaches via communities set up especially for this purpose. The reactions show that the users profitably implement the advantages of the new system approach. Within a short period, the first applications that use the system's openness were created, for example by using the latest language recognition modules from the Home area in machine control systems. Furthermore, data analysis tools in the non-real time section were linked with real time data from machine control systems, for data analytics or predictive maintenance approaches. These usages show that, even today, PLCnext Technology is able to meet new demands in industrial automation. As the requirements grow, the system will grow too - through app and open source approaches or through the collaboration in communities. The users also considered the domain-independent programming to be a substantial benefit. If one takes a look at graduates of technical education programs, a shift in their skills is noticeable. Twenty years ago, the graduates had know-how in the field of programmable logic controllers. Today, they are competent in high-level-language programming, modelling system tools such as Matlab, Simulink or also Java. The PLCnext Technology becomes the binding element between the different programmer generations that have to be able to use their acquired skills within the same automation project.

PLCnext Technology provides the basis for cutting-edge automation solutions capable of meeting all the challenges of the digitised world.

Outlook

With the new company structure as per Agenda 2023, Phoenix Contact has created the foundation and the framework for the comprehensive digital transformation of the company. It forms the basis for products, systems, solutions, and services that Phoenix Contact offers in its role as key partner for creative solutions on the road to a smarter world.

With this technological and structural positioning, Phoenix Contact is well-equipped for 2018. We expect that our growth next year will once again be in the high single-digit range.