Good morning, everyone, and Welcome to our Capital Markets Day. It's good to see many familiar faces, but frankly, it's also good to see new faces. With me, I have Hans Henrik Lund from Nilfisk, who will present after me, and Hans Henrik also has members of his management team. You can see them sitting here. They will be sitting here for the most of the day. Basil Garabet over here will also be on later, CEO of Photonics, and Basil also has the key members of his management team with him, and you will present that later, Basil. Today is a great day. It's the, I would say, preliminary peak of a journey we started in NKT a long while ago, and a journey that was accelerated here about four years ago when we instituted a new governance model.
This is a model where we basically eliminated our holding company, where we strengthened some key shared services, but also where we had our company CEOs report directly to the board of directors. With all being said and done, we do believe that that has led to an increased performance in our company. It has also improved the strategic dialogue between management and the board of directors. I think it has also shortened the distance between our shareholders and operations, and it has led to better strategic decision-making. One of these decisions was the acquisition of ABB's power cable division here, where we basically signed the intention to acquire about a year ago. That really kickstarted the process here to do the demerger and create two separately listed companies because that acquisition made our cable company big enough to stand on its own legs.
Here are the companies we're going to list. One is NKT A/S, and that comprises NKT Cables. Now it gets a little bit confusing because NKT Cables will from now on be called NKT, and also comprises NKT Photonics. Cables, you know, is a leading AC and DC power cable company, and we also have some strong footholds in the European market in the medium voltage and low voltage segments. I also want to remind you here that the acquisition of ABB is still so recent that we still have synergies that we are capturing as we speak. The cable company has pro forma 2016 revenues of little more than EUR 1.4 billion, all measured in market prices. Photonics, on the other hand, is a smaller company, but a very promising company as well. It's a leading high-end photonics player.
Right now, we are commercializing the strong patent portfolio we have in Photonics, and creating a company with attractive growth potential and also attractive earnings potential. We are coupling our commercialization strategies also with M&A activities, and as you can see, we have over the past year or so made two core acquisitions, and Basil, I'm sure, will cover that later today. Photonics has pro forma revenues in 2016 of EUR 43 million. Of course, that will be higher in 2017 and 2018 and moving on. We will continue with the current governance model in NKT. So Basil and his team will report directly to the board of directors, and NKT, or NKT Cables if you will also report directly to the board of directors. It's a governance model that works very well for us, and we will continue to do so to develop these two companies.
The other part of the demerger is Nilfisk. Nilfisk is a leading global supplier of professional cleaning products. We also like to say it is a company that comprises also the ecosystem around cleaning, and Hans Henrik will cover all that much more in a second. It is a great company as well. Attractive growth potential, good margin, and also high cash conversion. There is not a lot of maintenance CapEx in Nilfisk. Nilfisk has pro forma 2016 revenues of a little more than EUR 1 billion. Yesterday, we announced that we will call for an EGM, and this EGM is to finally approve the demerger. The EGM will also elect the board of directors for the two companies. The board of directors for Nilfisk will continue to be the board of directors that you know for NKT. We think we have a great board.
We have some good competencies, and we have good discussions in the boardroom. We also think we have been able to make the right decisions for the company. We will propose to the EGM that that board continues. For NKT Cables, we will make one change. Anders Runevad has decided that he cannot sit on the board of these both listed companies, so he will continue to sit in Nilfisk, and we will make a replacement of Anders in NKT or NKT Cables with Andreas Nauen. Andreas is a German national. Andreas has a long time employment history with Siemens. Andreas was CEO of Siemens Wind Power in the important years where that company really took off. Andreas has with his connections into the German customer base of ours and also into the German political systems and key German partners for us, including Siemens.
Andreas can really strengthen some of the competencies we need in the, for us, very important German market. Andreas also has the reputation of being a hell of a team member, and I think by that he will also fit right into our board. What we will also do here in connection with the demerger is to split not only the companies, but also the debt. I am not commenting on the absolute amount of debt. My colleagues will do this in a second. I will just comment on the leverage. The target leverage, as you can see here for Nilfisk and Cable are different. Nilfisk is the more, I would say, predictable and resilient company with higher cash conversion, lower maintenance CapEx.
Because of this, Nilfisk can carry more debt than NKT Cables, which is inherently a more fluctuating business associated with these projects that we enter into from time to time. Nilfisk target leverage is at or below 2.5 x. This is a pro forma EBITDA versus net interest-bearing debt. NKT Cables, we have a target capital structure of target leverage of around 1.5 x. At the outset, and we have a little more debt right now because of the ABB transaction. At the outset, Nilfisk will carry a pro forma leverage of 3.1 x, and NKT will carry around 2.2 x. We do expect rapid deleverage for both companies, a little bit faster for Nilfisk than for NKT Cables, of course, subject to the dividends and the M&A that we will also continue to engage ourselves in.
Finally, just a few concluding remarks on the mechanics of the de-merger. It was all kickstarted, as mentioned before, with the announcement of 21st September 2016, where we also announced we would acquire ABB HV Cables. We asked for the mandate to do the separation at our annual general meeting in April 2017. Today, 19th September, is the Capital Markets Day presentation, and we have the extraordinary general meeting on 10th October, where we will formally approve the de-merger. 11th October will be the last trading day of NKT Holding shares as you know it. 12th October would be the first day of trading for the two new companies. The mechanics are pretty simple. If you have a share in NKT, you will get a share in Nilfisk, and you will get a share in, also NKT, but what is NKT Cables and Photonics.
This is capitalism at its best in the sense that it will be pure supply and demand that will determine the share price on and after October 12th. There will be no book building. There are no new shares issued. It is pure supply and demand. That is a day we are waiting with great excitement. We are very excited about this day. We think what we have done has created value for our shareholders, and we think these measures will actually enable us to continue to do so, maybe even at an accelerated place. Thank you for your attention. I would like to hand over to Hans Henrik.
Thank you, Jens. A warm welcome to all of you from the entire Nilfisk team. We've been looking very much forward to this day. It's fair to say we spent a few hours getting ready. I'm Hans Henrik, for the ones I haven't met yet. I started officially at Nilfisk 2nd August. Jens normally says that he has never got that much free service as he did with me, because I started actually working at Nilfisk around 21st February. So I've done a little pre-study, but officially I started August 2nd. So it's no surprise to you that we're giving you forward-looking statements. I expect that's what you're looking for, but now I've done my duty and shown you that we will. Then let me have the pleasure of introducing the Nilfisk leadership team.
First of all, Karina, our CFO, a familiar face to all of you, and you'll see her on stage later. Then we have Mr. Americas, Andy Ray. You have the pleasure of seeing him on stage as well, and I'm sure you'll ask him a lot of questions what he's done in U.S. for the last four quarters to enable the growth he has. We have Anders Terkildsen running EMEA. Mr. EMEA, he's in the audience right over here. Then we have a change. In the months of August, we have promoted Serhat to run our APAC region to get further commercial traction in APAC. Serhat has built up all our presence in Turkey, and he has lately been running the South and East region for us very successfully. Thank you for developing that talent, Anders. So he starts now in APAC.
One of the other things we've done is that we want to strengthen our marketing focus, and be more commercial in marketing, and have marketing drive the business more than they've done before. We are currently looking for a CMO for the business. Lars Gjødsbøl. Lars has been running operations for many years, and since August, we have asked him to take on a new task, help us get all of the new exciting products and services to market. Very exciting new job, and a lot of good stuff coming out of Lars' organization. That gave us the chance to do another internal promotion of Jesper Madsen to run global operations. Jesper has been with Nilfisk since 2015, has done a great job on logistics, and is now stepping into the leadership team. We have Jacob Blom on HR, came out of NCC quite a while ago.
He is helping us drive the right culture and attract the right people and develop the people we have. We have done another change. We wanted strategy and business development to be elevated to the leadership team. We are currently searching for that person. We have our two specialty guys, Morten running Specialty Professional and Thomas running Specialty Consumer. I ask myself the question when I see when they started, if they were only 16 when they started. They have been with us for quite a while, and they are still looking quite young. That is the team, a classical functional organization with a couple of specialty areas. When you look at the details, then you see it is a solid combination of very experienced Nilfisk people that I truly appreciate, and then some rather new people, and still the opportunity to add two new members to the team.
That is the team that is running the business. Now, to the agenda. We would like to introduce you to what Nilfisk is today during the first hour also, and then we take Q&A after that section. We take questions that are related to Nilfisk today. I know you are all burning to talk about the future, but let us keep the questions to what we just presented on Nilfisk today. We take a break after that, and then we start talking about the future. We talk about our business in very simple terms, simplify and grow. We are super excited to walk you through the plans we have made for those two areas. We have a section where we will talk about the vision. Where do we want to go as a company? How do we disrupt and make a huge difference to our customers?
After that, we take another Q&A, and then comes what you have all been waiting for, I assume. Here comes the financial overview by Karina, where we dive into the details. We do a summary, and then we do a Q&A. Sounds fair? Good. Then I thought, hmm, why Nilfisk? Because some of you are interested in getting the conclusion up front, and we wanted to give you our perspective. Why Nilfisk in three steps. Number one, we have already today a very attractive market with a universal need for cleaning. On top of that, we have proven that we can generate solid value. That we expect to continue, but that is what you are buying into as a base. The Nilfisk team has been really good at making very specific plans. Most of you have heard about the EUR 35 million. That is part of that story.
Very clear plans how we can simplify our business, and we have built plans on how we can grow it as well, because it obviously goes hand in hand. There are clear plans for further value creation over the next three to five years. That's the second reason why. The third reason why is that we believe we have a vision for how this industry will go and how we will make the industry go in the right direction. That's the third reason why we believe Nilfisk is the right choice for investors. We can dive a bit deeper and talk about the industry we are in. Again, a universal need, a very attractive business, and we are a global leader in it. We've built, over the last 111 years, a very strong network in the market with dealers, 10,000 dealers out there, with 700 technicians out there.
That is really what matters in this business. We've good products in the high end, good quality products. There is a DNA of innovation in the company. There's always been that since Fisker and Nielsen started the company. Then very important, we have a very thorough, good aftermarket service because we're not selling machines, we're selling uptime. That is clearly a service element of that is very important. As Jens already said, we have a low capital-intensive setup because we don't produce the components ourself. All we do is assembly. Then, as I said, clear strategic initiatives well planned for both simplification and growth, and we believe we have a competitive edge that can make us disrupt the industry. That's the summary. Now, let's talk a bit more about it. I've mentioned it already. There is a universal need for cleaning.
Think about it this way. If you're Walmart, you know that if your store is not clean, your revenue that day will go down. Think about it in a perspective of your kids going to school. If the school is nicely organized and clean, the ability to learn is better. Think about a hospital, how important it is that it is just absolutely clean. So the value of clean is well understood by all of us, and we believe it will continue exactly that way. So it's not a market that disappears tomorrow. You know the numbers. We are more than 100 years in the industry. We had a revenue of more than EUR 1 billion last year. We have 5,600 employees. We are well presented in more than 100 countries around the globe. 45 of them all by ourself, with our sales companies.
Extremely important to point out, of course, that we are in professional cleaning equipment. 90% of what we do is professional. Also very important to say that we are a premium player. 91% of what we do is in the premium segment. That's where the value is in this industry. Then, of course, important to state that it is a very diversified business from a product perspective, floor care, vacuum cleaners, high-pressure washers, and importantly, 35% in aftermarket services. Then, of course, a geo split where we are the strongest in Europe, we are up and coming in Americas, and we have a fairly okay positioning in APAC. So bottom line, a very diverse business where we well represent it. We've built it over more than 100 years. Coming back to the 100 years, we started out with the DNA around innovation.
Nilfisk was really effective in doing M&A. We acquired more than 50 companies since 1988, and we have proven track record of integrating them in a very effective way. That is what has built Nilfisk. We have got two things you should remember about our heritage. Remember the innovation from the founders and then the ability that we have learned over the years to integrate companies. We are a sales-driven organization. You see it in the numbers. We have majority of the people in the frontline. That is where we like to have them. That is where we will continue to invest as we have done over the last couple of years. You also note that we have a wealth of experience with 30% of our people having been with us for more than 10 years.
That is obviously vitally important to understand the depth of the cleaning industry and the customers. Then in a good balance with quite a high number of new people coming to us as well, which we are obviously proud of because we are able to attract new people to our company all over the world that wants to join the journey. For me, it has been a pleasure to join a company that has done some really fundamental strategic footwork. You have all heard about it with Accelerate and Accelerate Plus. I am sure you remember the EUR 35 million. We do too. Apart from defining these projects, we have also defined a structure for ourselves so that we can become a more focused company where it is very clear what roles each individual will have.
That actually brings me to this slide where we state we are focused, and that is extremely important. 80% of our revenue comes out of the regions where we sell floor care, high-pressure washers, vacuum cleaners, and the aftermarket service. It is a very large part of our organization, and we want them extremely focused on that piece of business, and they are today. Obviously, under the regions, we have the country organizations, and again, there is only one thing they need to do in life: sell these three product categories and sell the aftermarket service. We have been able to get that focus by taking out two specialty divisions. Specialty professional consists of four businesses, Fiskers Outdoor, there is some carpet cleaning equipment for U.S. market, and then, what is the fourth one? And food. We have a specialty food division as well.
It is really, really beneficial for us to get that separated so we can have a clear focus on that as well. Two of the businesses are running really well with strong margins, food and Fiskers. The other two businesses, they need a bit of cleaning. Morten is on top of that. We have taken consumer out as well and said we need a dedicated focus on consumer. We do not believe you can run a professional business and a consumer business all intertwined. It is fundamentally two very, very different businesses from a go-to-market perspective, from a margin perspective, everything is different. Thomas is completely on top of the consumer business. That is all he needs to do. Make sure that we improve our performance in consumer. There is a job to do in that business. The important part of this slide is we are really focused.
We're not mixing it. With that as an introduction, let me just quickly continue on Nilfisk today and talk about the market and why we believe the market is attractive. We're catering to a EUR 7.5 billion market, a sizable market. First thing to note is up to 50% of that market is in high-end, in premium. Again, when you look at our presence, 91% of what we do is in the high-end market. There is a very attractive high-end market, and we are super well-positioned in that. The other side of that is, of course, that as you see, there's a mid-market, 35%-40% of the total value, where our market share, it's 9% of what we do, and our market share is probably 2%-4%. There's a good chance for us to do more in that space as well.
Looking at the geographical focus, major part of the market is between EMEA and U.S., equally split. We have an over-representation in EMEA, which is no surprise. We've been here for many years. We've built all the networks we need. Of course, we can fight for more territory in U.S., which is what Andy is doing every day when he's not here. We are the challenger in U.S. You know that we've been quite successful the last four quarters, and we expect to continue that journey. If I look at the product again, major part of what this market is about is floor care and the aftermarket services related to it. Then, of course, there's smaller parts from rack and cleaners and high-pressure washers. Then it's a market that is characterized by a lot of different customers.
We have 10 focus segments that you'll see later. That segmentation is, of course, important. What's the dynamic of this market? There's a very positive dynamic in the sense that we have three, four players, and we're probably sitting at about 40 something percent of the total market. The rest is extremely fragmented with more than 100 players, typically local players. We're not seeing any of these local players catering to a fifth position on a global scale. It is smaller players that are living in their niche. From that perspective, I kind of like the dynamic that there are three, four players at 40%, and we have every opportunity to integrate more of the 60% that is very fragmented. All good from a dynamics perspective in the market. No surprise, it's a stable market.
We talk about it as growing with GDP, and it goes well in line with what I've said before, that it is a universal market that will continue. We see when we look at the market, of course, growth opportunities in special segments, and some of those we have identified for ourselves as the places we want to go. No surprise in that. But overall, a stable, attractive market. One thing that we believe is happening these days is that our clients and customers are becoming more aware of the measurable value for their businesses. I already spoke about Walmart as an example. You can talk about restaurants as well, where we as individuals, we're not coming back to a restaurant if it's not clean. We're just not. We're not coming back to any business where you go to a restaurant and it's not clean.
The people out there are getting that perspective more and more and understands better and better the value of a clean environment for them and their employees. It is our job to help them as well. We have other great companies that are helping us as well in preaching that message. We feel that the market is now getting more and more used to the thought of value of clean. For many years, they have thought about cost of clean, but they start more and more thinking it actually has a significant value for our business. We really believe that we can expand the high-end market because that high-end market is so important for us, and we see an opportunity because today, when people are cleaning and they are buying our equipment, the cost of that is around 10% of the total cost of cleaning.
This means there are 90% that we are not catering for. 70% is labor, actual labor. There is a reason why large contract cleaners, they have 500,000 people employed, and the churn on those people are about a third a year, which is costly and sometimes unpredictable. That is where the robot technology is really what we are banking on because we believe we can help our customers save part of that 70% by going to autonomous machines. That is a bet we will make. That is what we believe in, and we believe that we are the most aggressive in this industry on that trend. I am very pleased to tell you that our best new friend is waiting for you out here. During the break, go and say hi to Liberty SC50, and see what I am talking about.
This is a very important aspect of what Nilfisk will drive moving forward. With that, concluding that we are in an attractive market with opportunities for disruption, I am really pleased and honored to leave the stage for Andy.
Thank you.
Here you go, my friend.
Thank you. Good morning. If we go to the first slide, Hans Henrik mentioned how we take a look at our segments and how we have defined our targeted customers. The work that went into this is pretty extensive, and it has been going on for some time. They may look similar from the standpoint that they have a characteristic where they do in fact need to clean, but there are some very unique differences, and that is why we focused our organization to support these segments. If I take contract cleaners for a moment, Hans Henrik mentioned the workforce that is behind this, the churn that goes on within this industry. When we get deep into their world and spend time with them, what is a way that we can affect that churn for them? How can we help them retain their employees? They are very involved in total cost of ownership conversations.
They are very involved in profitability. They are dealing with large customers. If we can make a machine with an intuitive, easy-to-use interface, where a new person coming right into that organization can easily pick up and use that machine, that has real value to them. If I step to retail operates a little bit differently. While they also have a need for clean, they are very interested in trying to create the right store image. They very much are trying to attract you or myself into that store in the hope that we stay there longer, we will in fact purchase something. So in this particular situation, yes, the machine has to clean, but we bring along with that our application experience. Is it a contract floor or a concrete floor? How polished does it need to be? What about slippery? How slippery can it be?
What is the trade-off between that? Is it a composite floor? How do you best manage a composite floor? By bringing our application expertise into that world, we are able to help meet their objectives as well. If I go over to something that is quite different into the food industry, now we step into an area of regulation.
So it is not only do we have to provide an effective cleaning solution, but we have to help our customers demonstrate to an inspector or regulator that we in fact did follow the cleaning protocols. So the way that our machines process and share data and have verifiable events that things occur is very important. So again, while these segments may appear similar, each and every one of them has a nuance that allows us to segment and focus organizations in a slightly different way to increase value and support their needs going forward.
Sitting behind the front end of the segment, we have done a lot of work in how do we arrange our sales and service organization to support them. Hans Henrik mentioned earlier that we do sales in over 100 countries, and we have 45 dedicated sales and service organizations. He mentioned the number of technicians we have, around 700, but we also have 1,700 sales professionals that are out there each and every day. When we were going through this, it was very interesting.
One of my colleagues brought forward and said, all the work we have done in commercial excellence, which is really how we deploy our sales force, how we ask them to call on a daily or weekly basis, and we take a look at the frequency and the available days that they can call. It is more than 6,000 customer touch points per day with this organization.
If we then back behind that our dealer network of over 10,000 dealers, it starts to get amazing the number of times that a customer can become associated with Nilfisk, and more importantly, Nilfisk with that customer. There were some discussions also around direct versus dealer, and how do you so effectively manage that relationship. I was telling a story to a colleague in the U.S. that it is really because we are very careful about the dealers that we select. We nurture those dealers. We support those dealers. We train those dealers. Some of those dealers are focused on certain segments. But we take that opportunity to make sure we build the right relationship. Then to support that dealer network, I will give you an example. There could be a dealer that has a distribution center in their own hometown.
However, the decision for what that distribution center will use could be in headquarters in another country or another state, in my example. So we have a very effective strategic selling unit that we started about a year and a half ago. We will send people into that headquarters, talk about Nilfisk, talk about the value we bring, deeply understand their needs, and get the opportunity to demonstrate, usually through a pilot, that we are a better provider in services for them than their current competitor. At that point then, when we win the deal, we are able to transport that deal back to the dealer and let that dealer fulfill that deal. So it is a very win-win relationship for us and our customer, and win-win for us and our dealer. If we keep that posture, we believe we will be doing very well with that relationship.
How do we present ourselves? We are very fortunate to have a significant brand portfolio. But we have done some internal soul searching. We have done some strategy. We have done some discussions. Coming out with this exercise, we are going to focus on two main brands. We are going to focus on Nilfisk as our premium or high-end brand, and we are going to focus on Viper as our mid-market or tier 2 brand. That is our guiding star, our lighthouse, if you will, of where we are focused in the future. However, we are very fortunate to have a significant number of high-value brands in local or regional applications. These could be a technical brand, it could have a very unique attribute, or it could be a brand that associates with the application.
Given those brands that we have, we want to be pragmatic and intelligent about how we migrate our current brand estate to either Viper or Nilfisk. There was an example that we put up here where if you take a look at Advance, when we acquired Advance, that was the visual representation of Advance. What we did soon after was we took Advance and brought that into the Nilfisk corporate identity, the font, the color. We also then added a logo to it, and that has gone for quite some time. Just this year at ISSA in the U.S., we launched Advance by Nilfisk. I think it is obvious as you see our ability to migrate our brand value and our brand proposition over time, steering towards either our Viper or Nilfisk brand.
This slide that sits behind our segment and our sales organization and how we present ourselves to our customers really talks about how we satisfy and meet the promises that our sales organization has made to our customers. It is our distribution system. We have a very fast and flexible distribution system, and we put some intelligence in it.
I want to point out to you that this is probably the most living part of our organization when it comes to questioning themselves. Very pleased when I talk to the people in this organization, when they see the 92% up there. Yes, we have made progress, and we are actually quite proud of that. We constantly challenge ourselves as to whether that is the right amount. We are constantly in contact with our customers. I will talk about our feedback mechanism in a moment. We know whether we are satisfying or dissatisfying our customers.
Taking that feedback in, do we have the right setup? From a business perspective, it is very obvious that if you centralize your distribution in a large hub, you have better control of asset inventory, you can negotiate better terms, you can ship more efficiently. Sometimes you have to look at yourself and say, "We are not meeting the customer needs."
Sitting right below that, we have some regional distribution centers. It could be the dealer inventory, or it could be an actual depot that we use. This is always being questioned in an organization if we are doing the right things for our customers. If we take a look then at the so what of all of this, I think coming into the organization for a year, I have been very proud and impressed with the people we have in the organization and the orientation we have to our customers.
I really do think that we have a good segment strategy. I really do believe that we have put our organization to support that in the right place. I believe our distribution centers are good and correct, and we are doing good work. I believe the spirit of improvement in all that we are doing lives every day. In a very respectful way, what I think really does not matter.
What is most important is what our customers feel. This here represents the net promoter score, which I think most of you are aware of, but if you are not, you can have a detractor who is unhappy with attributes like sales, marketing, quality, distribution, or you can have a customer who is very happy, a promoter. How we are operating with this right now, in my particular area is this comes directly to me. I get every promoter score, and I get every detractor.
In fact, I got two this morning when I woke up. If it's a promoter, I am taking that information and going into the team and letting the team know they're doing the right thing for our customers, trying to create an environment of pride, of understanding that what we do matters every day. If I have a detractor, I'm calling that detractor usually within 24 hours, but closer to 48. I get a hold of them. What's very interesting is the reaction. They come back to me, and they say, "I can't believe you called me. I'm a dealer service tech," or, "I'm just a user at a Best Buy." And I say, "No, but you took the time to contact us.
It's my obligation and my responsibility to contact you and learn." So every day, we're trying to learn from our customers to see how we can in fact improve. This is a wonderful system that allows us to do that. So it always kind of ends the same way. Again, "I can't believe you took the time to call me." Well, what else do I have to do with my time? This is fundamentally important that we never forget that we do something very important, and that we have to take care and focus on our customers in the right way. That gets us the growth agenda. So thank you very much.
Go this way. Thanks, Andy.
You're welcome.
Right. As Andy just described, one of the most important drivers, if not the most important driver of customer satisfaction in our industry today is our products. Before I go into a bit more details around what is it really we offer to our customers and how do we arrive at that offering, I'd like to show you a short video to give you a flavor for what it's all about. Please.
When it comes to cleaning technology, staying ahead of the competition requires constant innovation. At Nilfisk, we've been listening, learning, and innovating for over 100 years. That's why our product development is driven by our customers' needs, enabling us to create innovative technology that benefits their businesses. This innovation can be seen across our full range of vacuum cleaners. The InfiniClean system we introduced to our ATTIX range is a best-in-class technology that automatically cleans the filter so our customers can keep their mind on the job and stay productive. Our range of pressure washers can accommodate all sizes of cleaning tasks. The EcoPower boiler has a certified market-leading efficiency of 92%, delivering effective hot water cleaning while using much less power. In floor care, we lead the market with an extensive range from small upright scrubbers to large industrial machines.
Our largest machines feature our EcoFlex technology that adjusts performance to the cleaning level required, reducing the consumption of water and detergent. With our extensive after-sale service, our customers have access to the expertise of over 700 trained service technicians who handle maintenance and repair, maximizing uptime for our customers worldwide. As we enter into the next era of professional cleaning, Nilfisk remains committed to delivering the most innovative products in the industry.
Thank you. Now, I hope that gave you a bit of a sense of the quality and the range that we offer today to our customers. Something we are very proud of. We do believe we have a very competitive but also very innovative offering to our customers. When you consider especially the premium segment, we also do believe we have a very complete range. A range fundamentally serving all customer needs, but also allowing the customers the one-stop-shop option. Now, going into a bit of details, as also shown on the video, we divide our products into three fundamental product categories. The first one, the biggest one being floor care. This is products that polishes, washes, or sweeps hard floors, typically. There are also some carpet cleaners here who make sure that we can also handle that type of surface. But overall, that's what they do.
They operate more or less in all of the segments that Andy just went through, the 10 priority segments, and in virtually all applications. We also have our outdoor equipment here. These are larger machines that are used, obviously, in outdoor applications. It is used in pedestrian areas, smaller streets, and so forth, for sweeping. It also comes with attachments that you can use it for street washing. You can also use it for grass cutting in parks and so forth. So overall, I would say a very complete range of floor care equipment. The second one is probably the one that all of us are most familiar with. These are our vacuum cleaners. Yes, they do pick up dust as one of the primary functions. Also, smaller debris is picked up by some of this equipment.
But we also have a very big range of products here that are designed to pick up more muddy waters. But we also have a very big range of the market-leading industrial vacuum cleaners. These are very big vacuum cleaners that are integrated in production facilities and so forth. So also here, a very complete and competitive offering on vacs. The last one is our pressure washers. Pressure washers are basically water-based dirt removal. These are machines that will remove dirt from other equipment, but also from both horizontal and vertical surfaces. It is predominantly used by customers in three of our segments, the agricultural segment, building and construction, and automotive. It comes both in hot water and cold water configurations, depending on the cleaning needs. Now that's the machines we offer.
Now, the fourth category, and a very important category to us, is the 35% of our revenue which is generated through what we call aftermarket. This is a part of our business which is extremely important, and especially in EMEA, we consider this to be a true differentiator. The aftermarket combination for us consists of a very strong offering of parts, but also a very strong field service offering. That allows us to tie up very closely with our customers, have a lot of daily interaction with the customers to make sure that we understand their underlying needs, but also help them solve their daily problems. I would like to dwell a bit with the aftermarket offering and go a bit more into details of what that is all about.
Now, when we work with our aftermarket offering, the key thing we focus on is maximizing the product uptime for our customers. We need to make sure that when a product needs service, whether it is proactively or reactively, we need to make sure that we get this equipment up and running as fast as possible for our customers. In order to do this, we have an offering consisting of a handful of different things we can pull in order to make sure we do that. The first one, not surprisingly, is a very large, more than 700 people that we have in the field every single day, touching base, working with, supporting our customers in bringing the machines up to speed. These field service technicians obviously can do ad hoc service. They do that on-call based service.
We have also made some standard packages to our customers that we can make contracts on and make sure that we have a specific solution tailored for the different customer needs. Anything ranging from here in three categories: standard, plus, or premium. This could be differentiated according to our reaction time, loan machines, and so forth. These two are critical things in the service offering. They are supported heavily by a very strong offering, both in our consumables and in our accessories to the products, but also a very strong and complete offering in spare parts. We do separate our spare parts into two categories. The one I would like to focus on here is what we call the critical spare parts. We have defined several thousand parts that are absolutely critical to keep the machines running.
Here we have designed a specific offering to our customers, both in EMEA and also in the U.S., where we deliver both in night, overnight, and a standard 48-hour service on these critical spare parts so we can get the machines up and running very fast. For the more advanced customers, we also have our fleet management system. This is a system for customers who typically have multiple products that they need to make sure that they get maximum utilization out of these products or need to monitor their whereabouts and so forth. This helps the customers to drive down their total cost of ownership of the products. The combination of a very strong aftermarket offering and a very strong range of products, we believe, puts us in a very unique position from an offering perspective.
Now, how do we then arrive at what do we offer to the market? How do we know what to offer from a product perspective to our customers? Well, given our 111 years of experience in the cleaning equipment industry, but also the countless interactions on a daily basis we have with our customers, the service we provide, but also all the insights we get from customer studies on a regular basis, we know that when a professional customer selects a product, that customer will typically balance three criteria. Performance of the product, the quality of the product, and the reliability of the product. I would like to give you just a little bit of insight to what actually goes into these buckets to know what are the trade-offs we are trying to balance on a daily basis.
Performance, quite simple, it is all about giving the best possible cleaning experience for the customers. So how well does this product actually clean the floors or the surface? This could come down to understanding what are the surfaces that has to be cleaned, what is the size, the area we have to clean, are there obstacles in the area, and so forth. But also the level of cleanliness. What is actually the need of the customer in terms of cleanliness? But the performance in itself, when we design and develop these offerings, cannot stand alone. We know that many of our products have to, at least at times, withstand a very tough handling from our customers, so they need to be very robust.
But we also know that many of our customers have unskilled labor operating the equipment, but they also have, at least in the contract cleaner business, they have a relatively high turnover rate of employees. That means that the products need to be simple, easy to use, and intuitive in their user interfaces. This is what we label as quality when we talk about products. All of this obviously has to be delivered in a reliable manner. We need to make sure that these products can deliver a consistent cleaning day in, day out throughout the lifetime of the product. We work intensely with that. Obviously, it has to be done safely for the operator, but also safely for the environment. So this is what we consider when we develop our offering to the customers.
Now, in order to add a bit more flavor to it and give you a sense of what it is all about, then obviously, when we start working with a specific product, we know that these three criteria on the previous page, they may vary. What the customers value and what they put into each of these buckets will vary depending on customer segments, customer group-specific needs. So we spend a lot of time understanding, developing customer insights in order to make sure we get it right when we develop products. The example I would like to go through here is one of our recent launches, a launch last year, where we made a replacement of what we call the ATTIX platform. This is a wet and dry vacuum cleaner that is used by craftsmen in typically building and construction sites.
Now, in order to arrive on what should this product be able to do for our customers, we started out in a very structured process, trying to uncover and understand the market trends, whether they are of a regulatory nature or of a more customer-driven nature. We work on uncovering those needs. Then we do specific customer studies, both observing the customers, how do they actually use the products, but also having multiple customer interviews in different applications to understand what are the pain points and what are the key things we have to solve for the customers.
Based on this, we can carve out and start defining both the specifications, what should the product be able to do, but also what are the underlying key technologies that we need to develop or further mature that would be beneficial for the customers to make sure we lift the performance of the product. All of this leads into products that we can prototype, make concepts, and eventually do real-time testing and verification with our customers to make sure we get it right. In this case specifically, we came up with a highly competitive product, superior to competition, along the three most important dimensions for the customers. First of all, it needs to be efficient. We have to bear in mind that these people using this equipment, they're craftsmen.
It's not their primary tool, so when they pick up the machine, it has to work, and it has to work effectively, and it has to work fast. Get the job done. This means that we have a unique filter cleaning system here that enables you to not change filters too often, but we also have a second dust pickup in this product. Secondly, we need to make sure that this product is safe for the operator. These people work in areas where there's a lot of fine dust. When you work in construction sites, there's a lot of fine dust. We need to make sure that we maximize the ability to pick up and filter out this fine dust. We've done this here with a unique fine dust filtration system. Then last but not least, it has to be easy to use.
These are people who move around between different sites, between different buildings and rooms all the time, so it has to be highly maneuverable. This one has been designed to be very easy to move around. By the way, they also use this for storage of their hand tools in many cases. So it's been designed to be able to integrate the hand tools in this equipment. By the way, this range, specifically this platform, has grown more than 10% in volume compared to last year, this year. So there's no doubt that customer insights, understanding the customer needs is essential when we make new products through our new product development process. By applying the same process, I would just like to give a couple of more examples of some of the outcome of these processes.
First of all, we've worked on the left-hand side of penetrating a new segment, what we call the micro scrubber segment, or expanding our offering in that segment. This is fundamentally products that replaces mops and buckets, manual labor, and replaces this with mechanical cleaning with a machine that does the job. Here we've developed two solutions. It's used typically in narrow areas, congested areas. It's often used not as a full-day cleaning experience, but a small spot cleaning of one or two hours per day. Again, this means that the product has to be extremely maneuverable. You move around in confined areas. It could be fast food restaurants and so forth. We also need to make sure that it's user-friendly. Again, this is a machine that's picked up out of the closet, put on the floor, and it has to work.
The user has to understand intuitively how does this machine work, because it's not a part of the everyday routine to work intensely with that product. Last but not least, for the more advanced customers who use it a bit more frequently, obviously, it has to be productive. The product, the SC 250, the bigger one of the two, is equipped with our new high-performing lithium-ion battery technology, which means that it is highly productive. You can use it, and you also have the flexibility to move around without the cord dragging after it. The second one is really one of our core products in one of our core categories. This is what we call a 20-in walk-behind scrubber. This is part of the bread and butter of what we do.
The product here is a product we developed as a second generation last year of an existing product. This product is very often sold into contract cleaners, which means that productivity is absolutely essential. We make sure it gets the job done, but as productive as possible, ensuring long runtime, ensuring that you can clean in one pass the floor, and so forth. It also has to make sure that the performance is right, that we can actually demonstrate that the cleaning is done, that the contract cleaner gets the job done, not only fast, but also at the right level of performance. In this case, specifically, we've worked very hard on bringing down the noise level.
This means that the customers actually can start using this for daytime cleaning, and considering the shared labor that our contract cleaners have, this means that they will have access to cheaper labor during daytime cleaning compared to having to do it during the nights at a higher cost. Again, the first range here, the new segment, the SC 100 and SC250, that category has grown more than 10% this year compared to last year. The second one, which again, bearing in mind is part of our bread and butter, has volume-wise grown more than 20% year to date. So overall, I think a very good demonstration of what we can do by deep customer insights and getting it right when we specify the products. All of this is obviously delivered through a truly global and high-performing R&D organization.
We have more than 250 R&D employees sitting around the globe. We are organized in three competence centers that are focused on the premium offering located in Italy, Denmark, and the U.S. Then we have a dedicated competence center in China focusing very much on products for the mid-market. They are supported by technology centers in Denmark and the U.S., where we look at and work with the technologies that cut across different products and different applications and even different product groups. Then obviously, we do have representation on the production sites. This means that we have close dialogue with production when we develop the products, but also it means that we are close to the suppliers, making sure that what we design can also be produced by our partners in supply.
All of these obviously focus on and work according to the principle illustrated on the previous pages, making sure that what we deliver is customer-driven and innovative. Going back to some of the fundamental requirements, then performance, innovation, and all these things cannot stand alone. They have to go hand-in-hand in delivering the best possible quality to our customers and our products. Here we have, over the past years, focused on a couple of things. First of all, it has become obvious to us that we need to work on getting the quality embedded in the products when we design them through our new product development process. This means making sure that we can actually translate the customer needs to critical characteristics in the products and make sure that we design quality into those specific areas that are of critical importance to the customers.
This also means that we are able to support the customers in keeping the machines running longer. It means that they will reduce their downtime. The customers will reduce their total cost of cleaning. We have actually also managed to increase the level of cleaning consistency our products deliver through these processes, all of it creating tremendous value to our customers. As you can also see illustrated here, we have also seen a significant drop in the customer complaints from the market over the past three years, and we have also seen a financial benefit in terms of our warranty cost coming down significantly over the last three years. What it all sums up to from a product perspective is that we do believe that we have a very strong, a very broad, and very competitive product offering.
We work intensely with our customers to understand what are their fundamental needs to make sure that we apply that insight when we develop our offering. We do believe that this generates a lot of good innovation, creating value to our customers. This obviously also means that we need to focus on, we will continue to focus on investing in R&D. Over the past five years, we have seen a deliberate investment and increase in our R&D spending. This is to make sure that we develop the right customer insight, that we come up with increasingly more innovative products, and ultimately have the products that serve the customer needs, but also more advanced products. We will talk more about that later today. Overall, this means that we have an investment of around 3% - 4% of our revenue in R&D.
Now, those were the key things around what we offer, the offering we bring to our customers today. The second thing I would like to talk a bit about, that is then how do we then bring that to the customers? How does this come alive out of the R&D departments into production and so forth? We do operate today a very asset-light, capital-light setup in production. It is assembly-based, which means that we have relatively low investments in this area. This is obviously supported by a very strong and efficient procurement organization. Starting with procurement, considering that we are assembly-based, more than 95% of the value we put into the products are components we purchase externally, then obviously procurement moves into center stage of our operations. We do have around 80 procurement professionals working globally today.
They are located partly at the headquarter, but mostly they are located close to the R&D centers or close to production to make sure they have very close connections to the other functions. We have around 80% of our spend which is managed globally, which means that the product categories have strategies that are defined in a global context, understanding the global supply base, but also the global needs so we can make those ends meet.
The remaining part is handled in a regional structure. It is important that our procurement organization has full cradle-to-grave supplier responsibility. So they are responsible for the suppliers that flow into the portfolio of suppliers, but they are also responsible for the ones that we flow out and weed out of our supplier base. It is, however, also important that this happens, obviously, in a cross-functional context. This is not an isolated exercise by procurement.
We work in cross-functional teams in procurement, driven by procurement, but with representation from product management and from R&D and so forth, to make sure that we, at any point in time, have the necessary and most competitive supplier portfolio in each of the categories we operate within. The ultimate goal is obviously to make sure that we are able to get the maximum value out of our suppliers and drive down the total cost of what we offer. Obviously here, the price is important, the commercial terms are important, but we also take broader things into perspective, focusing very much on a total cost of ownership for us. This could be including the flexibility required of our supplier base in terms of supporting production and distribution, but it could also be working intensely with optimizing the working capital together with our suppliers.
Last but not least, it is also the responsibility of the procurement to make sure that we, at any point in time, believe that we have the right balance between what we produce internally, being it machines or components, and what we outsource to external partners. Over the past years, we have, especially in one of our still partly integrated factories in China, we have been through an outsourcing process as we discovered that we had suppliers who had matured and could deliver the components more competitively than what we could internally. Hence, we have been through an outsourcing process in this factory. So that is a bit about what procurement does, how they operate. The second element in bringing our products to the market in a cost-competitive manner is obviously our production footprint. We have, as I have already said, an asset-light, assembly-based production footprint.
We also believe that we have a relatively competitive setup. We have over the past years worked intensely, the past 10 - 15 years, worked intensely with a couple of things. First of all, we have gone through a significant round of consolidation. Merging factories, but we have also established a very strong footprint moving from high-cost countries to low-cost countries. We have today a strong positioning production-wise, both in Mexico but also in Hungary and China. Even though we still do operate, considering all the M&As, we still do operate production in 17 different locations across 10 countries. I know that obviously leads to further consolidation opportunities. Karina will address that later. We do actually believe that we are quite well positioned with the production footprint we have today. We have more than 70% of the production value is coming out of the low-cost country sites.
We also have a strong representation of the different product groups. We have all major product groups being produced in each of the regions. That obviously gives us some level of flexibility between the regions, but it also ensures that we have the internal capabilities of building each type of products in each of the regions. We also make sure that we have a supplier base that can effectively support us in each of the regions within each of the product groups. In our continuous effort to optimize also operationally our production setup, we work according to a handful of four selection criterias when we decide where to produce our products. This could be whether we want to consolidate, but it could also be when we look at new product development products. Where do we place a new product?
When we see changing in demands, then do we want to move specific product from one location to another? Here we operate with four criteria. First of all, obviously, we look at the cost competitiveness between the different production sites. So where can we actually produce the products at the most cheapest cost? That cannot stand alone. We also have to make sure that if there are specific customer needs, specific customer requirements where it creates value to have production close to these customers, then we will put that into the equation as well. The two other elements is more around capabilities. We need to make sure that we place our production close to a supplier base that can actually support and deliver components of the necessary and desired quality.
We also have to make sure that we, as an organization, have the right skills and capabilities, considering the complexity of the product on the specific sites. All of these things going into making sure that we do not sit on our hands, but that we continuously work with and optimize our production within the current setup. With this very asset-light, assembly-based production setup, we obviously have a very modest need for tangible CapEx. Over the past five years, we have been cruising around 1.5%-2% of revenue in tangible CapEx investments. The key elements within this one is actually not production-related. This is actually the tools that goes into our new product development, big injection molding tools and so forth are the majority of these investments.
The recent jump from 2014 - 2015 is actually a consequence of an increasing interest from our customers in our rental solution, leaving basically more products on our balance sheet. But looking ahead from a production perspective, we do believe that we are in a good position, and we do not have a significant need for further tangible investments here. Most of the factories do operate at one shift only, which means that it leaves significant room for absorbing further growth within the current structure. I think with that review of both what we offer and how we bring it to the market cost competitively, I would like to hand over you to Hans Henrik and open up for the first round of questions regarding NKT today.
Thank you very much, Lars.
Thank you.
All right. We have about 15 minutes for questions and answers. You see Louise walking around with a mic, and we have Stephan over here with a mic as well. If you just make a mark, and then we go and take the questions, please. Yes, please.
Thanks. Casper Blom from ABG. A question regarding your aftermarket business. Could you talk a little bit about the backlog, the sort of the lifetime of that market? How long are these contracts, typically? Also a bit about how the link between aftermarket and new sales is. Is it so that you see a lot of repetition sales once you have the aftermarket, et cetera?
I think the best one to answer that question is probably Andy. I can start, and then Andy can fill in. We have, as you saw, three different stages of contracts, like a bronze, silver, and gold. The one thing that matters, Casper, on this one is really our reaction time. That is what people pay for. We are striving in all of the cases to be there in less than 24 hours. All of that is service and repair. If you ask me, is it preventing us from selling more new machines? What is the deal? It is not. It is typically small things that need to be adjusted on the machine and serviced. There is no doubt about it from a loyalty perspective, that what we do in service will make sure that next time they will buy from us again.
There is a loyalty aspect towards the customer that matters in terms of new buy. But we are not repairing machines where we are preventing a new sale. That is not the game. Anything to add on contracts and customers?
No, very good answer, but the last point of your message is the one that I focus on, and that is the repurchase intent. I can tell you categorically that when we do service the customers appropriately, when our response times are meeting their expectations, when we are keeping them productive and up, they are in fact buying from us again. They are not shopping. It is a critical part of our business and what we are focused on, would be all that I would add.
All right.
Just to follow up, do you have a number of how much churn you have in your customers or the repetition sales? Is it 80% of your customers that comes back to buy a new machine or?
Very good question. I would probably say I do not really see or track churn. I see from one year in the business, my observation is a fairly stable customer base that ebbs and flows more with their needs and how they are growing. But if we have treated them the right way, if we support them the right way, we see a significant repeat purchase. I do not really see much churn in that area.
This is where we call a friend. We have called Anders. Anders, what is your perspective?
What Andy just said, I think we have a very strong retention of customers, and we do not see much churn, really. Whether it is 80% or 90% retention, I am not sure, but it is very high. I can also add to the service aspect that the service organization is one of our best lead generators for new sales.
Mm-hmm. Yep. If I can add to it as well, Casper, because it is typically with the large customers, not so that they go with only one supplier. So they go with two. You do not measure churn in that sense, but you measure how much of the pie are you getting. Because it would be classical that a large company would have two suppliers in. Mm-hmm.
Claus Almer from Nordea Markets. A question also regarding the service. We heard a couple years back that you were trying to sell more service agreements when you were selling an equipment. How is that going? How many of your orders does come with a service agreement?
You are asking me a question I cannot answer, Claus. I am sorry. I need to look for help from Anders and Andy again. Do we have a follow-up?
From my perspective in the U.S., it is if we are approaching a new customer, just to start from that perspective, with every quote for equipment comes a quote with the service agreement with it. We have a very strong strategic intent for attachment in that area to make sure that we do get it. I very much want that service contract. I want predictability. I want to know how to deploy my technicians. I want to understand the life cycle. The more I can touch that equipment and learn about it, the closer I can be there for the next opportunity to sell. So it is very important to us. We have a lower starting part than my colleague does in EMEA in terms of the size of the service organization and the success.
That has been a fundamental shift in the last year from my focus of what we are trying to do.
Could you put a number to it? Is it like 50% of the, let us just say, medium to larger size orders?
If you take your national accounts as-
I would say our national accounts, strategic accounts, when we are selling to a large customer, very high attachment rate on service. When I would say if we would go to a dealer-
A small and each sale, I would say less attachment. But I apologize, I cannot give you the exact ratio on that.
Okay, and then just a second question regarding delivery. You showed some numbers. First of all, in the NPS score, it only were attached with one star. Does that mean delivery is not important, which sounds a bit strange, or is that your way, or how should we read that chart?
The NPS is what we get back from customers. There have been cases where we've not delivered to the satisfaction of the customers. We have worked hard on it to get to the 92%. 92% is us saying that we deliver 92% of what we have promised. It doesn't mean that the customer is necessarily happy. Let's make sure we understand that with a number. We're on a journey together here, Claus, making sure now first step is to get to 95%, and we have ways to get there. We know we can get there. But it's a continuous struggle to get there. We should think about delivery service in two ways. Delivery service of machines, which is one thing, and then delivery service of the spare parts. We have 65,000 spare parts for the portfolio.
Sometimes, one or two of those are not on stock. That's what will make a customer really upset, and that's where we need to make sure we have the right level of stock.
Okay, thanks.
Any other questions?
Hi again. Sorry.
Why am I not surprised?
I would just take advantage of Andy standing up, actually, because I have a question regarding the Americas, if you do not mind.
Go ahead.
Andy, you have a big competitor in the U.S. especially, a listed company. My impression is that they have been using this, they have a technology where they talk about electrically converting water. They have been using that as a selling point for a while. I do not know whether it works, but my impression is that they have been fairly successful in using that as a marketing tool. What is your response to it, do you also see that you have to come up with things like that to really compete with them? Then separately also, if you can talk a little bit about the importance of eco-friendly initiatives in your selling machine.
Okay. I will take the first part of the question. When I joined the organization, my very first major event was at the ISSA show, it was in Chicago one year ago. I had heard in our booth, I had heard from the people we were talking to, that Tennant was using that quote unquote story, so I started to ask for basic proof sources. Then I started to talk to customers. I came away feeling, honestly, I would put it in the category of clever marketing. I respect them for that. I think it is a nice idea. I think it is a good conversation. But I did not see a true attachment rate to our customers for that basic advantage.
Our counter to that, this is where a little bit about what we have been doing is just my philosophy of going back to the basics. That is why what I was trying to communicate when we were up there is, if we truly put ourselves in the shoes of our customers, what do they really want? Do they want a clever marketing promotion? Do they want this somewhat odd concept that it may or may not clean better? Or do they just want their needs met? When we have gone deeper into their needs, it is the basics. It is things like on time delivery. It is things like spare parts when they need them. It is a sales organization that thinks the needs of the customers versus trying to push a piece of equipment. It is truly looking at the longer term needs of that customer over time.
We won a very important piece of business recently in which there is a co-development. There is a requirement in that customer base where their forklifts are intelligent forklifts that have very unique technology in it. They would like to partner with us to do that. Of course, we want to work with a customer like that. So rather than the clever marketing, which I think may be the state of a very mature, large organization, we are trying to be more nimble and quick and focus on what are the true values that our customers want. I wish it sounded sexy. I wish I could give you this big thing around it. But honest to God, I found in my short time, it is truly the basics of doing the right things for your customers with their needs in mind versus trying to push my needs on them.
The last part of your question on the EcoFlex and everything, as far as, in way of background, I have lived in Europe for roughly 10 years. When I compare and contrast Europe to the U.S. on the concept of eco, it is living in two completely different places. I will tell you, however, if we go to areas like California, they are very, very concerned with water consumption. They are very concerned with the precise application of chemical. They have local ordinances where if you are using a power washer, you must recover the water. I see the U.S. in transition. I can tell you I very much like to talk about it. I can tell that in almost every customer interaction, they want to hear about it. But does it translate into a true buying criteria at the very end? In the state of California, yes.
In Middle America, no. We just did a very big piece of business with the New York City Transit Authority in cleaning their subways. They were very concerned with that aspect of the equipment. I believe that is possibly one reason why we did in fact win that deal, beyond the basics of service and support with that. Did that answer your question or sort of? Thank you.
Other questions at this moment? If you do not ask, then Casper will. Yes, thank you.
Just a quick one. If you-
Just wait for the mic, please. There you go.
Hi, my name is Vishal. Just wanted to understand what your Asia Pacific strategy is, and if you are going to talk about it later, then I am fine.
I am happy to answer that question. I feel like saying we do not have an APAC strategy as such, because APAC is more than one strategy can handle, right? I can give you a quick rundown of how I look at our position in APAC. There are a number of countries where we should fuel the growth, China being one, for sure. India, potentially another one. Then there are a number of countries where we actually need to do things differently. Japan, Korea, we are troubled. We need to find new ways. Then there are a number of markets where I would say, just leave them to it, hands off. That is Malaysia, Vietnam, Thailand, Indonesia, Singapore. We are doing really well. Double-digit growth, double-digit earnings, all fine. The local guys are totally on top of it. That is another bucket.
The final bucket is New Zealand, Australia, where we have good business volume, but where we are not making enough money. That is an internal operational thing that we need to fix. If I break down your question, there are four different buckets that we need to address very differently. Two of them are strategic, which is fuel the growth, China. The other one that is strategic is crack the market, Korea and Japan. The two other ones are more operational. Leave it alone, let it grow. The other one is, as I said, fix the earnings in New Zealand, Australia.
Good morning. Franck from PrimeStone. Just one quick question on page 25, actually. Maybe a question that I did not get the answer to, but the after-sales service customer satisfaction ranking is just one star out of three. Can you shed some light as to why this is the case?
I can try.
What is being done to fix it?
Right. I actually talked about it briefly before. We have had a couple of situations where our spare part delivery was not fast enough, and I believe that is where we are scoring a bit lower than we normally would. We have had a situation where we, in Europe, in Asnaes region, moved warehousing, which caused that situation. We are now having the parts warehouse in Ghent. It is up and running. We have gone through the transition. We are comfortable around it now. But there has been a period where we did that transition, and we were not fully on the ball. Okay. It seems with that, you have earned yourself a break. We are aiming to be back here at 10:45 A.M. I encourage you to go and meet our friend outside, Liberty SC50, please. Thank you. All right. Welcome back from the break.
Let me say, this is the section that I actually have looked most forward to. We have now left behind what we have delivered and what we have done, and we are excited to start talking about the future. I want to give you a little bit of an insight outside InVIEW, because I want to just share with you how I looked at Nilfisk and what were the observations that I made when I started working at Nilfisk back in February. I felt that we had good traction, as we have just demonstrated, but I clearly also felt that we had more potential. One of the things that came to mind was the word simplify. Even though we have done a good job of getting better structured and more focused, we are still running a business that is not completely simplified. It is a fairly complex business.
I talked about 65,000 spare parts and other good stuff. There is a potential to simplify the Nilfisk business further. We have plans to do so. I can start talking about long tail of products where we can simplify. Andy briefly talked about brands. We can simplify our brand structure as well. Lasse talked about footprint for manufacturing. We can definitely simplify that. There is stuff around how we price that we can simplify. Every day at the office, as a leadership team, we focus on how do we simplify the business. That was started a long time before I arrived at Nilfisk, with a very solid program around Accelerate Plus, the famous 35 million EUR.
In a second, you will see Karina on stage, and she will explain how detailed those programs are, how the follow-up is done in a very separate tool on a daily basis. Obviously, to give you the comfort that we know exactly how we can simplify this business, and we know exactly how we bring that money to the bottom line. I will come back later and talk about the other side of this, which is the growing part. One of the things I found at Nilfisk was, we have really good growth initiatives out there. We have done a lot in various markets. You are all familiar with what Andy has done in national accounts. How do we scale that in the rest of the world? You are all familiar with some of the emerging market stuff we have done in Russia, in Mexico, and countries like that.
How do we scale that in other countries? We have actually, through these activities, piloted approaches that we are now in the situation that we can scale. That gives me great comfort in terms of how we can grow the company as well. For us, simplify and grow is key words. It is something we communicate to the entire organization as a direction, simplify and grow Nilfisk. With that stage setting, I am very happy to welcome Karina on stage. Take it away.
Thank you. Hello, everyone. I am very happy to be able to talk about simplification first, and to talk about it before growth. I strongly believe, and maybe it is also something to do with the job I have, but simplification is a prerequisite for our future growth. We need to simplify Nilfisk. It creates agility, but not least, it improve our bottom line. A big step in the simplification journey we took in August 2016 when we launched our cost saving program under Accelerate Plus. We set out to find EUR 35 million in our business in cost savings. Here, by the end of June, we have executed levers amounting to 17 of the EUR 35 million. So we are halfway. I am going to explain to you in a little while how we are going to find the remaining part of it. We work very diligently with this.
We have developed a tool. It is not a particularly sophisticated tool, but it is extremely detailed. We monitor every single initiatives that we have put out. Each of my colleagues are responsible for delivering part of the savings. I am responsible for delivering part of the savings, and we monitor and track our progress on a regular basis, and we discuss it in our leadership team meetings.
We have a solid plan and we are well on track to deliver on that. The EUR 35 million we have split into three buckets. We talk about overhead reductions, we talk about savings in our production area, and we talk about a group of other initiatives. I will come back to that in a little while. Moving to overhead reductions, that is the biggest part of our initiatives. We have set out to find EUR 17 million in that bucket. There is a number of initiatives behind that.
I am not going to go through in each detail. They are listed here on the left-hand side of the slide. Historically, Nilfisk has been very good at incremental cost savings. Throughout the years, there have been several cost saving programs. Find 2% here, find 3% there, and Nilfisk has been very good at executing on those. That meant that when we set out to find additional overhead savings, we knew that we had to look for structural changes. We couldn't find EUR 17 million by just cutting here and there. It had to be structural changes, and therefore also changes that simplified our business. The initiatives that I have listed here on the slide, we applied in each corner of the business. We applied it in all geographies and in each of our functional areas. We really took a deep look in our business.
That has meant that we have now executed EUR 12 million of the EUR 17 million we set out to. So how are we going to find the remaining five? Although there were no low-hanging fruits, some of the initiatives had immediate impact, but some of the more structural changes has a longer run-in. Just a few words on one of them. It is in my own area. It is the outsourcing of finance.
We have just signed a framework agreement with a partner where we will move transactional finance to India. This is a long journey. It is not the first company who do that. Many companies have done that before us. So we know pretty much the potential there is in that. Not going to put a number on it, but that will bridge a big part of the EUR 5 million that we are still looking for. We have just started the program.
We have initiated a workshop in Denmark and in Belgium, and we are now ready to offshore a number of tasks to India. We will get the savings there, not only from transfer from high cost to low cost, but also because our provider has promised us significant efficiency savings. Streamlining processes, aligning processes, and not least because of the scale to be able to apply all the great stuff in robotics, et cetera, will give us substantial savings in this. We will roll out the program over our countries over the next couple of years. So the savings will come in during the Accelerate Plus program up towards the end of 2019. If I just step a little bit away from the cost saving, which are extremely important, then I am also interested in reaping the other benefits of such an outsourcing arrangement.
The flexibility I get, the transparency into our cost structure, and not least the opportunity within my own area of finance to become functional experts in business partnering rather than to focus on the transactional part. So there are great things involved in this outsourcing. Let me turn to the other bucket. This is related to our production. We look for savings of EUR 12 million in this area. Lars has already talked about our sourcing. Sourcing is an extremely important part of our business with our assembly-based focus. We work diligently with our sourcing, and this is something that we have worked with for many years. Having competitive prices on our products is essential, and that has also required that we look at sourcing, and we have done that, and we have great expertise in reducing costs.
But in this program, we are looking for cost savings up and above what we need to stay competitive. We will see the savings come in two areas. They will come from the category reviews, where we work on the TCO on our sourcing, but also from reducing complexity. We currently have a significant number of suppliers, some of them very local, and we believe by consolidating that, we will be able to save cost. So bottom line of this project should lead to part of the EUR 35 million savings that we are looking for. Global production. Lars explained, and he was very proud, and rightly so, that he is now down to 17 sites, but there is more to do. This is something we have been used to doing, and as we speak, we are in the middle of moving something from Singapore to Hungary. It is some of our HV production.
We have also, earlier in the year, closed down a small factory in Brazil. So this is not a new area. But now we have, again, under this program, looked deeply into what should our future production footprint be. 70% in low-cost countries is good, but there is also a number above that which is even better, and we will try to see if we can move to some of the hubs that we have in Mexico, in China, and in Hungary. We do not expect that we would need to build new locations. As Lars explained, we have sufficient capacities to absorb when we move and transfer production to these plants. Not only moving from high-cost to low-cost countries will benefit the savings, we will also look at optimizations between the sites we have, and including in that, we will look at how do we allocate the production of each platforms.
Sometimes it makes sense to move those around, and they are also part of our saving program. The third bucket is what we call other initiatives, when we have talked about it historically in our financial reporting. It is a bucket containing all the other initiatives we have seen and we are doing in our business. I am going to talk about two examples here today. Complexity is something you can find in any business, and not least in Nilfisk. We see it all the way through the value chain. We see it in our number of SKUs, in our platforms, in our suppliers, websites, brands, dealers, customers. It is everywhere. Working on cutting the long tails of that, I strongly believe that there is benefit to the bottom line if we can reduce that complexity.
It can be a little bit difficult to put an exact nominal value on the value of reducing that complexity, but I am in no doubt that it is there. We set out targets for our complexity reductions, and we monitor very closely, not necessarily in EUR effect, but in the targets we have set, how do we achieve that? For example, over the last couple of years, we have reduced our platforms and we have reduced our SKUs quite significantly, as you can see up here, but there is still more to do, and we are working diligently on continuing that journey. That is combined with a more longer term view. We work with modularity. Modularity is not something that is invented by Nilfisk. You see that in other industries as well.
Just think of the car manufacturers, where they have one chassis, and then they put various motors and interior, and then they have a specific car. It is the same thought behind our modularization. We have done that on our HV products over the last couple of years, reducing the number of platforms from 26 - 17. It gives us clear advantages. It gives us cost saving in our products.
We get the flexibility. We ease the life of our logistics and our sourcing people. All the way out in our sales, it is much easier to sell a product you are familiar with, and in particular, it is easy to service a product that looks like the other product you serviced yesterday. Turning to the last part of this saving program I am going to talk about today, that is in a different area of our business. This is about price management.
This is about using our best practice tools to make sure that we work diligently with price management. Price management contains a lot of things. It is about making sure that we give the customer the best, they feel that they get an excellent service from Nilfisk, but that we make sure that we, at the same time, preserve or even increase our margins. This is something, and you have heard me talk about before, how Andy in the U.S. did the strategic accounts in a very structured and diligent way, which helped us to get the very good results we see now. It is the same thing here with the pricing. This is an art of diligence. You work with it very diligently. You never take your eyes off the ball, and that way you can get benefits. I have just listed a couple of things up here.
I'm not going to go through all of them, but it's basically about the whole price setting. How do you make sure that you sell the value of a solution to a customer rather than a particular product? That also includes, for instance, bundling products. The other part is we need to use our discounts and rebates in a clever way. We need to make sure that the customers who invest in Nilfisk are the ones who benefit from our various discounts or for our various rebates or support in marketing, for instance. Last but not least, it's also about looking at the whole cost to serve.
It's easy for a salesperson to add on a little bit of maybe free freight or I'll extend your payment terms, but we need to make sure that we use that in the best way, and again, use it for the customers who really adds value back to Nilfisk. We ran a pilot project in the U.S. recently, and we saw that there's substantial value in running a program like this. Andy, he's now taken the ball and rolling it out in the U.S. I hope that this gives you a good feeling about the EUR 35 million. I certainly have it myself. We're halfway now, and I believe that for the remaining half, we have good solid plans, and we will deliver the EUR 35 million by the end of 2019. Now over to Hans Henrik to talk about the growth initiatives.
Thank you. Now Karina has simplified the business. Let's talk about growth. Let's start on the organic part. I hope you took the time to watch Liberty SC50 out here. I spoke to some of you during the break, and you commented and said, "Hey, with that value proposition of being able to save up to 70% of a customer's cost of cleaning, customers must be screaming to get the product." It might not be that extreme, but it's in that neighborhood. Our key customers are really looking forward for us to get this product done because there is such an upside. We are very diligent in the testing, making sure we get it right because so much of our future will be around being the world's best in doing autonomous cleaning.
We will see the first products on the street in the first half of 2018, as communicated earlier. There's a huge growth opportunity there. Now if I refer to spreadsheets, Casper, Claus, be careful, because yes, we will get out there in 2018. We will sell the first machines. Is it going to be a huge number? We don't know yet because we will take it in the steps that we can and still make sure we deliver right. So it starts in 2018, and then it scales from there. But don't overdo it in the 2018 spreadsheet, please. Second one, sales excellence. I'm sure you've all heard Nilfisk talk about sales excellence before, correct? Good. Sales excellence to me is a culture. Sales excellence is not a program, not a campaign. It's a culture that we need in our organization.
Do we have that culture yet? No, we don't. We have been practicing. But it is normal sales methods that needs to be pushed out to every salesperson in the organization, and it's a big effort to get it done right. It is about these are the segments you go after. Here's your pipeline management. Here are your incentives that are structured so you run after it every quarter. Here's the follow-up meeting where we talk about it every Monday morning and say, "What are you running after this week?" And we talk about it again Friday and said, "How did it go?" It sounds very simple. It is not rocket science. But trust me, rolling that out to every corner of the world of 45 sales organizations and even to our dealers is quite a big job. And we are on that journey. We know what it brings.
We know that when you do it right, on an index number, you actually bring between 9% and 13% more revenue home, if you do it right. So we are fully committed on this journey. We will keep doing it, but it is a culture, it is not a campaign. It means that we need to stay focused on it for several years. But a good starting point. But it will drive growth for us. We talk a lot about service today, and I just want to illustrate some of the potential we see, because we have markets where the service revenue is really high, as you see on the slide. We have other markets where it's not that advanced yet. So we have a team of people that are traveling the globe. They're organized under Anders, and they are teaching best practice within service.
And this is how do you sell service contracts, how do you deliver on them, and so on and so forth. So there's a 20 percentage point difference between some of our low-performing countries and some of our high-performing countries. Obviously, we need to go for best practice, get it spread over the countries, and like I talked about sales excellence, service excellence is the same thing. It's a culture. You've got to preach it every day. But there's clearly potential. In the service business, it's going to be helped a little bit by all of the technology that enables us to do it smarter. Just give you one example. A QR code on a machine and a smartphone, or even HoloLens glasses, and you suddenly see how much has the machine been driving, who and when serviced it last time.
It can even tell you an exploded picture of the machine and say, this part is worn and it needs to be fixed. And when it's very advanced, you click a button and then you order the part. So all of those digital things will help us, again, in the service business to make it even more attractive. But that's the second part. First is about best practice, second is about how do we actually make it way more data-driven, way more IT-supported, and way more technology-supported. Next one, we talked about the mid-market. As I said, we have a market share of only 2% to 4% in mid-market. A little bit to my surprise, I didn't expect the gross margin percentage to be as high in mid-market as it really is. It's a decent good margin. So there is a good market here.
We've been smart enough not to use the Nilfisk brand in the mid-market, but rather use Viper, which I think is really the right strategy. We see clearly that some markets, they've gone after it. Again, Andy, some of your markets have been really successful in the mid-market. Less so in Europe. There's a chance for us to now take the learnings from U.S., Americas, and then say, how do we drive that in Europe? We are in Anders' organization going in with dedicated Viper salespeople, because we believe it needs to be separate and focused. To some degree, we're also going with dedicated Viper dealers, because it's quite often a different way into market in the mid-market. So there's clearly a mid-market position for us to have a very close look at. Strategic accounts, national accounts, we've talked about it.
Andy has paved the way in how to do it. We are learning a lot from our experiences in North America. We obviously see that we can do some of the same stuff in rest of world, mainly Europe. Anders has hired a new VP of strategic accounts to drive it here. We are basically just simply leveraging the learnings from U.S. on this one. We have a target list. We go after it. Exactly the same approach as we had in U.S. Finally, emerging markets. As I made clear before the break, we don't look at APAC, we look at targeted markets. That's what has been working for us in the past with Mexico, Russia, and Turkey. We have set our eyes on China. We said, look, this is so strategically important that we need to build our infrastructure in China.
We need to invest in it. We've been successful, as you see lately. After a couple of difficult years, we found the right leadership, and I think we've found the right formula as well. So, feeling good about that. Is China the only country? Potentially not. But right now, China is the focus country. To sum it up, we actually feel that we have very clear, pointed, focused growth initiatives on the organic front. We feel that we have tested them, and the key word is, how do we leverage that on a global scale? It is more tangible than what I have seen in other industries, that we're actually able to say that we just need to leverage it. We're not forgetting about M&A. M&A has been a very important part of our history, as you heard. It's a very important part of the industry.
We will keep going on M&A. We will be quite targeted in the sense that we are looking for things that can support our existing business. Not all parts of the business, but our main business, the professional business. If I really boil it down, probably the most important for us is channel access. We are talking dealers, distribution mainly. If they have a product that fits our portfolio, great, we're happy with that. But mostly, we tend to look for dealers. For the ones that are going to ask the question, let me preempt it. Yes, we have the funding for it, also after the de-merge. Those are the initiatives that are leading us to the guidance we've given you. We feel, as a team, very comfortable.
We feel that it is in our hands to execute the majority of it, and that is exactly what we will do. Closing that chapter, I want to take you to what I find even more important. How do we, as a company, lead the future? Because we want to lead this industry. How do we do that? Before I go into details, can you please roll the video? Thank you.
We are in the midst of a new digital revolution. Never before have we seen technology develop so rapidly, and never before have we demanded so much from it. We expect our buildings to be smart, anticipating our arrival, and delivering services to us instantly and invisibly. We want to be able to communicate and connect with vast networks of data as naturally and effortlessly as talking to another person. And we require technology that can liberate us from monotonous tasks. At Nilfisk, we believe that all of these innovations can increase the efficiency of workplaces. And we believe we can make our customers' businesses smarter. We see a horizon brimming with opportunities, and we are constantly exploring how these emerging technologies can be harnessed to deliver a cleaner and more productive everyday. We see a world of intelligent cleaning, where machines are connected, accessing data, measuring, analyzing, and predicting.
Delivering the right level of cleaning to the right place at the right time, without the need for human intervention. We see a world where a cleaning machine just knows without having to be told. Sensing and remembering an operator's settings or booking its own service call when it detects a fault. And at Nilfisk, we have already taken the first steps towards autonomous cleaning, where machines automatically learn and adapt to the environment. So join us in embracing the new digital revolution and an exciting new era of intelligent cleaning.
Thank you. Before you start saying, "Oh, this is all going to be technology," it is not. What we care about at Nilfisk is how do we use the technology to deliver on what the customers are really looking for? And customers are looking for different things. But overall, what we see is that they start looking for 24/7 cleaning. Cleaning that blends in. Real-time cleaning, I would call it. Because a Walmart in your market, Andy, is never closed, believe it or not. It is a 24/7. We start seeing IT offices. They are open 24/7. We have worked with Nordea in this process, as you all know. I sometimes feel you guys are open 24/7 as well, with the mails I get 4:00 A.M. So it is a 24/7 environment where we need cleaning to blend in. We cannot keep cleaning when everything is shut down.
It has got to be different. We need to provide those solutions to the customers, and we believe we can. That is where it starts from. How are the customer needs changing, and how do we adapt to them? Then we use technology to do exactly that. Another aspect, how many of you actually know for sure that it is clean in your office and it has been cleaned? Casper, what do you think?
We live in a waste bucket.Co
Okay. Because reality is, we do not know. We honestly do not know. Fact is, spot checks are being done by most of our facilities managers to make sure that it has been done, but it is spot checks only. We do not know when we walk into the office whether it has been cleaned or not. We are met with documentizing demands. "Can you please document that it was actually cleaned?" Which I find completely fair. Again, when you go to autonomous machines, we know exactly where that machine was driving. We know exactly where it was. Over time, we will also know how much dust it actually collected. We might also know what is the bacteria level in your office today. Those are the needs of the customer that we are really addressing.
We believe that we are well-positioned to do it because we have 111 years of cleaning experience. The ones that believe that this can be run by LG, they will come in with a robot. We do not believe so. We believe it takes a lot of knowledge about what the customer wants. It takes a lot of knowledge about cleaning, and then we add the technology on top of it to make it work. The core of what we bring to the table is the cleaning knowledge, just like it was yesterday, just like it was 111 years ago, just as it was when Fisker and Nielsen invented the vacuum cleaner. That is the core of what we do. We keep focusing on that core.
We keep focusing on our machines, and then we go out in broader circles and talk about autonomous, and we talk about digital services. Let me add a few words about how we do that. I think you've seen this before. I think you got the 70%, so I don't need to repeat that. I think the interesting part is, who dares to say where this is going to go? We do. We are basically saying that we believe within five to seven years, and Karina has taught me to say up to 10% of our revenue will come from autonomous machines. With any technology curve, it might be faster, it might be slower. We've all tried it in different industries. But there is such a strong value proposition around this that it will happen. Faster or slower, and we will lead it.
When you look at our current market, we've talked about the EUR 7.5 billion market. We estimate that about 40% of the products we do today could be autonomous products. So it's a quite significant part of the portfolio that is ready for this change. I think this is, to our customers, extremely intuitive as it is to us. The next one, digitalized services. The world is getting connected, as you all know. We can gather data from all kinds of sources, and it's actually only our imagination, together with the customers, that will put the boundaries around it. I just picked out of hundreds, I picked three cases that we should talk about. One is predictive maintenance. With all of the sensorial information we can get from the machines, we are actually able to self-diagnose the machine.
It's connected, which means we are able to get live feedback from the machine. We are able to say to you, "Dear customer, we will come and see you tomorrow because we know that your machine needs this service." And we sell that as a digital service. Which means on the customer's screen every morning, he can look at all of his machines and say, "Okay, they're all green, no worries." Which is a good comfort to get when you wake up in the morning. And we will be there before it needs to happen. So that's a really valuable service for the customer. I talked already about documentation of clean. The fact that we can prove that we've actually done the cleaning. The fact that we will be able to say, "Here's the amount of dust that we collected.
By the way, we collected most of it near the coffee machine. You might want to do another carpeting in that area to make it a bit easier for you." There are so many things you can do around documentation of clean, and ultimately, we go into some of the more health-related stuff and say, "It's a safe environment. No bacteria." All of that can happen with the right sensorial technology in the products. Of course, the last one, smart buildings. I come out of the lighting industry. In the lighting industry, we have sensors in all the lights, which means, Claus, I know exactly how long time you spend at your desk every day. Which means I know exactly where you walk. Which means we can tell the cleaning machine, you don't need to clean Claus's office today because he hasn't been here. It hasn't been used.
Just skip it. Or we have a heat map of where people walked in the office, and we know that these areas are very common and used. Okay, let's go and clean on a more sort of heavy-duty program around those areas, whereas over here wasn't used that much. All of that can be done by sensors. I know you're going to ask me a lot of questions about what's the business model behind it and all that. I just want to give you a teaser on it. My belief is that these kind of things and these services is going to be the glue with our customers. This is what will create customer loyalty to us. This is what will make it easier, not that that is the purpose in itself, Andy and us, to sell machines, but it will. That's how we think about it.
Don't take it to the level where we will monetize these services and with 100% margin and all that. Don't put that in, because it is more the loyalty and the customer benefit that this will bring for us. I wanted to just give you a sneak peek of how we talk about it internally. We lead intelligent cleaning to make your business smarter. Why is that an important statement for us at Nilfisk? It is because make your business smarter. This means for every employee at Nilfisk, that the purpose is to make someone's business smarter. The requirement to make somebody's business smarter is that you actually know the business and you know it fairly well. We are sending a strong signal to all of Nilfisk, know the customer and the customer's business, because only by doing that are we actually able to make it smarter.
That's the customer focus that Andy talked so brilliantly about earlier. We will keep enforcing that. We dare to say we lead. This means number one. Doesn't mean number two, doesn't mean number three, doesn't mean fast follower. It means we lead. Very bold ambition that we will pursue as a team. Very clear signal to our organization. The core of the sentence, intelligent cleaning. We don't do dumb cleaning. We do intelligent cleaning. By the way, intelligent cleaning, we have done it for 111 years. Intelligent cleaning is not something with artificial intelligence and all that stuff. It is all the things that we are doing, and we have done for 111 years. Again, back to the first electrical vacuum cleaner. Intelligent, check. It's back to what is the right angle of a scrubber deck against the floor? What is the hardness of the brush you need?
All those kind of things, plus all the things that Lars talked brilliantly about. So clear signal to our organization. Know your customer's business. Bold ambition. We want to lead, and we lead intelligent cleaning. So do things where our knowledge about cleaning is applied. That's basically what this sentence is all about. You might see it differently in the marketplace, but I wanted to give you a feel for how we think about it internally. You also realize that we haven't hired the right CMO yet, so there might be changes to this sentence. But this is how far we've come at this moment. With that, we are ready for the second Q&A. We have Stephan and Louisa on the floor again. Any questions, please.
Claus from Nordea. A few questions from my side. First of all, I know you said you would not talk too much about the pricing model for all the services, but what about the machine? How are you going to do there? Will you be able to capture some of this labor cost saving?
Right. So there are two answers to the question, really. Number one, we are not going to give our customers all the 70% savings. Point one. I am not going to tell you how much we believe we can do, but we believe that we can have a part of the 70%, of course. So that is number one, as a starting point. Then Claus, it is going to be like any technology. That initially you can hope for over proportional margins, and then you slide down the curve, competition figures it out, and then you are back to where you started on a normal margin level, I believe. Then you need to reinvent again, and you go up, and you go down. I cannot give you details at this moment how much we can charge. We are looking at it. We are doing all kinds of studies.
You follow the logic that we are not going to give away the 70%, all of it, and we believe that being first will give us a margin gain.
Okay. That makes sense. Then, looking at your clients, maybe excluding the largest clients. All these talks about digitization, et cetera, et cetera, et cetera, how ready are the clients actually to do all this?
Super ready. Super ready. You just go, I will not mention the name, but it is a Danish large cleaning company. Okay. Go and check out some of their new futuristic offices that they are building in Germany and all of their plans. Go and look at what their COO is communicating on YouTube in terms of intentions of the intelligent office. They are super ready.
Does that go for all segments? No, it does not. But it is a matter of finding these key customers and say they are ready. I can give you another one. Let us talk about a large IT company that hires extra 50,000 people from time to time. They insist that in their warehouses, no human being can be. How do they clean, right? So they are very much ready for the technology. Think about it, cleaning in the dark. You actually save the cost of lighting.
So those guys are very ready as well. Then I would just take a country for the fun of it and say, think about Japan, where today in retail, you are being met by a robot that is serving you. There are certain countries that are also more ready for technology than others. So it is not a definite everybody is ready, but the most forward-leaning contract cleaners, the most forward-leaning direct accounts plus certain countries, and obviously we are adjusting the rollout to that space.
That sounds, of course, rather great.
Now comes the follow-up question. Come on. Yes.
No. You are probably ahead of your key competitors, but if you look at top six, seven, eight, nine, 10, will they be able to copy or repeat these types of products?
It's a brilliant question. Thank you. Claus, reality is, I spoke earlier about three, four players, big players, having 40% of the market and the 60% being quite scattered and fragmented. One of the things that actually makes me believe that the big ones will prevail and prevail even more is that the small ones can't afford the investment. I see the technology adoption as a great opportunity to actually see a bigger consolidation of the market. The small ones cannot do it.
Okay. Thanks.
Turn around, Steffen. Just stay at that table.
Thanks. Karina, the EUR 35 million of savings, you were so thorough in going through them and where they should come from. Maybe you could comment a bit on how you aim to keep them and not, how can you say, hand it over to customers by the end. Also on that matter, you talked about streamlining the product portfolio. How does that relate to your target of using 3% - 4% of sales on R&D every year? Should we think about it that more R&D is, so to say, being used internally to, how can you say, optimize the portfolio for your sake rather than to develop new products for customers?
Okay. Let me take the last one first, because we don't intend to spend more on R&D. But if you just listen to what Hans Henrik was saying, I would have imagined the question would come up, how much is that going to cost?
Exactly.
We are going to divert some of our R&D to Hans Henrik's plans to some of the product streamlining modularization plans. Then we have said to Anders and Andy, maybe for a period of time, you won't get 35 new products over the next couple of years, but they also have sufficient products to sell from. Of course, they're still going to get some. But we think with the same amount of money, there's plenty for all initiatives.
If I can just add, we are actually saving by cutting these products out. It is not a matter of last spending more money on it. We are actually saving by having fewer products. The tradition of Nilfisk has probably been that we have done a large number of introductions over the year. We believe it is better to do fewer and then make them more impactful. We are actually taking some of the traditional products that we have done in the past, so we do fewer, more impactful, and then we load that investment to new things like we just went through. The other part of the question about the 35.
Yeah. By doing these structural changes, we have lowered the cost relating to those areas. I will also come back to what is our medium-term outlook, which sort of put a little bit of a restraint on me, how much can I spend in other areas? It would be a little bit silly to just let that out with the bath water again. We will, of course, when we reach a different level in EBITDA, make sure that that is then our new grounds from potentially growing from.
And you do not see a risk of competitors also taking out costs and thereby creating the possibility that prices overall could be lower in the industry?
That is always a risk, but we have had that risk for 111 years, so that is business.
I have to say, again, from an outside-in perspective, it seems like in this industry that the big three, four are quite good at not making that happen. It is not like we see sudden very strange moves by competition on pricing that we were not expecting. Those kind of things are not happening at this moment.
Then just the final follow-up on the 35. If you could give a little insight to how it affects the cash flow, working capital, et cetera, if there is more to go for there also.
I am going to come back to that, so if you will give me a couple minutes.
Thanks.
Other questions? It does not seem to be the case. You. Yep.
One final question. Steffen Weyl, Allianz Global Investors. On the Viper brand positioning, mid-market usually can be quite squeezy. Can you share some thoughts on the low end, how they catch up, and how you defend yourself against that?
If I stay on the mid-market first, as I said, I have actually been surprised by the margin percentage we are able to gain in that market. That makes me feel quite comfortable. Is there a lot of competition in that space? Oh, you bet. I was at one of the big exhibitions in Italy in the spring. I am amazed about how many people can get into that space quite quickly with machines that on the surface of it looks quite okay. It is a super fragmented, competitive market. But still again, with the Viper brand, we have been able to do a quite good business. And we have every intention of continuing that. In the low end, we are not playing. It is 15% of the market. We have no intention of going into that space at all.
We are right now focused on saying 2%-4% market share in the mid-market. That is about 40% of the total market. We can do better. And if the margin stays as we see them now, that is a very attractive business.
The mid-market eventually is not that rocket science. The low end will develop. How can you really make sure that-
If I give you the-
They can take the share of the up trading eventually there.
Right. If I give you the real long term on this one, this is a long term. It has nothing to do with this short term. Long term, we believe what we announce in the premium segment obviously will dripple down and be part of the mid-range segment. So over time, it might actually turn out that the mid-market becomes even more favorable, because the investment in the technology and all of that cannot be done by the small ones. So that's another upside on that market. Again, rest assured, we are aware of the risks of the mid-market. Meaning it can lead to lower margins if we're not careful. We know it's very competitive. We've taken a cautious approach in terms of not using the Nilfisk brand in mid-range, and we will not use the Nilfisk brand in mid-range.
We will be very careful in how we differentiate. We are today on Viper not offering service directly from us as a differentiator, again, just to make sure that we are not harming our premium business. I would call it a cautious and optimistic approach to mid-market.
Just have a question regarding the national accounts to you, Andy. I know there was a slide on this segment. Maybe you could add more flavor to this. Should we expect you to add one national account every quarter, every year? What's the potential to grow inside these accounts?
Apologies for no microphone. I am quite optimistic on our strategic account strategy. If we step back and take a look at the traction we have had, it has been with a very focused targeting strategy. If we add some other elements to that and increase some of the things our customers are looking for, I see some good growth going forward. I am optimistic. I do not count in terms of one per month or one per day.
We run a pipeline, and we are quite disciplined about our targeting. I will give you two examples. Initially it was, go out and sell to any national account you can, 50,000, 80,000. To no, let us focus on 500,000 and higher in terms of transactional opportunities. It is a repurposing of our team into high-value customers. Right next to that is, do we know the customers enough to really know what they want?
Do we know enough to dislodge the competition? Do we really? Let us step back, and less is more. Let us move very deliberately, very focused, and that is why our hit ratio has been so high. Right now I am pleased with my pipeline. I am not looking for a target or putting a team on a target once per month, once per day. Sometimes we get two per week. Sometimes you do not get one in a month. I am building towards a three-year plan of where I would like to see us have a very solid revenue position within that part of the business in complement to our dealer. Does that help at all?
Yes, and open up for new questions. The hit rate. You mentioned hit rate. What was the hit rate?
Very good.
Is that 50? Is it 25%, 75%?
Very good.
Okay. Then giving the outlook of Nilfisk, this 3%-5% organic growth, what percentage would a national account contribute with in the U.S. market? Or what would the share be of national accounts three to five years down the road?
I do not know if I can answer that, honestly. I know the aspiration is to continue our growth curve in strategic accounts or national accounts. But I do not know if I can give you an honest end game target. I see tremendous opportunity that I can assure you of.
Okay, thanks.
Okay.
Hi. Just a follow-up question on the national accounts. I understand you want to bring best practice from the U.S. on the national accounts to Europe and the rest of world. Could you maybe shed some more light on what is the best practice? Secondly, do you think that you might see competition from a new Tennant with the IPC under the hood?
If you take the first part, I will take the second.
I wish there was some amazing insight I could give you on best practice. But as I tried to talk earlier, I would categorize it as just the basics. When I went through the segment strategy, what I was trying to articulate was the concept of focus and the concept of knowing who you are and who you aren't. The best practice that we took a look at was picking a customer that is willing to work at a strategic level. Is willing to look at things like total cost of ownership. Is willing to understand a service model that may be different than what they do today. But taking a look at those customers that are willing to have the right kind of conversation, that would like to engage in a long-term relationship, is the basics of strategic account selling. That's what we've been doing.
Not going everywhere, but going to the right place. Then we've been taking that key lessons and very simply coming to other customers with success story selling. In your industry, we've been working with customer X, we were able to do this, and this. Is that something you might be interested in exploring with us? By the way, can we learn more about what you're doing? What I'm most excited about is Anders activity, and what he's doing is taking the full power of Nilfisk across the globe. So we piloted with a couple of national accounts inside the U.S. borders. But what about a national account that's a global account? There's quite a few of them out there. What if we approach them with that type of strategy and get a much bigger footprint?
That's the work that Anders is working on with the gentleman that we hired that he mentioned earlier. But that's the most honest way I can answer it. It's not a sophisticated algorithm. It's basic strategic key account selling, but keeping the organization very focused on what we do well and replicating that, making our customers successful, and then communicating that success to other customers. It's not more complicated than that.
The IPC question. Starting point, we have a tremendous respect for what Tennant is doing and what they have done since 1870. Great company, great executors. Specifically on IPC, we were expecting to see changes in the market, moves in the channels, and when I discuss it with Anders and his country managers, we are not seeing it yet. I emphasize yet, because I am not taking it for granted that it will not come. But reality is they have not used IPC very sort of offensive in the channel. It has been business as usual. We know from the Q2 report, of course, as you know as well, that they had internal things that they were struggling with, and that might just have postponed their market actions. But we are waiting for their market actions to happen, and we will address them accordingly.
I can only say that we respect them as a competitor tremendously.
I apologize, another question, national accounts in the U.S. Hans Henrik mentioned earlier that most customers actually had two suppliers. Is the growth that you are seeing the product of your taking a bigger share of your existing customers, or you are converting customers, getting new customers?
And-
Sorry, and when you do that, from whom are you taking market share?
If I take a typical contract cleaner, and Hans Henrik indicated that they are going to usually have two suppliers, and I have seen weightings in the area of 70/30. A primary, one that is an always go-to, and then a 30 can consist of an internal strategic option to play one to the other, or it can consist of truly something that the other one doesn't offer. If I take a look at us, what we did is we took a look at, first of all, growing within our own customer base, where we have a good relationship, where we have demonstrated, and nicely can we have more of the opportunity. So growing where we are strong and expanding in. In that example, we are taking it from a competitor, and in that example, the competitor we are taking it from is Tennant.
Then, if I take a look at a cold call, if you will, where we don't have a relationship in there. This just happened at ISSA. We have picked up two, where there has been market dissatisfaction, competitive dissatisfaction. I don't know why I am getting this through a third-party story of my sales leader there, but they have come forward and said that we would really like to try you out. We are hearing good things about you. So that truly then becomes, we have no position in that account, and we want to, in effect, go deep and wide in that opportunity .
So I have both conditions going on concurrently right now. The first one is bigger. The first one has been what I would consider the success that you have been referencing with the quarter-over-quarter growth has come from simply going in and reengaging our current customers and expanding our business with that.
Okay. We are running tight on time, so I would propose that we move on to what you have all been waiting for, I assume, the numbers. Karina, take it away, please.
Thank you. Hans Henrik likes to give me challenges, and he thought, "Why don't I put her on stage after I have talked about the vision for Nilfisk? Why don't I put her on just before lunch?" What he didn't know is that the financials is, I am sure, what many of you came to hear about today, so I am sure this is going to be the best presentation of today. I am going to talk about our financials as they are. I am going to talk about risk management and then end up with how does it all lead us in terms of our outlook. I think, and hopefully it should be clear from today if you didn't know it already, Nilfisk has a fantastic story. We have a great financial profile. We have healthy margins, gross profit margin of 42%, EBITDA of 11 measured in 2016.
It has been clear from earlier today that we have more to do there. We have an asset-light setup. We have operational leverage. I am going to come back to that as well. When we grow top line, we also grow bottom line. We have a strong cash conversion. We are able to transfer our operating profit into operating cash flow, and we have a proven track record of growth. Looking at where it came from, over the last 10 years, we have grown organically almost 2%. At the same time, we grew by acquisitions almost at the same level. In each of the individual years, we have, in 8 out of 10 years, grown positively. We had one year, I am sure you all recall 2009, that was difficult for many industries, and there we took a big dip.
But apart from that, we have produced organic growth rates in the positive. Acquisitions are a little bit more unpredictable. Some years we have had zero. Last year we had 6% impact from acquisitions. Obviously that depends a little bit of the opportunities which are there. If we then look at recent growth, where are we growing the business today? Hans Henrik already talked about that we split our segments into our geographically professional business, and we split it into our specialty businesses. Looking at our geographical business, we grew last year 4%, but this year 5% organically. This year, meaning the first six months of the year, obviously. Thanks to Anders, who is, I will not say as a person, maybe close to one of the most important persons, but at least his region from a financial point of view, it is very important that EMEA does well.
And with the growth rate we have seen here, they are doing absolutely satisfactory. It is a mix of the old established mature markets growing well, France, Germany, Nordics, but also the newer upcoming countries. For instance, in Southeast Asia, and the promotion of Serhat is also a proof of that. Turning to Americas. Those of you who followed us for some years know that we have had problems, challenges in Americas. But looking at the latest growth rates we are showing, shows the opposite. It is important for me to say, and Andy, with all due respect, we have not fixed Americas. We have done well in certain aspects. We have talked a lot about strategic accounts, and thank you for that, Andy. But we also have another challenge that we need to address, particularly in the industrial segment.
We have negative growth there, and we simply haven't cracked the code of how to address that market. That is something that we need Andy to fix. Obviously, and that is a little bit of more for the Excel sheets, we have now tough comparisons when we look at the success that Andy has had in the strategic or the national accounts over the last four quarters, but I am sure we will also deal with that.
Turning into our specialty business. In our professional areas, the IVS for the industrial vacs and the food industry, they are doing very well. They grow healthily, and they have good margins. Then we have two other parts of that business, our outdoor business and the smaller carpet restoration business in the U.S., they have negative growth. So that means that there is a mixed picture behind the growth rates I am showing here.
For consumer, you will see almost 8% negative growth in this year. It was very much related to the loss of one big customer. It is not a secret we lost it on the grounds of price, but that was also part of a deliberate decision from our side. Top priority for our consumer business is to improve profitability. Growth is nice, but growth has second priority at the moment. We need to improve our gross margins. If you turn to the right-hand side of the slide, you will see that our consumer business provides, in percentage terms, the lowest contribution to our bottom line in terms of gross profit. And we need to improve that. On the other hand, you will see that specialty professional provides the largest part, relatively seen. That is not really a surprise. That sort of comes with being special that you can earn that.
And then looking at the geographical regions, you will see that they more or less have the same GP in percentages. There are aspects in it, whether it is direct, whether it is indirect, but the most important thing when we look at the GP in each of individual areas is what products do they sell. Managing the product mix is a real lever for improving our GP, and that is something that each country works very diligently with. Just turning back to the overall picture and talking just a little bit about operational leverage. When I look at the cost structure, I estimate, because it is not an exact science, but roughly speaking, and everything else being equal of course, incremental revenue growth will leave to about 40% on the bottom line. We have invested in our fixed assets to an extent that we can leverage those.
This leverage, of course, also helps us in a downturn if that should come. Remembering back to 2009, where we lost almost EUR 100 million on the top line, we were still able to make a profit on the bottom line. Looking at the entire EBITDA, historically, Nilfisk has been around 12%. in 2015, we took a dip, or we saw a dip. We did not like that, but it was 10% in EBITDA for that year. We had launched new strategy. We wanted to grow the business. We made a number of investments, both in terms of staff in the front end, but also in supporting tools. The growth did not come, which has a clear impact on the EBITDA, also proving the point of operational leverage, actually. Since then, we have worked hard on restoring that profitability.
As you can see, at the end of June, we had an EBITDA before special items of 12.9%, so a significant improvement over the same period in 2016. With my previous talk about the famous EUR 35 million, there is more to do. We have talked so much about these EUR 35 million also on previous meetings the last year. I have tried to give a little bit of guidance when will they actually fall in each individual financial year. As you heard from the plans I talked about, they are not specifically this quarter they will fall, but I have a good idea in which year they will fall.
It is important for me to state at this point, and I am just walking over here on this side of the room, that when you put these numbers in to your expectations for the year, I cannot guarantee you that you will see these effects on the bottom line, because some years we might say we want to invest further in our business. We want to invest further in growing in the future. What I will promise you then is that the EUR 35 million that I have talked a lot about, when we come to 2020, you will see that improvement on the bottom line. Last thing to talk about here with the EUR 35 million, remember the restructuring. I think also you, Casper, talked about that. There is a restructuring charge associated with this.
We have spent EUR 15 million up to now, and the rest is going to come up till the end of 2019. We have already several times today talked about our asset-light business. This is the summary of the CapEx we have, both the R&D that we capitalize and also our tangible CapEx. I think, and we have also guided for that, we will stay at the current level measured in terms of percentages, because we can and we have invested for future growth. One thing to notice, it is a little bit of a technical thing, but when we look at our R&D, we have said we will stay at around the same level in spend, but the way we are going to include it in our accounts, I expect to differ a little bit going forward.
Moving into more exploratory territory, we will have more from an accounting point of view being qualified as research, meaning that it has to go to the P&L rather than on the balance sheet. Coming from a situation where we capitalized, roughly speaking, half of our R&D spend, that will go down to an estimated about 40%. Of course, those of you who adjust our numbers for whether we put it on the balance sheet or not, it doesn't matter. We have, of course, included this in the guidance that you see later on. Finally, working capital. We have a strong conversion of our operating profit into cash flow. We work diligently with our working capital. We work on all three aspects. We work on the payables. When our sourcing people discuss contracts, they of course make sure to get the best payment terms.
We work with our receivables, also talking about payment terms, but not least about the processes of how to then collect the debt that you have. Finally, and that's maybe where we have the more or most opportunities to work with, that's our inventory. We work constantly on optimizing the inventory level in order to have a strong working capital as we have. As you will see here, coming from an area of around 19%-20%, we are now down to a relatively low level, 16.6% at the end of June. Although I like that number, I will have to say that I don't think it's a sustainable level. We have some one-off impacting. Bear in mind, this is a 12 months average number. At the end of December 2016, we had what we estimate about EUR 24 million in one-off impacting this number.
Also at the end of June, we had unusually high production activity in China. In China, they have very long payment terms compared to our other areas. So we have these unusual impacts in our current working capital percentages. If I were to give a guidance about where do I see the right level, it would be to the tune of 17.5% in a normal situation. Basically, summing it all up, we measure internally return on capital employed. I'm sure that you follow that as well. As you can see, we have, after having a rather stable level some years back, the 2015 was not a pretty sight. We have worked on that since then.
With the initiatives that we have talked about today, not only the cost saving, but also our constant focus on working capital, I believe that there's a lot more to do in the return on capital employed. This finishes the part of the financials where I look back, and I look at the numbers that we have had historically. They will look a little bit different when I now move into the new world as a standalone company. It was a great day a year ago when Jens called us and say, "Hey, you are now grown up. You're able to stand alone. I'll set you free." Really appreciated that call. Then he said, "But being part of the family, you take a lot of the family debt as well." That was not so nice. Anyway, we will deal with that.
I have just shown here how does it actually look. Jens has already said we put on an extra EUR 117 million on our balance sheet. We are born in Nilfisk Holding with a net interest, ding, debt of EUR 395 million, equivalent to a leverage of 3.1. With the working capital, with the expectations for our P&L, we will reduce that leverage relatively quickly down to the target of 2.5 or below. An estimate could be around 18 months or so, I think we will be there. I just, to the left-hand side of the table, showed on a pro forma basis what would the numbers look like under the new capital structure. In essence, there is basically no difference. One thing to note here about the tax, I have not talked about that earlier today, but here I have applied the 2016 effective tax rate of 31%.
31% is not where I expect our tax rate to be. I expect it to be in the level of 26%-28% going forward. Few words about our risk management. I basically look at two things. I look at currency, and I look at raw materials. Our currency, we hedge our transaction risk but not our translation risk. We look at expected 12 months cash flow ahead of us, and using a value at risk model, we then hedge. Our exposure is very much linked to an appreciation of the Chinese renminbi due to our production and sourcing out there, and then the depreciation of the other currencies, British pounds, the kronas, Swedish and Norwegian, and also the dollar-related currencies. Looking at raw materials, our exposures is on steel, copper, lead, and plastic.
We estimate that roughly one-third of our spend comes from contracts on formula, meaning that they are directly linked to the level of the raw materials. That means that historically we have chosen not to hedge our raw material exposure. Up until now, it has not really had a huge impact on our P&L. That changed this year, and you have heard me talk about the impact of raw materials earlier in the year, and that does impact our numbers in 2017. Finally, all the good things you have heard today, where will that lead us in the short term and also in the medium term? Looking at 2017, we guide on organic growth and EBITDA before special items. Organic growth, we guide 2%-4%, and with the 3% we had at the end of June, I believe we are well on track to deliver within that target.
On EBITDA, we guide to be within the range of 11%-11.5%. I know, and I am going over here again, that some people think I am very conservative because how on earth can you go from 12.9% at the end of June to this range that you are showing now? I have talked about increasing raw materials, but also the product mix that we have in our business makes me believe that the range here is the right one to state. If I did not think so, I think today would be a good day to share with you if I saw the range being different. But this is the level that I expect. Looking ahead, medium term, meaning three to five years, we expect that the EBITDA margin will be in the range of 13%-15%, and our organic growth will be 3%-5%.
Return on capital employed would be above 20%. Just one little piece of advice for the spreadsheets. Let me just remind you what I said about the roll-in of the Accelerate Plus savings. Let me also remind you that 13% starts in three years in this guidance that is here on the slide. Finally, how are we going to spend our money? How are we going to share it with you? We have a very clear list of priorities. It starts with growing the business. We believe there are so many opportunities that we should definitely grow Nilfisk. Secondly, we will pay out ordinary dividends. We have a target of a payment of one-third of our profits. Secondly, any excess cash will of course be distributed, could be in the share buybacks or extraordinary dividend payments.
Being listed and standalone at the first time, and also being born with a higher leverage than our target, we have said that for this financial year, for 2017, we do not anticipate to pay any dividends. We will balance on a constant basis the leverage target with the dividend policy. In this particular financial year, we believe that the leverage, bringing that down, has priority. That does not mean that then one year ahead, if our leverage is not 2.5, we will not pay out dividends. At that time, we will then balance the two again. This basically concludes the presentations of today. I will hand back to Hans Henrik for a summary.
For a summary. Thank you, Karina. Thank you. As I hope you can feel, it has been an important day for us as a team. I want to thank all of the three of you for doing excellent presentations. I now have the difficult task of summarizing.
I will try to make it very simple by saying that we are happy with what the Nilfisk team has done, where we are today. We are even more happy and even proud of the potential we have identified for the business. Ultimately, when we are standing in front of you and confirming that we have executed on it and delivered on it, that is going to be our most proud moment. So thank you for listening to us. We open up for Q&A again. Karina, you might stand up already. I am sure there are going to be questions for you. Casper took the invite. That is good.
Just on your medium-term targets. To be clear there on what is actually included in it, have you included that you will then be on the journey of robotics being up to 10% of the business and that you would keep part of the same?
Excellent question. Robotics is part of the medium guidance. The 10% you referred to is five to seven years and up to, and all of that. But it is in there. Claus was going down that road as well. Can you quantify the five, six growth initiatives and say which is which? We could, but we won't. But I can say that the robotics is not a major part of this. We've been quite cautious. Was that the right answer?
Yes.
Any other questions? Claus.
Karina, I think you mentioned in start of your presentation that you would talk about operational leverage. How do you see the incremental margin in the business excluding the cost savings program? In other words, how much will drop down to the EBITDA line from revenue growth?
I could make that calculation based on that operational leverage. I would also have to say, what do you want to invest in the business in our future growth? All in all, you can make the calculation at the 35 and then say, what's the net impact of the other two? I will not split that up in a percentage for you now.
Okay.
Just one question on leverage target. You said you likely take 18 months to get there to this 2.5 x. M&A might be opportunistic, so in the meantime, there might be quite some need to spend some more. Are there any covenants? How do you see the upside or the maximum leverage ratio you consider, and how do we get to this 2.5 over time?
In the journey of the 18 months, I have left space for a few smaller add-on acquisitions. Should any larger acquisition come, we have a facility which we can use for that. Also, we will then have an increase in our covenant so we can do that. It's not massive acquisitions we're talking about, but it would be sufficient to cover what we currently see in the pipeline. Did that answer your question?
We must have been extremely clear-
Yes
Karina, thank you for being that.
Because we say the same thing every time.
That makes it much easier. That is true. We will keep doing that. Okay, we seem to run out of questions then. I just want to, once again, on behalf of the team, thank you all for being here. It has been a pleasure, and we will keep updating you as we move forward. Thank you.
So good afternoon to everybody. I hope you have enjoyed the lunch, and that you will not only digest the lunch over the next coming hours here, but also digest the presentation that we will do. We just replaced the Nilfisk management team, and they were so nice to remind me about the fact that the share price increased 1 percentage point this morning. So that is what we are up against, guys. We will try to do our utmost to not disappoint you during our presentation.
We will within the next couple of hours cover the cable part, and after that, we will move into Photonics with Basil and Lasse. First, I will do a short introduction to NKT, then Andreas will do the solutions part, so the project business.
Then we will do a 10, 15 minutes Q&A to cover that part of the business before we move on with applications and service and accessories, and then we will do another Q&A. So that is the sequence we will have in front of us. We will do a small break before we will then end the day. I have been looking very much forward to this day, and so has my team. We have been looking forward to tell you about and explain about the business that we are all so passionate about. This slide, Jens Due Olsen covered earlier today, so I will not cover that slide.
If there are any new participants in the room now, then you need to reach out after if you need further explanations. The team presenting today is illustrated here on the slide with the dotted lines. First, it is Roland Andersen, being the CFO. It is Andreas Berthou heading the solutions business. It is Oliver Schlodder heading the service and accessory business, and it is Frida Sams heading our applications business. The ones not being here today or not presenting at least, is Detlef Wiemann being our CTO, it is Dietmar Müller, our COO, and then it is Lika Thiesen, our CHRO. I can see you down there, Lika. All in all, this is the team who are managing the business. It is a pretty diverse team, reflecting the fact that we have a lot of people employed in Sweden. We have a lot of people employed in Germany.
We have a lot of fixed assets in those two countries as well, and that is what is also reflected in the diversity of the team here. On top of that, it is a team with a lot of different capabilities from other industries, from Maersk, from the pharmaceutical business, from the packaging industry, et cetera. I am very confident that we as a team can bring this business forward. It is actually a remarkable day today because exactly a year back, Roland and I came back from London with a signed contract acquiring the ABB high-voltage business that we then announced a couple of days after. That was somehow the catalyst for why we stand in this situation today, discussing also the split of NKT Holding.
Today, we are a leading power cable producer, not only in the low end, but in particular also now in the upper end, and everybody is fully aware of the DC segment that was one of the reasons why we acquired ABB. We do a top line of EUR 1.4 billion, and with that, we will deliver EUR 140 million operational EBITDA in 2017. That is supported with or delivered by 3,400 colleagues, mainly around Europe. Looking a little bit where we are coming from, I think it is important to understand we actually represent a history of 125 years. Back in 1891, Hans Peter Prior came back from U.S. after having educated himself electrical engineer, and he started up what is today NKT.
As it appears from the slide on the screen, there have been a lot of world's first developments during the years, either from ABB or from NKT. I think that is important to understand also to understand when looking ahead of us the opportunities that we have for developing this business further. That is actually why we claim that we are among the pioneers within the cable industry. Today, we are represented in Europe, but we more and more have a global focus, in particular when it comes to the high voltage AC and DC business, both onshore and offshore. That is also why we reported in our Q2 report that we have started our sales offices in the U.S. because we deem that market to be very attractive for us in the years ahead, in particular within the interconnect markets.
You're also fully aware of the fact that in the lower end of the segment, medium voltage, low voltage, it is a more local business. You basically have a factory and you compete in the market where you have your factories. That's why we have this Northern European focus, because it is in those countries where we have our factories. Let's look on how we are organized. We are in the middle of changing the way that we are operating, and we'll talk more about that later in the presentation. But going forward, we would have a segmentation where we look at the solutions business being everything we do in the project area, so mainly high voltage business. We will have the service and accessory business where we increasingly focus on how to deliver state-of-the-art services to our customers. Also supported with the broad product range within accessories.
Then we have the more commoditized business within the application segment. As it appears here then, 55%, this is based on 2017 numbers, are in the segment solutions. Services and accessories accounts for 10% and 35% goes into the applications business. So let's look at the customers that we are serving. 65% of what we do goes into either the TSOs or the DSOs. That is predominantly the high voltage business, but also supported a little bit with medium voltage cables. That's why you can see that this accounts for 65%. So 55% on the slide before is on this part, and then additional 10% that goes into medium voltage.
Here we are servicing the utility players and the TSOs, DSOs across the globe, but of course, with a very strong focus on Europe and there are probably a lot of well-known names on the slide behind me. We also have a part of the business that goes into contractors, but more importantly is what goes into the wholesalers, where we are dealing with global wholesalers such as Sonepar, Rexel, and more locally, Solar, and that is a business very much being served by Frida. We of course also have some mega trends that are impacting our business. I will not mention all of them, but just give you some examples. We have the focus on green energy. For us, that is very much driven by offshore wind.
I was very pleased last week when I saw the new subsidies in U.K. awarding a lot of different projects, but among the projects also three very large offshore projects that will deliver more than EUR 600 million in top line to the cable industry. I'm also happy to say that we are qualified and preferred bidder for two out of the three, and the last one we have a very strong customer relationship with. A second element is the displacement of electricity production. That's very much going into the SuedLink project in Germany that we also have discussed, many of us, in the last quarters or maybe even years. The SuedLink project we will talk about later in the presentation. It's a project that will deliver or require 6,000 km of cables. So a significant growth driver, not only for us, but for the entire industry.
Then last but not least, we continue to see the focus on replacing overhead lines with underground cables, and that is the business that we are in. In Denmark, we are pretty advanced with that transition, but there are countries also around us where they are less advanced, which is of course a key focus area for us. All this is generating a nice expected development for the market that we are serving. We are looking at a global cable market that will grow 3% year after year, and this is, as it appears here, measured in million tons conductor. You can also see that the split between countries or segments here are more or less the same. So we actually expect the 3% in all the markets that we are servicing.
What is more important is in the right side of the slide, where we are looking at the growth ratios expected in the core markets for NKT. The two first one, offshore cables, high voltage onshore cables are of course what we do in our Solutions business, the project business. In the offshore cables business, and that can then be offshore to wind parks or to interconnect. We expect a global market growth rate of 16%, but more importantly, we expect Europe to grow 20%. The source of these data, by the way, is from CRU, which is thought to be one of the leading analysts understanding the cable markets pretty well. The high voltage onshore cable market expect to grow 7% globally but also in Europe. This is where we are moving onshore, and then it can either be AC or DC.
The more stable segment is low voltage, medium voltage that is basically a DVP business with an expected global growth rate of 3% and 2% of that related to Europe. We all know the competitive landscape of the industry that we are playing in. It is a pretty scattered picture, in particular, when you look into Europe. There is a lot of names here, and that somehow represents that it is a pretty fragmented industry. In the top end, you have a few competitors. There are few players being global. There are few players with a broad product range. Among others, Prysmian in Italy, Nexans in France, General Cable in the U.S., and then NKT. Then as we move downwards to medium voltage, low voltage, it gets more competitive and you start to see a lot of local, smaller players that typically are operating within a very narrow product range.
This is the market that we are competing in. Also, you are all familiar with the fact that the General Cable business based in the U.S. is currently running a divestment process that is very much focused on the U.S. where they have strong business, but it will also impact some markets, in particular in the southern part of Europe, where they have local production. I would now like to move into some key investment highlights for the business mentioned up here. Six different areas that I would like to touch on. The first one is very important to understand when you analyze NKT, and that is, of course, our composition of revenue with the split between the high margin business that goes into high voltage and the lower margin business, but also lower risk business that goes into medium voltage, low voltage.
These data are based on 2016 market prices because that is the only way we can somehow compare it with our key peers. To conclude, for us, it's a 50/50 market or a 50/50 split looking at revenue. With that, we are able to deliver approximately a 10% operational EBITDA margin measured at market prices. That somehow should be compared with some of our key competitors, Prysmian and Nexans. These are official data where they, of course, have a very different product split with the majority of what they do in the more commoditized business. With that, they are able to deliver 8.2% Prysmian and 6.4% for Nexans. The amount of business that goes into the upper end of the segment, the project business is for Prysmian 22% and for Nexans 16%.
This is, of course, one example of where we need to be able to differentiate from an NKT perspective, and also why we believe that we, within the next couple of years, should have a higher margin business. If we go to Europe and go into the low voltage, medium voltage business, as indicated before, we are a local player. We are a market leading player in particular in Scandinavia, but also our other key markets in Europe. We also see a nice growing platform in markets like U.K., like France, which are markets that we can easily penetrate with our production based in the eastern part of Europe. We have a broad product range, which means that we basically deliver and produce everything that goes under the definition energy cables.
Which also means that we don't do any telecom business and all that, but most of you are pretty familiar with that. On customers, we are either dealing with the wholesalers or the utility players, and it's important to understand that it is this triangular business, in particular with the wholesalers, where basically they are our customers, but in the end, we want to do business and impact the decision with the installers who are actually the guys who are using our cables. That is what is embedded in our go-to-market strategy, and Frida will come back to that in more details a little bit later in the presentation. When we move up to the project business, this is somehow the value chain that we are looking at. We do everything from R&D to installation and service.
Looking at the cable system parts, we have divided that up into two different segments. One element that are also important to understand is that whenever we have large complicated, either offshore or onshore AC/DC projects, they always require an element of R&D. Whether that is on the cable side, different kind of accessories or something that we need to deal with in order to get a pre-qualified solution for our customers. That's where all the projects somehow starts. Engineering is, of course, a key element of what we deliver to customers. The engineering departments are the guys who are designing the cable, very often in close cooperation with customers, and also advising the customers for what is the best, most optimal solution that they can go for. That can go into different kind of cross-sections, whether it is aluminum core or copper core, what have you.
Then we have the production in itself, where we are having production in Karlskrona and Cologne. We will also come back to that, but those two factories are among the most modern high-voltage factories in the world. That basically relates to the fact that both of them are pretty new factories. So they are very lean, high efficient, with a lot of different kind of capabilities. Among others, in particular in Karlskrona, very unique testing facilities, part of what we acquired with ABB. Then in the end, it is all about project management, project execution. This is the box where you can really de-risk the business, that compared to the low-end business, are of course having a higher risk profile.
We do installation, and I hope you had a chance to look at the model of the vessel in NKT Victoria outside, and Andreas will also tell you more about it. Then we increasingly focus on our service business. So this goes under the umbrella CIS, which is well-known for the customers. It is also an attractive business in our view, because of our ability to deliver return on capital employed. This is the development, and you are familiar with that. A little bit later on in the presentation, when we take a more strategic perspective, we go back to the DRIVE program that are still part of the way that we operate. But basically, we have been able to increase operational EBITDA margin with 6.6% and the return of capital employed with 9.3%. Yesterday, we also announced the midterm targets of delivering a return of capital employed above 13%.
That is taking the ROCE target a little bit down compared to what we originally told you when we launched the Excellence 2020 strategy, where we had a 15% target. It is not because we look at our business differently. The old part of NKT will still be able to deliver above 15% ROCE, but it is being diluted with the acquisition of ABB, with a lot of new investments, among others, the vessel, where we are not able to do 15%, at least not short-term. That is why we are taking it down. So it is not a different view on our business. Then last but not least, we have a very clear strategic journey in front of us.
We have passed the get fit phase that we also have talked about before, the phase where we somehow readjusted the cost base and took out EUR 60 million in fixed cost. We are now focusing on the be excellent phase with a lot of different initiatives that I will come back to a little bit later. We also focus now on how we can grow the business, in particular in what we have acquired from ABB. What is very important is that we now capitalize on that investment, not only short-term but also medium long-term, penetrating new markets, where there is an increased need for this unique technology that we have acquired as part of the ABB acquisition. So with that, I would like to hand it over to you, Andreas, to make an even deeper dive into our solutions business.
After that, we will do a short Q&A.
Okay, perfect. Thank you, Michael, very much. Ladies and gentlemen, good afternoon. My name is Andreas Berthou, and I have been leading the high voltage division here since the 1st of March. I joined NKT then with acquisition from ABB, and have previously then led the ABB cable business for the last three years, but have about 18 years in the high voltage transmission industry. My presentation here today will have two main sections. One where we will talk about our capabilities in the segments where we operate. Then the second part, I will go more into the market outlook, the trends, and how we view the market going forward. Michael mentioned that our high voltage business stands for approximately 55% of the group's revenue.
We do from small cable projects, a few kilometers of land cable, up to the very largest turnkey projects where we connect countries with cables, and it could be several hundred millions of EUR then. Design, manufacture, and then install the cable with Victoria. You can see on the picture here, we are showing four different main product segments. It is DC onshore, DC offshore, AC onshore, and AC offshore. I will come back to that and talk a bit about the technologies on the next slide.
I think what is important now with the acquisition is that now we are number one or number two in all these areas. So we have become a significant player now in this industry, and I see that is very important for us going forward here. Down on the pie chart in the right-hand corner, we have a breakdown of the revenue in 2017.
About 20% is the land cable onshore business. This is an area where the competition is very hard at the moment, and there is an oversupply in the industry actually of land cables. But we also have a large portion on the offshore and the HVDC business. Michael mentioned that. So about 80% of us is in the segment where we see the growth in the market, where we are well-positioned. I think NKT there is actually unique with the setup, with our factories' capabilities to be able to grow in the area where the market is growing most. So with our position, factories in Karlskrona and Cologne that is very well equipped for the future, the new cable lay vessel, and the technology that is prepared for that future growth, I look very actually bright in the future.
The market looks promising over next coming year, and I will come back to that here later. I think also the combination of NKT and ABB, two organizations which has more than 125 years of experience in cable, we now come together and we see a lot of exchange improvements, synergies just by this experience coming together. I am really excited to have the honor to lead this division, and I think we are well equipped here for the future upcoming years. Our portfolio then. From NKT, we start with the small wires where you plug in the cable in the wall. At 72,000 volts, that way we have the interface between Frida's business and the high voltage side. Then we move all the way up to 500 kW, 600 kW.
I wanted to highlight a few things on this slide here because we will talk more about interconnectors and we will talk about offshore wind later. What is an interconnector then? That is really where you connect long distances usually, high power, connecting countries or from mainland out to islands.
This is an area where it is typically HVDC. We have in the middle of the picture offshore wind, where we a few years back, most of the wind farms were fairly close to shore. The voltage of transmission was 132 kV. Today, the wind farms have grown bigger. They are going further out, which means more cable and a higher voltage. In some cases also, it is moving into HVDC. Why do anyone need HVDC then? If you look at the technology, an AC cable in Europe with a 50 hertz, it is actually charging the current 50 x per second.
You charge the cable, you discharge, you charge, you discharge 50 times per second. When the cable becomes longer, the losses becomes longer. Whereas in DC, you have a stable direct current. If you go up to 200 km of cable, you will probably not get much power out an AC cable, where you will have only very small losses on the DC solution. So more power, longer distances, it makes sense to have a bigger CapEx investment with the converter stations and lower losses versus AC side of it. With the trends, longer connections, more power, the wind farms are further out to shore, we see a shift from AC actually to become more DC going forward here.
If we now look at our portfolio, where we have a very strong portfolio, would like to highlight some of the technologies first where we talk about extruded cables or XLPE cross-linked polyethylene, so it is actually a plastic insulation core of the cable. Then on the right side, we have one cable which is a mass-impregnated. So it is a paper cable which we impregnate with oil. That is a conventional technology, but we see a fairly rapid shift over towards the left side of it. That is also where we have spent most of our R&D money during the last quite a few years. We also talk about onshore and offshore, and maybe to highlight that actually moving from onshore to offshore is quite a big step as a manufacturer. You can typically say that you at least have to double your investments in the factory.
And if you look at the cables on the bottom side here, the three out to the right side, we can see the steel wires, which you can read are the mechanic that make the cable strong, but it is also extruded lead on to create a barrier for the water to penetrate the cable. Then the cable becomes a very long length, and the complexity increases quite rapidly. So that is why we see a lot of land cable manufacturers, but fewer on the submarine side. But this is where we are strong, and we have two good plants to provide the submarine cables. Just taking some examples here. The onshore problem I said, it is a competitive market. There are some niches where we are operating in. On onshore DC XLPE, we earlier this year launched 640 kV DC as the first manufacturer in the world.
A fully qualified cable that we can take to the market. We are also number one on the submarine side with 525 kV DC as the only manufacturer with fully qualified portfolio. And in the middle, it says 420 kV three-core cable. And back in 2013, we put down the first cable at 420 kV, actually over Little Belt. So the world record together with Energinet here in Denmark. So we are quite excited here about our strengths in the portfolio and especially since we see how the technology is shifting from the paper insulated cable over to the extruded cables. So in the previous page, I talked about fully qualified cables.
And I think it is important to highlight here that when you launch a product, you have the R&D process, but then it takes approximately two years until actually the product is fully qualified that you can sell it into the market. So there is a number of tests that takes you up to two years until you have illustrated lifetime and you can actually bring the product to the market. So there are players in the industry that say they have tested, but it is a two-year difference between tested and fully qualified that they actually bring the product to the market. So 640 and 525, we are the only ones. At 320, there is a few other players that have the portfolio available. What is also important with this slide is that the acquisition was completed on the 1st of March.
We are now with full speed getting our Cologne plant qualified for DC, but then it will take until end of 2018 or beginning of 2019 until we have completed all the tests. But that should also be a fairly good timing when we see the large produce really coming into the factory as well there. So we are preparing the factory because we see the growth of DC and we want two redundant factories for HVDC technology. We have, as the biggest manufacturer, produced and delivered 40%-50% of all HVDC cables installed comes from us, from NKT, which shows that we have a strong presence, we have a lot of experience, many references with the customers. I think that works as a good foundation for us to play in this market going forward. That was a bit on the portfolio.
Another area which is important to highlight is the factories where the cables are produced. Michael mentioned both the Karlskrona and the Cologne plant. If we start with the one at the top, it is then on the south coast of Sweden, where we have a factory located just at shore, which is perfect then for submarine cables. We have a harbor where we can go in with two cable-lay vessels and load in parallel. We have expanded the capacity. We have spent several hundred million EUR actually over the last couple of years to bring up the capacity to prepare the technology and also to build test labs. You can see the white buildings in the back there where we have DC test laboratories and AC test laboratories. With all this amount of testing for several years when you launch a new product, there is a lot of testing.
This is really a critical item to be strong in the cable industry and be in the forefront as a leader. Both facilities have good possibility for expansion. If you look at the Cologne plant, the tower, we can see the blue tower, is already prepared to put in another extrusion line. For fairly limited amounts, we can increase the capacity significantly and also react on market demand if and when that comes. These two plants is probably the two most newest and most efficient cable factories that we have in the world. We are very happy to have these assets because this will help us then to play in this upper segment where quality, reliability, and performance is of course key metrics that our customers are evaluating.
On top of these two sites, we have another site that is important which is in Rotterdam, where we have both a logistics center for loading out the submarine cables from Cologne, but we also have an offshore engineering center. For our turnkey solutions, the offshore engineering site is a very critical item to deliver reliable products, and that center we have in Rotterdam. I usually say that we have two factories on land and we have one factory at sea. In these turnkey projects, the installation part of the project is a significant part of the revenue. This is also the interface to the customer where we can actually make a big difference and create add value to the customer. NKT Victoria, which is the name of the vessel, she was delivered in April.
She has executed her first two project and we are actually loading the cable right now for the third cable project. She will go to Belgium and install an offshore wind cable. The first jobs she has performed actually better than what the specifications of the vessel, and also better than what we expected. We are extremely satisfied with the performance of the vessel. We have a short 2.5-minute video that we would like to share with you, and then I will come back to you.
Renewable energy is generated by wind, water, and sun, and is transmitted over long distances to shore and across countries. High-voltage cable systems play an important role in transmitting the energy from the generation area to the area of consumption. NKT is a world-leading provider of high-voltage cable systems for both underground and submarine applications. The new vessel NKT Victoria is purpose-built and optimized for cable laying with the environment in mind. Based on over a century of experience of cable system technology and installation, the NKT Victoria is a next-generation cable laying vessel with a focus on safety, accuracy, and efficient operations. NKT Victoria is one of the world's most energy-efficient vessels, with significantly lower fuel consumption compared to other offshore vessels. With a growing global energy demand and focus on a greener future, NKT is determined to bring power to life in a sustainable way.
Okay, so that gave you an impression of the vessel. Looks more in reality a little bit bigger than the sample we have outside. Having the vessel is really important also to manage risk and control cost of the project. We have previously been charting or leasing vessels, but it adds a lot of dimensions into these large projects and especially on the risk side and you have difficulties to control the cost. If there are changes in the project, your risk of losing control. We can also see our main competitor. They all have vessels, not similar to this, but they all have vessels, and one just announced they will invest in a new large cable vessel. That shows that the installation part of it is key when it comes to these large interconnections.
For smaller projects, it is not as critical, but for a large one, it is really a key element where a customer wants to buy it, the cable positioned at the sea bottom and fully installed. She has a number of really unique features, the vessel. There is a list here. They are not ranked in any way, but to mention some, she is equipped with what is called a DP-3.
The vessel is actually completely separated in the machine room, on the bridge. If you are close, for example, to an oil platform and you get some serious accident or a fire on the vessel, you can disconnect half of the vessel, and you can still maneuver it and go away from the platform. Some of the oil and gas companies now requiring that because of safety, because we do not want 20,000 tons at full speed ramming into your oil platform.
These are safety measures, quality, reliability that is really good that customers are even specifying in some cases. She is the only dedicated cabler that has this feature. She is also designed then to be a cabler from beginning. Most other vessels out there is more a general vessel, and you put turntables on it to handle the cable. Here, the vessel is really designed and optimized around cabling, which gives us many benefits. One important measure for a cabler is to be very stable, even if you have a little sea. If the waves are 3 m, 4 m of height, you do not want to stop the cabling. You still want to be able to continue laying the cable. That is both reliability, performance, and safety of the people on board. She is also equipped with something called a DC grid.
That really means that instead of running all the six engines in parallel, when we lay the cables low, we can shut down three or four engines. That is actually reducing the fuel consumption by about 50% as an average. Also, the carbon dioxide footprint. When she is docked in the harbor for reloading the vessel, we have electrical connection. Our old vessel consumed around more than 10,000 L of diesel every day when she was in the harbor just to get electricity on and to load the cable. Now we have a green, quiet, and efficient way of just plugging in with electricity. There's a number of features here that are really unique, and the last, and maybe one of those that are more important is the laying accuracy.
What we have seen now in the first campaigns is we can lay the cable on the sea bottom within half a meter. Those old vessels were a couple of meters. If you have a trench and you want to put the cable as deep as possible, then you can do that, and we have a fantastic monitoring system where the customer can see exactly where the cable is. If there's obstacles, we can maneuver around them in a very efficient way. A new vessel like this with such equipment purpose-built brings a lot of advantages to the customers. I would say, all of the people and the customers who have been on board have been really impressed. Laying accuracy, how the team is working, the performance of the vessel, the speed, how we are laying cable, et cetera.
We see this as a clear differentiator when we are competing about the big projects. I've showed here a number of reference projects. There are, of course, more, but to highlight some which I think is important, we are currently now delivering the Hornsea Project One, where we, in a collaborative way, together with DONG Energy, find a technical solution to bring power from the world largest wind farm outside U.K. into shore. It's about 150 km of 220 cable, both from Cologne and from Karlskrona. Three cables actually out from shore. Another interesting one is the green one, Statoil. They had a floating oil and gas platform outside the Norwegian coast. Of course, if the platform is moving, the cable needs to be handled that. So dynamic cable that can over the full lifetime still be live and feed that platform with energy.
Next to the bottom there is StatiLink in Scotland. That was the second project we installed, our first project this summer. This is then the highest extruded DC cable ever installed, so helping the customer to bring a lot of power, 1,200 MW of power in the north part of Scotland. The last bullet is the BritNed project, where the really demanding installation conditions, sea bottom conditions, and we're able to help the customer and complete such an installation. What I want to show with this slide is really that we have a close cooperation with our customers, and when we help our customers to solve their challenges, that's how we also we can win projects and be strong in the market. There are a number of underlying drivers in the industry. I think long-term offshore HVDC, we have a very positive market outlook.
The main single driver for us is really that we are going more green, reducing the coal fire plants, shutting down nuclear plants, by then adding green energy, which could be offshore wind, could be hydro, these are usually placed at different locations. The generation point of this electricity is usually somewhere else versus where you have the nuclear power plant or the coal fire plant. The offshore wind segment is our single largest segment this year. I think there's been over the last half year or year a very interesting development that actually has continued for several years. But now we have reached a point where some wind farms are actually reaching a level of cost which is subsidy-free. Before, it has been heavily subsidized, but today it can actually compete.
We saw that last week with the CFD, contract for difference in U.K., which is governmental auction around subsidies, where now offshore wind is cheaper, lower in cost than both coal and nuclear. For me, that is really a health sign of the industry that we can compete with that technology, therefore, I think this will only grow going forward. I mentioned before on one of my other slide about the voltage and the close to shore. Today, many of the nice good locations for offshore wind close to shore, they are already occupied. So you start to build further and further out. So before a project could be 20 km, now it's 150 km, 170 km out of shore. Of course, we as cable producer, we love that. The further out, the better. That is offshore.
Then onshore, we also see a growing demand both for AC and DC. I think everybody here, we do not prefer to have a large transmission line in our backyard. So we prefer to bring the cable under the ground. Urbanization is driving cables into the cities. I think the general drive here is really interesting, I think the typical project is also what Michael mentioned is the German corridors, where now we have offshore wind in the north, but a lot of the consumption industry is in the south. Then cables are the solution. Renewables then comes, of course, it's not always windy and you don't always have sun, so you don't have the stable power generation similar to what you have in nuclear and coal.
Therefore, the role of interconnectors, where you're connecting countries and grids is just becoming more and more important. The European Union had a target of 10% to 2020 previously, which they have increased now to 15% interconnectivity 2030. It's not only to have renewables, but there is also good business cases for many of these. So there are cases where these links with a lifetime of 30+ years, they are paid off in three, four years, just handling the trade between the countries. Oil and gas market down to the right is maybe not the hottest market at the moment, but we are number one in that previously, there is a lot of projects now popping up where they're starting to plan for the future. Currently, most of the offshore wind platforms, they have gas turbines.
You burn gas on the platform, which requires a lot of maintenance. You have CO2 emissions, you have the risk of fires, and it takes space. You need bigger platforms. The trend has really started in Norway to bring power from shore out to the platform, and we start to see that now developing outside Norway as well. This is an interesting segment that we are targeting and have a strong position. I think the purpose really with this slide is to say that in many drivers and in many of the segments, there are some strong underlying factors that show that this industry has a long-term growth potential. I think to verify that, Michael talked about CRU data. If you look at the maybe most qualified and best external resources, we're taking data from them.
They look at a cumulative annual growth rate of 14%. Left side is the regional side, and the right side is then the kind of applications. For us being based in Europe, we can see that Europe is almost doubling. We can all see that America is more than doubling. These are maybe the two strongest markets where we really are present in Europe, and that's partly why we want to expand in North America. Also on the technology side, with our focus on offshore, then we can see that both offshore interconnectors and offshore wind is by far the biggest portion of the market. I think if you compare with other players in the industry, there is no one that has a better fit to where we see the growth here today. Some examples of the wind products coming up here.
We see several in the U.K. Three of them were then awarded last week, so they will proceed. Triton Knoll, Hornsea 2, and Moray Firth. Next year, there will be a new auction, and then we foresee East Anglia 3, Dogger Bank, and some other ones. Very big ones, very long ones that they will proceed as well. France is moving into the second wave of offshore wind. Belgium, where we are now working Rentel. There is three other early projects coming up. In Netherlands, we are actually producing the Borssele cable as we speak in Cologne. There will be a Beta project coming out, awarded probably end of this year. Then another couple of projects here for next year or so. Germany has been and still is a very important market. They have then, with amounts of power, decided to go for DC.
They have DC platforms and bring DC cables into shore. Denmark have now primarily some smaller nearshore projects, except from Kriegers Flak where we installed the cable here two weeks back. I think Europe as a core is a very exciting offshore wind market. The other area is then the interconnectors, the HVDC part of the market. The gray ones are the 11 projects that have been executed over the last 10 years. The two other columns is a sample list. There are more projects that is currently ongoing and being planned and worked on. We really see a uptick here in the HVDC activity, and we have more activity here in customers and tenders than we have ever had, which is, of course, promising for the future market volumes. Then I would like to deeper little dive into the German market.
We have our factory in Cologne. Of course, have a very, very strong market share in Germany with good customer contacts. Our factory is where the green dot is. Michael mentioned that we are looking into somewhere around 6,000 km of cable, so that's a lot of cables. I think with our position, no one is really better physically located with the technology and with the customer relationships to have a good portion of these links. We see Germany as a really important market here going forward. The interconnector market and the offshore market has primarily been in Europe, I would say up until now. Some specific projects here and there, but now we start to see that wind is moving in U.S. We can see the blue arrows here. Also Taiwan, China, some other markets are looking to offshore wind, which is good for us.
I would like to highlight the U.S. here. We are establishing office. There has been two requests for proposals, RFPs, in Massachusetts and in New York. We have developed over many years projects with developers, and now it's an auction process. Depending who will win these projects, we hopefully have some good orders here moving forward. That is primarily bringing power, hydropower from Canada into New York and into the area of Boston. They're closing down large nuclear power plant in New York, so they really need that power because they will lose 2,000 megawatts in three, four years time. How do you replace that? You need, as we at least want to say, to bring a cable in to the center. The North American market and especially northeast of U.S. looks very promising for us.
This picture is then showing our backlog. I think we have in Europe, in most countries, in oil and gas, in interconnectors and in offshore wind, a width of the portfolio. We are currently working hard on the cable from Norway down to Germany with the NordLink project. Also producing cable down for Hornsea out to U.K., et cetera. One slide which I think you're all looking for here, where we're looking into the markets. We have seen two slow years in the market, and there were some important awards here when we were between signing and closing, which of course were important, but we also see then that in 2018 and 2019, we expect significant awards. This is adjusted. We see a total pipeline higher, but we expect that we will move into record year. We were at almost EUR 4 billion in 2015.
2017, of course, the slowest year since long. Then 2018 and 2019, if you look at all offshore wind projects, all the DC projects that are coming, we believe there may be some significant awards here. Solutions then with the standard metal prices. We have EUR 600 million of revenue based on coming from the EUR 1.1 on the group. 20% onshore, about 45% offshore, AC, and the rest is then DC. This is then with ABB consolidated numbers for 10 months. From 1st of March and estimate for the end of the year. Even with a challenging market on onshore, we are still forecasting to deliver between 15%-17% EBITDA for the year. The backlog is EUR 1 billion. We need to book more orders here for doing 2018 and 2019, for sure.
But I think many of these opportunities now, when we come in with DC and how we are equipped and where we see the volume, we are in a strong position here. My final slide then to wrap up, I think we are very well positioned. We have, dare I say, the best portfolio. If we can look where the market is happening, we have two really strong factors. We have our cable lay vessel, which is unique, where we can differentiate in the market. And now we have two strong organizations coming together here and really want to make this a success and want to win orders. And based on the tender pipeline and the amount of negotiations going on, we look forward to this. Okay, that was the end of the solutions side. So now I think we are moving into a Q&A session.
So now it's time to get a little bit activity into the room, and we do a Q&A session on Andreas' business. I will be the moderator, and I will also decide who will answer the questions.
That's the way to go.
But we will help each other.
Yeah.
Who wants to ask a question? We do this for solutions only, and then we continue with Frida and Oliver and do the same after those two presentations. It is a 10 minutes, and what we do not manage in 10 minutes, we need to keep or save to the end. Yes.
Hi, it is Casper Blom from ABG. Obviously, a very interesting slide with your 2018-2019 order possibilities. If it materializes, if the market sees that kind of ordering being placed, when would it be reasonable to expect it to potentially hit your P&L? Is that then in 2019 that you would start seeing an uptick in your actual deliveries?
I would say yes, depending on the time of year. Could potentially start to give some orders or revenue already in 2018, but then for sure 2019 and forward.
It is of course very difficult to be precise. First of all, it is a sum of projects. Some projects have the tendency to be delayed and some move faster than you expect. As soon as we get them in, we can also start to optimize production planning and maybe produce to inventory. We can also start to optimize between the two production sites.
Great. If I can just add a second question then, Andreas, you pointed to the fact that you are leading the market in terms of capacity in the cables with the 640 kV. Could you talk a little bit about the difference in pricing among, for example, 320 kV and 640 kV? Maybe also how the market is receiving your leading the development?
Please.
Yeah. So 640 kV we have launched. There is actually not a project so far on that. I think we have done that also to show that 525, since that was a fairly big step from 320 - 525. We want to show that the technology has a good kind of safety margin in it, so build that reliability. Of course, it depends very much on the project application and so forth, so there is no specific around on the pricing on it.
On the pricing differences between 525 and 320, we do not want to disclose too much about that, but it is given that it is not significantly more expensive. But of course you are halving the requirement of kilometers of cables, and it is not double up the price, but it is on the way up there. Of course, in the end it is a supply/demand balance. As indicated in the presentation, we are actually the only one who can deliver 525, and it is in our interest to move up the market to that segment. It also makes a lot of sense for our customers because they can reduce investments significantly, not only on the cable side, but also on the installation side. The 640 is really to indicate the robustness of the 525 segment.
But when the clients then reduce their investments, can you keep part of that saving for yourselves and thereby increase your margin?
That is what we intend to do. Now we have not seen too many 525 projects in the market. But when you move up there, you also reduce the number of players. We should be able to keep our fair share of the margin.
Thank you. David Vos at Barclays. Question from me also on that slide 37, where you depict your expectation for order intake. The EUR 10 billion total, can you give us a bit of a flavor of how you see that split between offshore wind, interconnectors, onshore and offshore?
Yeah. As I think I have indicated during the presentation, we see a shift where it becomes more HVDC and longer HVDC links. So for example, from Denmark to U.K. and that kind of project. So the DC portion, we see that will increase the percentage.
Right. But perhaps the level of granularity above that, for example, how much of that is the German energy super highway of the EUR 10 billion? How much is offshore wind? How much do you think will come from longer interconnectors of that type you just described?
We cannot go into details, talking about price levels on a particular project. We want to negotiate with customers, not in the public. But it is very clear that very large DC projects can easily reach EUR 1 billion. That is significantly higher than a large offshore wind project. In the forecast we have disclosed to you today, we have adjusted it somehow for probability. We have taken it down compared to what we actually look into, to adjust it for the fact that some will be delayed, some will be canceled, what have you. But it is clear that a big part of the forecast, both in 2018, 2019, and 2020, will be DC interconnect business, either in Europe or in the U.S.
Okay. Staying within Europe, how do you see the risk of Brexit in this case? It occurs to me that if U.K., in all its wisdom, decides to leave the common market, it will be a hell of a lot more difficult to trade electricity between the mainland and the U.K. You will perhaps get some tariffs levied, some tax on top of your business case. Can you just give us your thoughts on that?
I think we can easily take a negative perspective and see a lot of risks on it. But what is important is, of course, last week we then saw how it impact the offshore wind segment, and there we do not see any significant impact. Talking with customers that currently are planning to do the Viking Link, they also do not see any impact. Talking with the politicians and the one who are actually negotiating the deal, they do not see any significant impact because to my understanding, it is in the planning to decide that energy transfer should be without VAT or whatever issues. But of course, it can create situations where project will be either canceled or delayed.
U.K. also have fairly high energy prices compared with the rest of Europe. So there is a business case, there is a benefit for the public in the U.K., which then is also an underlying driver of why the links makes a lot of sense.
Claus.
Claus Almer from Nordea. A question regarding you, Andreas, coming from ABB to NKT.
Yeah.
When you are interacting with clients about potential projects, do you see a different approach from these clients given you don't have the ABB balance sheet to support your financial stability?
Was that for me, Claus?
No.
No. Okay. Then you better ask.
I don't have time. Look, I think there is a couple of answers to that. Yes, of course, when we were ABB, we never had to talk about the balance sheet. That is part of the agenda, but that has been solved even for the biggest projects. We have a solution to make them satisfied with that. I also see a number of benefits where we actually now belong to a cable company. The CEO, the board, fully understands the business, and we can also be more agile and adapt to the customer need and find smarter and better solutions, whereas it may be more difficult in a very large corporation. I think there's a number of benefits that will make us stronger and more competitive in the business, but then we need to find solutions to that. I don't see that as a big problem, no.
Okay, and then just as a second question regarding capacity in Cologne.
Yeah.
When is it that you'll start adding the third line? You can answer that one.
Well, basically, we will also talk a little bit about it later in the presentation, but it is not in the current plan and in the current forecast, the return on capital employed, that we will add another line. It is also very clear that with the outlook that we are looking into, if we get our fair share of that market, and we strongly believe we will, then sooner or later we will start to discuss adding more capacity in either Cologne or Karlskrona or hopefully both places. As you also know, Claus, the lead time of installing capacity is around a year. We can actually be aggressive in the market, getting orders or be very close to get orders before I need to talk with my chairman and convince him to invest into more capacity.
It is not black and white, we of course do whatever we can already now to debottleneck the operation in Karlskrona. Next year we will invest as part of the normal CapEx into a new machine that is somehow a prerequisite for doubling or for adding more capacity in Cologne. We do it step by step, but the decision to install a new production line is still ahead of us.
Okay, just a last question. When we meet in two years down the road for the next CMD, then we have looked at this EUR 5 billion for 2018 and 2019 market size. What would it make you to be satisfied by the order intake?
Oh, that is a tricky one. What is important for us is really that we can now capitalize on the technology that we acquired last year. We have capitalized a lot of goodwill that we need to turn into profit. In the short term, we really try to fill up the capacity of 2018, and 2019, we want to go toward the max of what we can deliver. Here you should also bear in mind that part of the synergy potential between the businesses is to get Cologne DC qualified and get more flexibility, and in the end, also get more capacity. Then we should invest. But why should we not be able to take this business to a EUR 2 billion top line if the market materialize and we have the technology to supply to the market and we can add more capacity?
We have, with purpose, not given you any top-line target because it is extremely difficult for our business. That is why we want to stick to a nominal EBITDA target combined with a return on capital employed, and then also with the remark that that is excluding capacity increases.
Okay, thanks.
Very clear answer, right? Okay. Let us cut it here and then last questions, then we move on.
Andreas Willi from JP Morgan. Just to take on from your comment about the growth in 2018, 2019. From the charts, it looks like you do not expect any more big orders this year, which assumes that we get a dip in the first half of 2018, at least. Could you give some indication on a pro forma basis if we do like EUR 650 this year, what the backlog provides you before you start growing again from a lower level then, as the orders come in?
We do not want to give any gripping guidance for 2018, and we prefer to wait a little bit so we can be more clear. The issues that we have for 2018 is not in the first half, it is more in the second half of 2018, where we have some idle capacity. The first half is actually pretty booked. That is where we focus. There are still some orders in the market that can close the gap or at least close it to a large degree. That is what we are very focused on now, to move forward on that. Within a couple of months, we will have more clarity on how our backlog will look moving into 2018, and then we will also give you more and more precise guidance.
Thank you.
Good. Frida, please join me up here.
Thank you. My name is Frida Norrbom Sams, and I have the pleasure of taking you through our applications business, which is quite different from what Andreas just took you through. I am going to try to address what I think is our key challenge and talk about what we work with on our offering, with our customers, our go-to-market approach, our value chain to meet that challenge, and also to continue to generate cash. There we go. Applications, we provide medium and low voltage cables. We are primarily based in Northern and Central Europe. Our key challenge is to grow whilst maintaining profitability. Some might call it avoid margin erosion. Our way to address this is to work throughout the value chain.
We work with our costs, and we work with our customers and our customer's customer to create value and to add benefits to the value chain. What is applications? We take over where Andreas leaves it with solutions. We take over from the distribution channel where we have medium voltage transporting energy to the city. We have 1 kV transporting energy within the city. We have building wire going through the house. In popular terms, we take the energy to the gray box outside the house, to the house, through the walls. That's applications. We also have telecom power cables. We do not do fiber optical, and as Michael said, we do not do telecom as such, but we do the power cables. We are powering up the masts and the rooftops.
Actually, we power up to six radios in one mast to be able to make people connected on their phones 24/7. You hear us talk a lot about undergrounding, and I will also talk a lot about undergrounding, but we also have aerial cables. One of our innovations is actually the universal cable, which is a cable that can live through very tough conditions. It will transmit power basically no matter what. I mentioned universal cable as an innovation. When you work in a quite commoditized industry, you have to differentiate. We can work with our brand. We have a strong brand on our core markets, Northern Europe, Central Europe, and we can work with innovations. When I talk about innovations, we do have innovations that are providing change, like the Kadi or the AXAL-TT cable, medium voltage, primarily for the Nordic region.
We also have to look at small innovations. We get help from solutions business sometimes with innovations created in high voltage that we can utilize also in medium voltage. We also have to look at the little i's, the small things, constant enhancements, constantly finding ways to differentiate from competition. Let me mention a few to you. Kadi, you can see it outside. Engineered in Denmark, launched first time 2011, continuously launched on several markets afterwards, added benefits, added features. What it does is it helps the installer on a site installing building wire. Actually, it can save 40% of installation time. Latest addition to the Kadi is an app for a quicker return handling. CPR, new legislation valid from July 1st this year.
Actually, our work started already 18 months ago when our product manager were out there talking to installers, our customer's customer, about what this was going to mean and how we were working with our product portfolio. We started replacing our portfolio, implementing the new CPR cables on our core markets already in February this year. One reason why we did that was basically because we are cash generative. We have to be careful because after July 1st, whatever we have in stock is not allowed to be sold anymore. Therefore, we had to plan long ahead. We have also, based on the CPR, had a couple of price adjustments upwards. Next one is to come here in October. VMI offered to wholesales, vendor managed solutions, and we're also looking into digitalization.
We have a cable web shop for utilities to ease their handling, and we also have drum tracking. In fact, utilities using our drum tracking system can actually see an impact of up to 20% on the drum handling costs. Again, ways of us to differentiate, ways to explain our value in the value chain. From design to cost. We have a solid presence in North Europe. We are based in Sweden, Denmark, Germany, Poland, and Czech Republic. As Michael said earlier, we started out with local plants that supported and provided cables to the surroundings, usually a radio of 600 km , 700 km. Today, we are changing that, working throughout the value chain.
We have implemented across site S&OP, Sales and Operations Planning, to better utilize the flexibility of our network. We are specializing several of our plants so that we can have a high utilization, high cost absorption, and also less shift overs. We are working with our customers to qualify production for them in several sites. This is a way for us to work with cost out. We have group-wide functions for quality, safety, and again, for S&OP. We can also benefit from the good work done in our state-of-the-art factories in Cologne and Karlskrona. This gives efficiency and it supports our margins. Going to the customer side, I am going to start on the end customer side. We have quite a good outlook, actually, on our business. Why do I say that?
Well, basically, if you look at our utility customers, they tender either for one year or even up to seven years. We have to work with them constantly. It is not about going into a tender phase, because many of them, it is actually moving to e-auctions. We have to work before trying to get into the specification phase. We have to work during the tender and after the tender. Usually, you get an allocated volume, but very seldom in applications business, it is one winner takes it all. It is usually split over several lots, several players. Which means that we usually don't see that big swings in our long-term relationships with utilities. When we work with the utilities on frame contracts, what is important is what can we offer? It is not all about price. For example, I mentioned the web shop we have.
Actually, that web shop helps the utility to manage their contractors, because a lot of their business is done through contractors. They need to do call-offs on cable, and we can help manage that. Added benefit. When you go to the wholesales, you have local players, we have regional players, and we have some global ones like Michael mentioned. We see them as a way for us to reach even more customers, and we work very closely with them. We offer vendor managed inventories, but we also work close to the installers, explaining the NKT product portfolio and how we can support them. One example there is how we work with the installers on CPR. We work with industry and we work with construction companies. The way we go to market is either directly or through wholesales. Sometimes you also have master wholesales, before you have the wholesales.
We say we have a market leading position. We are quite strong, as we said a few times now, in the Nordic region. We have long-term customer relationships. It is a very competitive market. You have local players, global players, regional players. Our response is really be close to the end customer, be close to our customer, work with the value chain. In our Excellence 2020 plan, we have broken down to go-to-market strategies, combined with product strategies, and we try to focus on what we call growth pockets. We can grow on existing markets. We can grow within existing product portfolio. We can also grow on our new markets. We can enhance our products. We can move into new product segments or adjacent product segments. What is really important for us is that we constantly look at possibilities to find growth.
It can be small, it can be big, but overall, we have a positive outlook. We see, in general, that we have about 2% CAGR until 2020 on the market. When it comes to telecom, very briefly, telecom we see global growth also driven by 5G coming somewhere around 2020 as well. Why is that? Well, basically, 5G will require more masts. More masts require more power cable. If we look at the market fundamentals, what are we looking at? Well, for building wire, 1 kV copper, we look at construction indexes. We also look at building permits. I know we said in our Q2 report that Poland has been a little bit challenging. We can see that on the construction being quite low in 2016, now starting to grow again. Already in February, we saw publications that building permits were all-time high in Poland.
Few months later on now, we see that hitting the market positively. When you look at Sweden and Germany, what we see is a really high level of activity. Actually, in Sweden, you have 60,000 new houses being built every year. We do not expect that to go down, but we expect it to flatten out simply because of lack of workforce, construction workers. We see the same tendency in Germany. When we look at the U.K. market, we can see that they have plans to build 200,000 new houses a year until 2021, 2022. They are currently building 160,000. Provides a lot of cable. When you look at medium voltage and 1 kV aluminum, we of course, look at undergrounding and the trends and the governmental support and the EU support for cables. We mentioned Denmark earlier. Denmark has come a long way in their undergrounding.
We see other markets, Sweden, Germany, to mention a couple. They put a lot of effort now into catching up. We see significant investments. This is where it is important for us from a market understanding perspective and for the outlook to also stay close and understand the political agenda of various markets. We look at construction, and we look at political agendas, and we look at the appetite for investing in the grid. The underlying megatrend is actually supporting this growth. We see in industry, people are replacing existing installations. We can also see new being built. Of course, we see the urbanization, the globalization. We see a trend of driving more and more electricity into the cities, and we also expect increased demand in the developing countries.
Can also mention there as an interesting part is, for example, for telecom, you see a big market now in Africa. The only problem we have there is that copper gets stolen, so we are actually working on alternatives, launch next year. Replacement. Utilities need to replace aging grid. Also, the political agenda again, the public drive to avoid seeing overhead cables. The green energy, the construction industry, and we expect, of course, that we will see positives coming out of the CPR from a quality, from a safety perspective. For established players like NKT, we think it is a great initiative. Then, of course, the 5G broadband expansion for power cables. This brings us into financials. I started out by saying we are cash generative. Return on capital employed is important for applications, as is margins.
We have a revenue of about EUR 400 million with high single-digit EBITDA margin and a good ROCE. One of the, I wouldn't call it trade-offs, but one of the things we have to think about very much is if you want to go with utilities on so-called spot orders, they are really attractive, very nicely priced. You need to have them in stock. If you have them in stock, you eat from your working capital. So for us, we constantly have the balance being cash generative and making sure we grow our margins. That is why we see our key challenge as creating growth based on an average CAGR of 2% market growth whilst maintaining our profitability. To sum up, we believe we are strongly positioned in a growing market. We focus on maintaining margins. We focus on cash generation.
The way we do this is our multi-channel approach. It is our Excellence 2020 with the go-to-market strategies. It is how we work with our customers and the customer's customers. It is also how we work with our production facility network, how we work with our S&OP, how we benefit and leverage from the economies of scale we can create, as well as the specialization we can do in our factories. We believe that we add resiliency to NKT. As I started out with showing you that we come from the distribution all the way in through your walls. So actually, you see us or meet us every way, every day, everywhere. Thank you. Oliver.
Yeah. Thank you, Frida. Welcome also from my side. My name is Oliver Schlodder. I am since four years with NKT and Heading the Service and Accessories Business. On the next couple of slides, I would like to give you an overview about this newly created division, service and accessories. The reason why service and accessories has been created is actually to support and to focus and accelerate the growth of both business areas, service and accessories, but also to reap the synergies that are between the two business areas. For example, in the training but also in the installation capabilities that are playing a significant role for both of the business areas. Our service business has been pioneering asset management services in the industry.
As one of the very few in the industry, our service business has a dedicated service and installation workforce that is there to support our customers, onshore or offshore. Therefore, we clearly see a strong growth potential in this business area. On the one hand side, because the installation base of both offshore, but also onshore cables, is increasing significantly over the next couple of years, but already also over the past. On the other hand side, we also clearly see that today only a very small minority of the cables is actually being covered by a service contract. These type of opportunities are the ones that we want to focus on with our service business. Our accessories business, on the other hand side, offers a full range of accessories starting from medium voltage over high voltage up to extra high voltage.
Over the last couple of years, we have been continuously launching a bunch of new innovative products. For example, our new 72 kV array cable connector that is very strongly positioned in the offshore industry. With other new products, we are really targeting growth on the one hand side in our core markets, but also through a further global expansion. We see a lot of growth potential in export markets outside Europe. Service and accessories has a strong footprint across Europe. This footprint, we are very convinced about that, is supporting our future growth in both of the areas. Talking about accessories, we have three centers of excellence.
One in Alingsås, Sweden, the former ABB accessories site named Kabeldon, where we have very strong capabilities in DC, but where we are also producing medium and high voltage accessories for a broader range of customers, specifically targeting our Nordic market. Then we are talking about Nordenham, Germany, in principle, the center of excellence for our medium voltage capabilities, where we, for example, also produce our 72 kV connector for the offshore business. Then finally, we are talking about our site in Cologne, Germany, that is very strong when talking about high voltage AC accessories. On the other hand side, we are talking about four key service hubs where we have a dedicated service and installation teams ready to support our customers. One in Brøndby, Denmark, one in Karlskrona, Sweden, very close also to our large production site there.
Then two in Germany, one in Cologne and one in Mannheim. With these four key service hubs, we are pretty much convinced that we have a very nice setup to support our customers across Europe, but also on a more global level. What if something like this happens to your cable? Here it does not really matter whether we are talking offshore, like in this picture, or if we are talking onshore. Typically, these type of instances cost a lot of money. A lot of money per day. In this concrete example, it was more than EUR 300,000 on a single day without being connected and without having this cable being running. This is exactly where our service business comes into play.
Hopefully, the service business has not been working on this only if it happens, but also in the time beforehand with a service contract. Our service business, in case such an incident happens, will support with a 24/7 available cable engineer that can at firsthand, at the same day, answer some very first technical questions and can advise on what to do going forward. In case a service contract is set up and is agreed upon beforehand, a repair preparedness plan, a so-called repair preparedness plan is being worked out in advance, and the core spares that are necessary to repair this cable, be it cable or accessories, are readily on stock and short-term available. Additionally, we can support when talking about fault finding, because typically finding the fault in such an instance is not uncomplex, but it is something where you really need to have some dedicated technology.
Finally, it is really about the installation and service team to bring that on site and also to secure the adequate marine assets. Finally, that is something that becomes more and more important to many of our customers, is about more using digitalized technologies to do a more continuous monitoring of the cable during operations and then also in case of a fault. This is what our service team, what our service business is offering to our customers, and we can just provide single services, but we can also provide the full set of turnkey services covering the whole range of what I've been talking about. Now, I would like to share two concrete examples, two real examples, real life examples of where our service team has been supporting. I think these are real success stories for our business.
In the end, they also highlight why it is so important for our customers to think and to work with repair preparedness plans and with service agreements. The first case was the so-called IFA 2000 cable, a high voltage DC power link that has been laid and produced in 1985 by Nexans, so a competitor cable. An anchor has hit the cable, and the line was out of production. After the final contract negotiation, we have been actually able to repair this cable link in less than 21 days with our experienced service teams. This, in the end, highlights that we are able to, pretty much on short notice, also on a competitor cable, also on a third-party cable, are able to do rather complex repairs. Now the key question is, what if the customer in this case would have had a service contract?
You can see that the period from where the failure occurred and from the first time where the customer has contacted us up to the repair has been starting, it was also almost one complete month with significant losses on the customer side. In case a repair preparedness plan would have been in place beforehand, this period could have been shortened so significantly and also the marine assets and having the installation teams available, they could have been ready already. The first time in finalizing the repair and bringing the power link back into operations would have been possible if a repair preparedness plan had been in place.
This is exactly highlighting and leading over to the case number two, to the success story number two, a much smaller case for a regional German power utility, 110 kV cable, also mass-impregnated cable, a mass-impregnated oil-filled cable, where a termination has been failing. In this case, a service contract was in place, so on the same day the failure was reported to us by the customer, our service team has already been on site. Our cable engineer was expecting and was looking at the failure. Two days after, the ready stored spare parts have been on site, and finally, only after tree weeks or after three weeks already, the cable was completely repaired and back into operation. Clearly a significant advantage, especially in the starting up of the repair, if this service contract is ready and is agreed on.
The NKT service contract will in the end significantly shorten the time until the damaged cable can be repaired and until it is back in operation. The reasons behind that are because the documentation is prepared, the contracts are already prenegotiated, the spares are stored like cables or accessories, and in the end, we also guarantee availability of our installation resources. Today only, as I said in the beginning already, today only a small minority of offshore cables and pretty much no onshore cables have this service contract up and running. This is exactly the reason why we believe that the service business has a lot of opportunities to grow significantly going forward. This is supported by two facts.
The first fact is that cables are just playing a minority role when talking about CapEx of, for example, an offshore wind farm, only 7%-10%. But if you then look at the insurance payouts due to loss of production, it actually increases up to 70%-80%. So cables are today responsible for 70%-80% of insurance payouts due to damage, for example, by an anchor. So also the insurers today, the large insurers, are having in mind that it is necessary to reduce that damage and to bring the cables rather faster than lesser back into operation. The second key argument is again talking about the installed base.
Already over the last couple of years, the installed base on the offshore side, but also on the onshore side, has been increasing significantly, and that in the end requires more service, that in the end requires more service capabilities and more short-term reaction. Now I would like to switch to the accessories business. As mentioned at the beginning already, our accessories business has a full range and is covering a full range of accessories from medium up to extra high voltage. In principle, when we talk about accessories, we are talking four key types of accessories. First of all, the termination that in the end connect the cable to the end customer or to an overhead line. We are talking connectors that are connecting cable to switchgears or transformers. Joints that in the end are absolutely a prerequisite to combine and to connect cables.
Finally, also our so-called busbar systems, that are a super relevant piece for the switchgears and transformers of our OEM customers like ABB, like Schneider Electric, or like Siemens. Over the last couple of years, we have already been launching a bunch of new innovative products into the market. First of all, the 72 kV array connector I already mentioned earlier, that is very well received in the market. Our new cold shrink applicable joint that is especially designed for the large cross-section of onshore wind, for example, in Germany, but also other European markets. Last but not least, our new aluminum busbar that is developed together with Schneider Electric and helps the customers to significantly drive down their costs and be more competitive in the market.
With these products, we are underlining that our ambition to also grow in our core markets like Nordics or Central Europe. You can see all of the new products outside in our small exhibition. It is not only that we want to grow in our core markets with new innovative products, but also when we look at the more global footprint of our accessories business, we believe that there is a lot of room for further growth. We are very convinced that with our personal sales presence in Southeast Asia and India, in the Middle East, but also in Australia and New Zealand, where we have quite a strong presence, that we are very well-equipped to also achieve some significant growth in these really upcoming and growing markets, where a lot of investments in the infrastructure is currently happening.
Now taking a step back and looking into the overall perspective of the service and accessories business again. Also here, there are a bunch of market drivers that are supporting both of the business areas quite significantly going forward. For the service, we have been talking about the installed base that is increasing significantly. We also see that there is some further trend towards digitalization, meaning that preventive maintenance is increasing, but there are also new opportunities, new possibilities for new products out of the digital field in the service business. What we also see is that there is a change in customer behavior.
We see that there are some kind of non-industrial customers that require more assistance on service, but that there is also a general trend in terms of more outsourcing of services and being more open to work together with third partners and the third parties. Last but not least, looking at the installed wind farms, at the installed offshore wind farms already, a lot of these wind farms will run out of the guarantee period, and in the end, are also looking for new service agreements. On the accessories side, it is mainly two things. First of all, that we are talking, especially when we are talking about our core markets, around a very aged-out and worn-down infrastructure that in the end calls for replacements. But we are also talking about an infrastructure that needs to fulfill higher requirements due to the extent use of renewables in these markets.
For example, onshore renewables in the German market, that in the end also require a new set of more innovative and more high-quality accessories. All in all, we think that there are strong fundamentals supporting the growth of the service and accessories business unit. Now looking at the financials, overall, service and accessories are catered for some kind of attractive EBITDA margins. Going forward, we clearly want to focus on the growth of this division, on both of the businesses, service and accessories. We want to utilize, and we want to use the opportunity to expand our platform through the solutions and through our applications business going forward, but we also want to expand our sales footprint through third parties. We want to launch new innovative products, and we will launch new innovative products in both areas, service and accessories.
Finally, we will also expand our footprint outside Europe even stronger. All in all, we believe, and I personally believe, that there is a strong growth path ahead of us, and that service and accessories is a really highly attractive business division going forward. Thank you.
With this. Good. So with this, we will move on to another Q&A session, 10 minutes or so, and then we do a break, by the way. Then you can manage your appetite for asking questions. So you can ask questions to Frida or to Oliver for the two business lines. Claus Almer. No.
A question for you on the service and accessories. Can you give some sort of breakdown as to how much of the business comes from, how can I say, service subscriptions as it is today? Also sort of the link as to what degree you are a part of a new contract for Andreas.
Maybe to start with the second part of your question, to what extent are we a part of a new contract? We are very close to the solutions business, and we are always, from the beginning, a part of the negotiations and a part of setting up and working together. Yes, we are a part of these new contracts, but then it finally depends on really what the customer also prefers. The first part of the question regarding what amount of ongoing service contracts, what does it mean financial-wise? I think there we can clearly say that despite that the service contracts are not for free, and are definitely not for free, nevertheless, the actual repair and being close to the repair is the thing that in the end creates the significantly bigger revenue and the significantly bigger business.
I was thinking more sort of if you could give any. You mentioned the example with you fixing an Exxon cable.
Yeah.
Which I suppose is sort of like a kind of business that drops. You hadn't expected that, just it happened.
Yeah.
How much of your revenue comes from things like that, sort of coming from the outside, and how much is these sort of agreements?
Yeah. In principle, if we have a service agreement, we are very close as a pair, and I think roughly, I would say it is around 50/50.
Another way to ask the question is, why do we have this business line as a separate unit? I think the service business or service opportunity is something that we expect will grow significantly in the years ahead of us. I am very sure if I somehow gave that to Andreas, he would give it away for free if he was talking with a customer that was at the same time tendering a large project. We want to focus on it, to drive it. We admit it is not a large business today, but we actually think we can grow it significantly with high margins. Then also Oliver needs to deliver higher margins than we had on this slide because that is the current picture.
Hi, it is Dennis Dinkelmeyer from Goldman Sachs. I have a question for Frida regarding the CPR regulation. You have talked about price increases that you put through in your local markets. Could you, one, please quantify them, and two, how much more are you expecting to do in October, anticipate? As the second part of this question, have you seen any changes in the competitive dynamics, particularly in the more fragmented regions, in accordance to the implementation of CPR? Thanks.
Well, from a price increase, they are connected to individual accounts with our wholesales. That's actually very customer specific, so I can't give you exact numbers. However, we saw the price increases coming through with more than, I can say safely more than 2% beginning of the year. We are trying to go towards the same region on standard in October on the markets that are primarily affected by CPR, meaning primarily halogen-free and class E.
I would also like to add here that it is also needed to increase prices because we do have slightly higher production costs. We are not able to produce these cables at the same speed because they are more technically advanced and the compound that we use are not as flexible. So we have also slightly higher production costs that Frida needs to cover by price increases in the markets. I think this is very much in line with also what our key competitors are indicating.
That gives the second part of your question, which was really about more fragmented. We have to remember that in many markets, CPR is still class E and on PVC, which means that we don't see yet that local players on fragmented markets are being that much hit yet. But we also have to remember that in wholesales, some of them actually bought quite a significant stock, which they are allowed to sell for another year. So I think that kind of we will not see probably until next autumn how that will actually affect smaller players on fragmented markets.
Thank you.
A question regarding low voltage or medium voltage cables. You mentioned that building permits or the construction industry is improving. How does that affect your pricing power?
Well, nearly 70% of our cable is material, and a lot of it is copper. I would say, of course, it helps us that you have an underlying construction drive, but we also have to look at how the copper price fluctuates. Best combination is obviously high construction activity and a high copper price, then we can definitely see it on pricing.
Does that mean you can raise prices more than the copper price and thereby raising margins? Or it is only to reflect high input cost?
Well, as Michael also said, CPR is a lot about building wire, and also with the higher costs we have had, of course, that adds to our ability right now to adjust prices. But it is a fine line, what our customer is willing to pay for.
I think our ability to increase prices, reflecting supply-demand is slightly lower in this segment compared to the medium voltage segment, where you much easier can increase prices reflecting demand in the market. There are also markets in Frida's business where we have a clear correlation between activity level and our price level. But in particular, when you move into Central Europe, that is where all competitors are, and there it is more difficult. But in Sweden, for example, where we have a high activity level, it has been an okay margin year.
Okay. Then, as you mentioned, medium voltage, where the pricing is better. First of all, can you try to explain how many frame agreements do you have? How great benefit is it that you can produce it out of Eastern Europe? The margin impact, of course.
Okay. Frame contracts. We have small ones, and we have big ones. I would say we have somewhere between 150 to 200 frame contracts. Not all of them are quite big, but actually we have that many frame contracts with various utilities. We also have with small utilities, with state-owned large utilities. I think our biggest asset right now is actually the work we're doing in operational excellence, which Michael will come back to, on optimizing our production plans. We are actually quite close with all our production network to all our current markets, which means that for us, it doesn't really matter that much where it's produced. We have a good transparency and a good overview, and we focus on producing where it makes sense to produce, basically.
Today we are actually in a situation where we do have some capacity constraints in the segment, despite the fact that the photo year somehow is behind us, and we had very high demand in the German market. So what we also currently are looking at as part of our operational excellence is to get more capacity, and we probably will also soon move back some medium-voltage capacity to the Cologne facility. It will not generate a lot of profit, but it will cover a lot of fixed costs. We have one production line in Cologne that is perfectly suited for that, and that is also the line where we today are competing with tough low margins in the high-voltage segment in the low end. So there are some options on that, and it's correct, we have a lot of frame contracts.
Just to give a little bit more flavor on it, because there are also some very large ones among the numbers. There's one currently being tendered in France with one of the French utilities players, which is a minimum of two years frame contract with a lot of volumes. That was a contract we lost some years back, and we have appetite to win part of it back, and optimize it between our Czech plant, where we have a fully specialized plant producing medium-voltage cable, and then the Cologne plant. So that is what we're working on.
Then the margin part as you opened up for, Michael?
Yeah. You concluded that it was high margin business. I did not say that. I said it was easier to reflect supply demand in your pricing. It varies a little bit from country to country. But in general, this is a higher margin business compared to the building wires that we are also supplying.
Okay, thanks.
Thank you. A question on M&A. There has been a lot said about the fragmentation in the low and medium voltage end of the market. How does NKT intend to be part of that debate going forward?
In this segment where we talk about medium voltage, low voltage, we of course also look at M&A opportunities. I think what is important to understand here is that you are somehow a local/regional player, and we want to build on that. There are some players out there that would fit very nicely into our product portfolio and geographical position. That could be in Scandinavia, it could be in the countries just south of us. It is unlikely that we will just go to Italy and buy a low voltage producer, because we will not really have any power, or there will not be any logic to do it. So that is how we look at M&A activities.
Okay, thank you. What kind of regional revenues do we need to think there over a three-year period or so that you would like to add in organically?
We do not have a specific target. Typically it is smaller local players with a top line of everything from EUR 30 million - EUR 50 million, EUR 80 million. On our list of candidates, we probably have a small handful.
Perfect. Thank you.
Good. But then I think we should break for a break. Take a pause, and then we should be back here seated 20 to 4:00, and then we will be able to still manage the overall timing. Okay? Thanks. [Non-English content ]
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[Non-English content] Okay. Good. We are ready to move on. I hope we are more disciplined in NKT when it comes down with the fact that we have divested some businesses and also with the fact that we have acquired ABB or the high voltage part of that. This slide you have seen before, and this is basically the way we are operating, the way we are communicating around the strategy. We strongly believe as a management team that the better we are in explaining what the strategy is about to our employees, the easier it will also be to achieve it. So purpose values are clear. Vision is also clear. It is to be the best power cable company by 2020 in the eyes of our customer and our people.
If we can do that, we also think we will be it in the eyes of shareholders. The core of this powerhouse is really the must-win battles that goes across the different business lines, and then that is supported with a lot of different segments initiatives or business line initiatives that we also are working on. These are what we want to do. We want to be the customer's preferred choice. So whenever a customer has a cable need, he somehow needs to think about NKT. We want to have an engaged, agile, and committed organization. In the end, we also want to deliver these financial returns, here measured as return capital employed of 15%. These are the four must-win battles, and they are easy to communicate to you and to the organization.
But you also should understand that below these four must-win battles, there is a lot of hard work, a lot of initiatives that needs to be executed. If you just look at the first one, which is about the organization, being the return capital employed that we currently are delivering of approximately 9% and up to the 13%. A big chunk will come from the project business, but more is needed, and the more is to a very large degree coming from these two boxes. The organizational design we have now implemented will also mean that we are targeting to have a more efficient organization.
For all the different functions in an organization, we have been doing internal and external benchmark to analyze what is actually best in class if you are looking at a centralized finance function, and how many people does that translate into for NKT. Then we have looked at where are we today and what do we then need to close. We have been doing that for all the different functions. Of course, this is not about just laying off some people or whatever it is. It is also about making sure that we have the right capabilities and competencies in the organization, and it is also important that we have the right supporting functions. For example, also IT is a prerequisite for moving forward on this. We have also looked at delivering, so span of control in the organization.
How many layers do we have to make sure that we are actually fast-moving, agile, that we have leaders that can lead business and do not do a lot of operational work, et cetera. Then last but not least, we are also moving away or moving into some shared service centers in low-cost countries. That is years back. When we talk about organization, it is much more than drawing new boxes. It is actually changing the way we organize and also changing the way we work. It also means that we are moving into a centralized R&D function, which is also very important now when we acquired ABB, because they had a lot of R&D people in their organization. That is why they were leading within DC.
Now we have moved all this under the responsibility of Detlef Wiemann, our CTO, and this is to make sure that we have critical mass in all the different elements of product development when it comes to our business. Instead of having it scattered around in many different locations, we now have it centralized. Not in the way that we have centralized all people, but we have centralized the leadership of the R&D activities. That is of course important because we spent approximately 3% of our top line in product development, material development, and we are employing 120 people in this organization. They are typically highly specialized, highly educated engineers. That of course also comes at a pretty high cost.
And then this centralized R&D function then needs to work very closely with the three business lines and product management in the three business line in order to look into markets, what are in front of us, what kind of opportunities do we have, and how do we make sure that we have the right product in the right markets at the right price? As mentioned before, we also are investing heavily into IT, because that is again, a prerequisite for being able, for example, to move into shared service centers in low-cost countries. So over the last couple of years, we have invested more than EUR 10 million in a new SAP platform that we will roll out in the entire organization during the fall of next year.
When we have done that, we can really start to capture and harvest some of the benefits that you need to have from implementing a new IT system. So a lot of hard work is going on inside the organization in order to digitalize the way we operate. And that should then be added with what we also do, looking at our customers and how will digitalization actually impact the business or the industry that we are part of. So we have also invested in a small group of people who are somehow separated from the remaining R&D function in order to give them freedom to operate and look into opportunities, being fast-moving when developing, for example, a new app that Frida needs for her drum tracking systems, et cetera.
So looking a little bit into the future and making sure that we fully understand what digitalization mean for our industry, and also that we can convert it into products and offering to customers. So very important must-win battle. The second last slide is just what is on our agenda. How do we manage the business? Some of you have seen this slide before. We somehow look into what are in the development and growth segments. And not as a big surprise, that is where we have the large project business, accessories and service and installation, where we also foresee growth opportunities. We have the one in the middle where we focus on profitable growth. We are actually pretty satisfied with the profitability level that we see in that business.
Always we can do better, we believe, but it is very much about making sure that we can maintain it and also grow the business. And then we have a turnaround focus. We still have challenges in the low end of high voltage business. We are losing EUR 10 million there. And we have actually been losing such an amount of money in the last couple of years, and we try to turn it around.
We need to do some internal work to turn it around, but we also need somehow the market to recover. So part of what we do is to hand it over to Roland. We also have focused the business and, as you know, we divested cabinets, we divested China, we divested automotive. Maybe just worth mentioning here, I did not touch on the railway business. The railway business is a small business. It accounts for 2%.
You should not expect it to be core for us moving forward. It is also an area that we somehow need to fix. With that, I have somehow finalized my very fast run-through of our strategy and how we are progressing. Roland, it is your turn.
Thank you. Thank you, Michael. What I will do here today is I will just briefly touch upon the historical development on the financials, and then we will focus a little bit on 2017. 2017 being the first year with the ABB included, and then talk a bit about how should we think about articulating the bridge from where we currently are and up against our new midterm financial targets. It is probably hard to build your opinion on the future on the historical financials because so many changes have happened over the past two and three years, and also the newly acquired ABB business. Over the past three or four years, revenues have been swinging a little bit here and primarily impacted by our projects business.
A bit higher in years where we have had installation charges and civil works outside the factories, and a little bit lower when we have not had so. 2016 is the year where we have less so and also where we started selling the China business. In first quarter of 2017, ABB is included for one month, and in second quarter, this is the first full quarter in which we have consolidated the ABB business. 43 million and LCM margin of 11.3% is considered quite a good quarter. We are coming bit back to that. Also, as part of the DRIVE program, we have been working quite intensively with our working capital. This is everything from trimming our receivables to streamlining the inventories, the group functions. Our global group functions across starting to look at how we do inventory planning across the different factories.
We have also been working intensively the way we construct our contracts in the projects business that ideally should yield negative working capital, so positive for cash. For the company. By the end of 2016 here, we sold the China business, which also released quite an amount of working capital in terms of long overdue receivables and also some obsolete inventory stock. If you look a little bit historically on our investment levels, it has been hovering between 2% and 3% of our revenues measured in market prices. We consider the legacy NKT business relatively well invested. We have well invested and maintained factories and machineries, and we have also started investing in the platform, as Michael he mentioned.
As a first wave next year, introducing a common SAP platform across all the, after we have sold China off, and we have also sold our automotive business down in Czech. That is pushing, obviously, the revenues, but also our nominal EBITDA and improving our margin as we move forward. The working capital here is negative and largely driven by the level of working capital we bring in from the acquired business. Now, if we then focus a little bit forward, then we will start to report to you guys in the new segment structure. The segment structure should reflect exactly the three business divisions that the guys here have presented today. We will report on revenue and on earning figures, and most likely also a few key balance items.
We will only report on these segments and not guide on them, but this should add some granularity to the understanding of our fundamental business, we believe. That will be effective 1st of Jensuary. Today we have indicated to you the levels, pro forma or illustrative numbers, so that the solution business, had we done this full year 2017, would be EUR 600 million. The applications business is EUR 400 million. The services and accessory business is EUR 100 million. Now, the way we allocated compared to what we do today, is basically everything high voltage onshore, offshore and also AC/DC moves into the solution business. The services part of that will move into service and accessories business. Under our products, it will basically all be applications apart from the railway business that we will move into the services accessories business to ensure that that gets sufficient attention.
It is part of our turnaround projects. That means that our solution business in 2017 would be more than half of our revenue streams. Solutions is obviously a bit more volatile, at least in the near term on revenues, depending on how projects comes in. It also has a better margin, at least expectedly in 2017. The thing you need to remember in that is that the capital employed or the investments made in that business is higher than, for instance, the application business. So yes, it's a higher margin business, maybe a bit more volatile, but it is also a business where we have invested quite a lot and also employed capital. The services business is only 10% of our revenue in 2017, but set to grow from here, is the plan.
Also that is considered a reasonably margined business with relatively low assets or capital employed. Now, if you look a little bit on our pipeline, we have also discussed that today. We have EUR 1 billion in pipeline, and 60% of that is expected to be delivered from 2018 and onwards. Now, a few remarks to that. We recognize revenues in the accounts as and when we produce. So cost for cost, when it's decided to produce on these backlogs, they will be recognized in the financial accounts. That means that we have a little bit of flexibility in the way we plan, when we produce, and how we use the capacity. Several of these projects here have been produced in a way before the actual delivery date.
For instance, the Caithness- Moray project was done already a year ago, and it was installed in Scotland this summer here when we had the vessel delivered. This only has delivery date into 2018. Let us talk a bit about the synergies from the acquisition. The synergies is estimated to EUR 30 million. We still think that is achievable. However, synergies are strongly correlated to volumes to the extent that volumes will move a little bit, synergies may also move a little bit. But we will deliver EUR 30 million in synergies, and it is basically divided equally into the three buckets here. Our commercial synergies, you are having a focused uniform, one front end to the customer. Market leading technology and also completing our product portfolio is going to give us commercial synergies from where we were.
Then there is the traditional bottom line synergies, procurement efforts, leveraging on our coming SAP IT platform and the way we can do that across the two factories and also overhead cost synergies will be in terms of integrating the two new factories in our new group or global shared functions. On the manufacturing side, it will give us quite substantial ability to plan production across the two factories and that will give increased utilization across the two factories also compared to where we were with the Cologne factory standalone. So EUR 30 million should be expected effective full rate in 2019. That basically means we are reiterating our guidance for 2017. There is nothing new in that. We have said that all along, and that stands to be delivered.
If we then start talking a bit about how do we move from 2017 and then into our new midterm targets, we need to think about that, linking it back to Excellence 2020 that Michael, he just went over. There will be improvements in the three divisions as we see them today, operationally day to day. Solutions will have a year with 12 months and not only 10 months. There will be a lot of operational improvements in the three division services will grow from where it is today. But the most important levers here is part of the Excellence 2020 initiatives. And then of course the synergies in itself is EUR 30 million. So building this bridge, you need to think about it as fully synergized potential released.
We get full value of our group functions, thinking efficiencies across promotion of best practices will lift utilization on the factory network. And the way we organize ourself and in principle, enable FTE reductions will also give quite substantial savings. And then we will eventually also move all transaction-based working routines and processes to shared service center in low-cost countries. So these are some of the initiatives also alongside of course turning around the onshore loss in Cologne. And that will sort of build up to our midterm target of EUR 200 million-EUR 225 million in EBITDA when we are pulling on all cylinders, so to speak. The ROCE target of 13%, I think should be seen as we had our legacy NKT business or the existing business before the acquisition. We had a financial target of 15% ROCE. That is basically unchanged.
We are on track to deliver that with the initiatives that we are running and following up against. But the acquisition of ABB is somewhat diluted to that. As you know, we had both a vessel and also a considerable goodwill carried along in the balance sheet. At least in the short to midterm, that's going to be diluted to the 15%. So a new financial midterm target of 13% ROCE. That's assuming that there's no capacity expansions from where we are today, as we also have touched a little bit upon. Now, it is possible that we may extend the long-discussed extrusion line in Cologne. It also possible that we may extend a few bottlenecked machine in Sweden, and that will enable us on a business case basis, depending on orders coming in, to push performance above 15% ROCE. Yeah.
So in terms of articulating this moving forward, just summing up, I think the existing NKT legacy business, we see that as pretty well on the way to deliver on its business plan. We see it as relatively well invested. We also see the acquisition of ABB as a well invested unit. We don't expect a lot of new CapEx rolling in on that. They have second to none testing capabilities and factory capabilities there. Also the vessel has just been paid and delivered and so on. So that's how we should think about that moving forward.
Good. Thanks, Roland.
Very good.
So that somehow finalized the CapEx part. We do have a small section, five-minute section on financial performance for the consolidated unit, NKT in the end. But before, we will also do Q&A after. But I would like to hand it over to Basil to take us through the Photonics business. Please.
Thank you. Good afternoon, and welcome to the last part of the presentations. We are the third but smallest and obviously the most beautiful company within the NKT group. I know our time is limited, so I will be going through the presentation at a fair clip, and I will be concentrating on a few things within the slides that we have. But we have a team outside, and if you have any questions, any particular questions, I know what we will present will also give a lot of people a lot of questions, but please ask us outside just to conserve time. This is our team at the C-level. Myself and Lasse will be presenting our numbers later. As you see, this team has a long and varied experience in this industry, very experienced and set to take this company to the next level.
A lot of us have experience in industrial lasers, in R&D lasers, in medical, and in other applications. So well-placed to move the company to where we need it to be to commercialize the products that we have. NKT Photonics is really a journey. It is a journey that was started in about 1980, where NKT, with great foresight, began producing optical fiber. In 1980, optical fibers were brand new. I think they were only developed a few years beforehand. NKT had the foresight to get into this industry, and that was really the birth of getting us into the photonics industry. NKT Photonics, in the way it is formed at the moment, was really formed around 2000, with a number of companies like Crystal Fibre and Koheras.
We have evolved with a couple of acquisitions, actually, in the last couple of years with companies like Fianium and Onefive. Where we are at the moment is basically one of the leading manufacturers of advanced lasers for the medical and the industrial world. Advanced lasers in the fiber world are highly advanced. They are just being designed into a number of systems, and I will go through the systems that we have. But the emphasis here is that we are active in the fastest-growing segments of optics and fiber optics. We also have expertise in precision laser manufacturing and in life sciences. Life sciences like medical procedures, et cetera. Again, I will go through each point in a number of slides.
But we also have a proven commercialization strategy that we have tried over the last two years and the number of OEMs, the number of blue-chip companies are customers at the moment are increasing at a very fast rate, which is great. A very busy slide, but let me sort of walk you through it. If you look at the sort of 2015 size of the photonics industry, it is about EUR 115 billion. That is not where we play. We play in a small segment, and you see the small pie chart, pie slice in there. We have focused our business into three segments. These three segments are imaging and metrology, sensing and energy, and material processing. Each one is today about a third of our business, and it is growing. The emphasis in strategy is really on the material processing side and imaging and metrology.
In sensing and energy, that is a place that we are doing well in, but it is of more as a status quo. If you look at the growth in each of those segments, obviously in photonics, it is quite a fractured business. But in the areas that we are in, you can see the size of the market and the CAGR numbers that we play in. What I am trying to show now in this slide is some of the lasers that we do manufacture in some of the areas within each of those segments, and I will go through, rather than tell you what the laser does, I am going to tell you how it is used and why it is used. If you look at the semiconductor sector, where we play today is in metrology. Metrology means measurement, test, qualification, certification.
The main place we play into the semiconductor business is we are a supplier to large manufacturers of semiconductor manufacturing equipment, things like lithography machines, things like tools that make wafers. And where we play is with our advanced lasers that are just being designed in, is all the semiconductor industry is moving to highly complex wafer manufacturing, everything in the world moving towards really dense chips. If you look at the industry, for instance, it needs more and more complex chips. To manufacture those chips in lithography, you need essentially 3D structures now. These are chips that make your phones work, make your TV work, make everything else work. These are the chips that make the Internet of things work. So these chips are getting more and more complex. The measurement on those chips is getting down to the nanometer level.
Our customers can measure using our lasers, layering in lithography, where they are using masks up to 34 layers in measurements down to 5 nm. That has not been done before. It is not possible to do with any other lasers but the ones we manufacture today to do the measurement. 5 nm, if you imagine a wafer in a 3D way, the size of the wafer is the size of our planet Earth. 5 nm is like a tennis ball inside Earth, and you have to measure to the accuracy 34 x at speeds getting to G-force levels. Phenomenal. That is the sort of technology that uses the type of lasers that we manufacture. If you look in some of the others, and again, in metrology, in industrial metrology, we build lasers that, and I will go through some examples of that, measure sensors. Sensors are used in everything.
Our large customers are in the microelectronic sector, people who manufacture phones, tablets, computers, et cetera. If you look in the energy sector, that is the middle sector that we have over there, we have equipment used, I am just not going to pick on each one, but for instance, in structural monitoring, we build equipment or lasers that are put in equipment that are used for fire protection. Some of our large customers, the ones I can name, for instance, are Siemens in Germany and Switzerland. Siemens use our lasers and our systems for their fire protection. We have a system installed or systems installed, for instance, in the Gotthard Tunnel, in Switzerland. Again, state-of-the-art lasers, state-of-the-art systems that are used in places where all kinds of structural monitoring is required.
Again, not going to go through all the examples, but you can see where these lasers are used in great numbers or starting to be used in great numbers. The part that we are really excited about is also in micromachining, in the medical side, and I will go through some examples of those in the medical side. Medical side are mainly operations, and I will go through it. Even though it is material processing, we call it material processing, it is for medical material processing, things like your eye and other things. What is driving this growth? The two macro trends that are pushing, pulling, and getting our products, which are very advanced, into these areas, the biggest one is the growing and aging population. Population of Earth is growing. The pressure on resource is growing. We are aging. We need more and more medical treatment.
We need more and more preventative medical treatment because you do not want to treat diseases, you want to prevent them happening in a growing population. The second macro trend that is affecting us being used in all new kinds of applications and equipment and what have you, is the increase in complexity of basically things like phones.
Your phone is becoming everything. You can take pictures, you can measure things, you can send email, you can watch TV, you can send whatever kind of data that you can gather with your phone. It is full of sensors. It is full of everything. So that is something that is producing a great demand for more and more complex equipment, and we manufacture the lasers that enable those equipment to be manufactured in large quantities. A couple of case studies. You take a standard smartphone. This is a pretty old photograph of a smartphone.
It does not look very smart because everything is much newer. If you look at, for instance, the glass, new phone manufacturers have glass now front and back, as you have seen with people like Apple and Samsung. Our lasers, especially our femtosecond lasers, are used to cut glass. They are used to cut glass that does not need finishing. That basically saves one or two steps in the manufacturing process, and if you are manufacturing 1 million phones a day or half a million phones a day, as those large manufacturers do, a step change or 50% savings in this process is phenomenal. It gives them a great saving in money. It means that they do not need to finish the glass. It means that they can just cut and install and move it fast. We talked about semiconductor chips that are used in your phone. Sensors. I mentioned sensors.
A year or so ago, your normal phone had about four or five sensors in it. The new iPhone 8 or the Galaxy S8 or the Huawei P10, or whatever the new one is called, have about 11 sensors in them. Everything from cameras, to sensors to measure ambient light. Sensors to measure the colors, to change the colors on your phone, gyros, proximity sensors, you name it. in 2020, the number of sensors are going to be more than 25 per phone, and all the manufacturers are racing to put more sensors in the phone. What our lasers do, they enable these companies to measure, characterize, install, calibrate all these sensors in situ. Our lasers go in manufacturing machines that manufacture those lasers in large quantities. You also have to do that at great speed.
Like I said, if you look at companies like Samsung, they manufacture 700,000, 800,000 phones a day. You need high quality, you need high reliability, you need high throughput of your manufacturing equipment, and that's what we do with our new lasers, and that's why they're being installed in future lines as we speak. Finally, with all the enclosures, our lasers also do a lot of marking, via-hole drilling, cutting of circuits, inspection, et cetera. Another case study is lasers used, again, as I mentioned, in ophthalmology. This market is growing, especially where we've been used at the moment is mainly in equipment that do cataract procedures. Cataract is the graying of your lens. I've been told in Danish it's called grå stær. Cataract will affect over 90% of us over the age of 65.
Between the ages of 75 and 85, if you don't treat it, 50% of the population will start having loss of vision. Very important procedure at the moment. The way cataract works is you go to a surgeon, they numb your eye, they put all kinds of drops in it. The pupil grows, you go numb. Surgeon comes with a scalpel, cuts the bottom of the cornea, the lens is sucked out. I know this is horrible, but I love saying it. A new lens is put in. Obviously, to train this surgeon to do this is many, many years of training. This is not your first or second-year graduate out of medical college. It's an investment and obviously thousands, and actually not thousands, millions and millions of procedures have been done using that.
With a femtosecond laser, which is the lasers we produce, you do the same, but the cut is done with a femtosecond laser. Why our lasers? Why a femtosecond laser? We are the main manufacturer in the world of those. A femtosecond laser, basically, if you think of normal lasers, most of the lasers in the market today emit what we call continuous wave light. It's light that comes out continuously. A femtosecond laser pulses this light in pulses that are very, very short, femtosecond. A femtosecond is a billion billionth of a second. What you can do with that is put a huge amount of energy in a pulse in this laser. But when you use it for operations, it doesn't impart heat when you're doing a cut on adjacent cells. When you cut also with a femtosecond laser, the healing process is quicker.
You do that, and the patient care is much more advanced. Now obviously, you can also start doing that in procedures, especially as the population is growing, and especially in places like China, where there are not that many qualified surgeons with the years to be able to do cataract operations with a scalpel. Great market, and it is growing. Another part that is growing, obviously, and I think there has been millions of operations out there, is in LASIK. I am sure someone at least here has had LASIK operation using a laser. Do the same, you cut with a laser, flap goes up, use another laser to correct the cornea. You correct it for various different applications like shortsightedness, longsightedness, astigmatism, myopia, you name it is done with that. Again, you do it with a laser. If it is an advanced laser, it is a very quick throughput.
The number of patients you get through is quicker, return on investment is quicker, and obviously for us, as the population grows, the market grows for all this. Two great examples. There are many more, but again, if you catch us outside, we will talk about it in a little bit more detail. The third part that we mentioned about moving the company forward is our commercialization strategy. This is, again, an example to show that in our commercialization strategy, we have gone from being an R&D organization, or heavily advanced R&D organization, to working more in the commercial market. You can see the different paths that we take into getting into that market. It is working with a number of people in applications, in product development, in qualification, et cetera.
The path has been really proven, and we have shown that today, the list of customers that we have in OEMs is phenomenal. We have the biggest blue-chip companies that are knocking on our doors at the moment to be able to use our lasers. Early days, very early days, but a great vote of confidence into what we do.
My final slide on this before I hand it over to Lasse is just to show you where we are located, our reach. We have four manufacturing areas. Here in Denmark, one in Cologne in Germany, one in Southampton in the U.K. in the south coast, and one in Zurich with our new acquisition. Not exactly the cheapest manufacturing areas in the world, but centers really for excellence in our industry. Centers where all the universities are developing new technologies, new advanced lasers, and that is what we are doing there.
That is where we are. We also have, obviously, offices, sales, and now because we are selling more to OEM service offices, we have one in China, and we have one in the United States. If you look at the number of employees we have, we are about just over 320. Again, the smallest in the group. If you look at the breakdown of employees, about a third is in R&D, a third in manufacturing, and a third in sales and marketing and G&A. That pie chart will change as we advance, as we develop in our journey here. You will see that the manufacturing part will become larger and larger, and the R&D sales proportionally in percentage-wise, the R&D and sales and G&A will start reducing. With that, I will hand over to Lasse, who will talk about our strategy and our financials.
Thank you, Basil. Basil has now talked us through all these great opportunities that lie ahead of us with the technology we have. Basically, the slide was also shown in a slightly different version last time at the CMD. There are some changes to it, but it basically centers around four different elements. One is moving up the value chain. This is also where you should see Onefive as a central element, where we are basically going from being a component supplier. In this field, it was basically doing the fiber to many of the players developing these lasers. Now we are actually moving into the system level and getting sometimes up to 10 - 15 times the revenue potential. That is, of course, extremely interesting for us.
The other thing is, and that is where there is a change compared to last time, that the focus is on our organic growth. Basically, we have done two acquisitions, Fianium and Onefive, but we also integrated the LIOS business into NKT Photonics. We see we have the building blocks basically to keep the growth platform for at least the next two, three, four years. The focus is very much organic now. That can be either alone by moving up the value chain, but also through partnerships, for example, with our OEMs. As Basil also mentioned, we are now 320 people. That also requires us to focus a bit more internally how to actually move from being four different companies and into being one company.
Some of the similar things, of course, in a smaller scale than the cables have been going through, but it is looking at scalable manufacturing. How do we actually make sure also with the OEMs that we can deliver and also keep quality on a much larger scale or in volumes of lasers? As was mentioned in the beginning, we have also here staffed up and added capabilities with a new CEO in Don Riddell, who is coming from one of the largest laser manufacturers in the world. The other thing is also on the commercial side. We have come from being very R&D focused, naturally due to the frontline and technology provider we are. Also here, we need to have a different kind of skill set when we start working with OEMs, and also go in larger volumes.
Also as we become clearly global now and have a lot of different technologies. That also requires things from us on the R&D side. There is a huge difference in being an R&D house and working together with universities on long-term development projects. From now on, we will also seek more industrial OEMs, and these are basically customers that require a three-month period, and then we need to come out with a customized product to them. Also on the R&D side, we need to be excellent in terms of bringing products to our customers much quicker. We have clear organic focus. We have clear focus on what we basically have today, and we believe there is a lot more mileage in that. We started the journey already, and as can be seen here, we have actually nominally grown 7.9% from 2012 to 2016.
In here is a divestment and some acquisitions, at least partly in some of the numbers. If you translate that to organic growth, it is actually closer to 10%. That we believe at least we can continue to do. This growth has been mainly driven by our sensing business and also the new OEMs. Especially in new OEMs and, of course, the additions of Fianium, and the Fianium business and the Onefive business or the UltraFast platform that we see driving us going forward. The business platform, there is a lot of fixed costs, and we have invested a lot in this business. With scale, we also see improved profitability. We have taken it from around zero, or at least it is 3%, 4%, to now being close to 15%. Three of those percentage points are coming from improved gross margin.
The rest is actually from scale and, of course, a little bit on the adjustment to the portfolio, so the divestment of Wi-Fi a long time ago. It basically proves that there is a scalable platform here, and with gross margins around 70%. In creating a scalable platform through the strategic steps that I just mentioned, there is a really good business case. So our midterm target is basically that we believe that we should do at least organic growth of 10% per year. This can, of course, fluctuate with the OEMs that we get in and bring us big volume. This should be seen as a minimum for us organically. As I said, you shouldn't expect any bigger acquisitions, so it will also be organic growth that we will look at. That should also yield to the scale effect that I just mentioned.
It should yield a potential of at least 25% EBITDA by 2020. If we run it through the numbers and our business model, this should also correspond to a growth of around 20%. If we look at some of the other players in the market, this is not at all unique. So it is not because it is unbelievable. Not at all. With that, we can basically conclude on the Photonics side. Over to Roland.
Thank you. Thank you, Lasse. Just to round off on NKT A/S, obviously adding the numbers on NKT and Photonics, and the majority of NKT A/S is NKT. That means if you look at 2017 guidance or expected revenue would be EUR 1,150 and our operational EBITDA of EUR 145-EUR 150. A bit more interesting, probably after the split with Nilfisk, we have divided the holding company's debt into the two companies, and that is leaving NKT A/S with a net interest-bearing debt of EUR 347 million, and that is leaving us with a leverage of 2.2. That leverage is comparing to our midterm target of 1.5. Not so much more to say about this. We have total cash and debt facilities available of a little less than EUR 700 million, and undrawn facilities of a little more than EUR 300.
A smaller part of the acquisition debt from the ABB financing needs to be financed during next year. This is a bit more of a governance slide. There is only one point to make here. Liquidity interest rate and currency are hedged according to group policies. Our interest rates are normally fixed. Between 20% and 40% of our debt will normally be with fixed interest rates. To the extent we can, we will cover most of our currency exposures. Important on the commodity side here is we often get that question. We do not assume metal exposures. All commodity exposures, metal exposures, aluminum, copper, and so on, are either hedged or borne by the customers. That is our policy. Our financial policy and capital allocation principles. A leverage target of 1.5, we believe that is the right level for us in the industry.
We are now moving into and with the projects business as we have acquired from ABB. This compares to, and will give us a balance sheet that is robust and also compares well to our peer groups. On the dividend policy side, we still assume a payout ratio of a third of the profit for the year. However, there will not be paid out dividend in 2018 with regards to 2017. Then just a bit more of a data sheet here showing the development in the balance sheet and leading up to the pro forma numbers. I am not going to spend time on that here. Michael, do you want to-
Good
round it up?
We are basically done for today. We have 10 minutes left, at least according to the time plan, for Q&A to the cable part, but also to Photonics. Basil, why do not you come up here? We also have all the time needed, so feel free to ask.
Thanks. Roland, you mentioned that the synergies or maybe the timing of the synergies would be dependent on the development of the underlying business in cables. As it looks right now, you have a little bit of a gap to close on the orders in 2018. Can you talk anything about how that might impact the timing of synergies?
No, not really, Casper. We still believe that we have full runway synergies by the end of 2018, effective 2019. But if volumes would slide in the second half of 2018, some of that may be postponed for a quarter or maybe two quarters. It's not massive numbers.
Okay. I'll just try and take advantage of the fact we have the chairman here. Jens, what do you see as the end game for Photonics?
Whoa, that's a big question. Photonics is technology, and technology changes very fast. I think end game, I would probably defer to Basil. But for me, the model we have in NKT, where we basically run our companies as standalone entities, at least in the way they report to the board, I think that's the right way for Photonics to develop moving forward. Photonics needs a bigger size. Depending on how we grow, sometimes you grow with big customer dependencies, sometimes you grow with no particular customer dependencies. It all depends on this as well. But I think at a certain point of time, Photonics will be big enough and strong enough and should have its own life, because that sector in particular will also be M&A dependent, and having your own share price to participate in acquisitions is very important. I think we are not there yet.
It will take a while, but that would be my hope and maybe a little bit on the visionary side for Photonics. Basil, do you have anything to add to this?
Well, we run the company to be a strong standalone company. Jens is right, we need some more time to commercialize what we have. There's a lot of M&A activity in the sector, but what we do is just concentrate on day-to-day business, on our large OEMs, and being able to basically run the company as a standalone.
We will protect you.
Well, you must say, we've been in a very fortunate situation where NKT has been very good to the company. NKT has supported the company throughout the years, throughout the years of not making money, throughout the years with the acquisitions that we have. We couldn't have done it at all as a standalone small company. So the benefit of NKT has been great to now.
Just as a follow-up, Jens, it sounds as if you would see a potential IPO some years ahead as more likely than an industrial sale.
I do not know yet. I am very humble when it comes to technology. I know things move very fast, but I think the objective for us is to keep all options open, because I think that is the best way we can add value. I think there is a lot of potential value in Photonics. Right now, the optionality, there is an option value that needs to be converted into real value at a certain point of time, and I think that is where we can help. I think we made a big step change when you came along, Basil, not only in the leadership you brought along, but I think also in the way that we changed the funding of what you do.
I think we more think of what Photonics does now in terms of a VC type of mindset, where we fund certain things at a certain cadence, but you do not have a working capital line where you draw every quarter, so to speak. I think for now, because of the IP we have, the technology we have, the organization we have, and the traction we are getting, I think that has been a good approach. It was not the right approach maybe five or 10 years ago, but now it is.
Okay. Just a question to Solutions, Auto and NKT Cables. In order to reach the target EBITDA, does Solutions need to have a much higher revenue than in 2017? The question is really, could you reach the target EBITDA with the revenue you have in Solutions today?
Purely through synergies and cost efficiency. If you take into account that the synergy potential is also about adding more capacity that we somehow plan to sell, fueling more top line, then yes. Then we can base it on the capacity that are installed today. With the growth forecast, it's a little bit difficult to talk about growth, what will the top line be? Because it so much depends on the composition of orders, installation, non-installation, subcontracted installation and all that. But the thinking is really using the capacity installed today, and adding the capacity that we will be able to realize as part of the synergy and sell it. Then we should be able to reach our midterm targets. As also Roland explained it, the other element is what we do in the operational excellence, which is also a big chunk of it.
What capacity is missing without the second line? Yes, it is without the capacity expansions opportunities that we have in Karlskrona and Cologne.
A few questions from my side. Roland, the guidance you're giving for this three to five years down the road, I'm struggling a bit to understand the range at least. If we take your guidance for 2017, adding the synergies, adding ABB full year, adding high voltage onshore, hopefully it's not going to be loss-making, and the growth we heard about within medium voltage, low voltage, is this range the most likely outcome?
Yeah, I think that's the most likely outcome. We have plans where we are following up on all the levers that we need to deliver on to meet that range. That also means that the company needs to pull on all cylinders, so to speak, to meet that range. Is that answering the question?
It's an answer, but I don't fully understand. I still think, in the low end of that range, something must go wrong to get the math making sense.
As to go wrong, it depends on if you turn around Cologne, how much do you turn it around? What will the real impact be of the efficiency and launching the sort of global function group functions, right? That's within a span. It's three to five years from now. So impact is in ranges. I wouldn't say I don't think we will tell each other that something has gone wrong when we hit the EUR 200 million mark.
The EUR 200 million would be a result of something not fully meeting the original milestones you have put out. Like, you're not going to have EUR 30 million synergies, you will not turn around the high voltage.
No.
That's how we should see it?
No, then you will meet those targets. But there will be ranges of the different We have a lot of levers, right? There may be 15 or 20 important levers that we need to deliver on, and they are in ranges. If they end in the upper end of their ranges, we would be closer to 225.
Yeah.
We sent you the Excel sheet, Claus.
Thank you. It will make it a little bit easier.
Yeah.
Okay, then the second question goes to Basil. We have heard about Photonics for a lot of years now, and you have very fascinating technologies. But we are still waiting for this next move to really go to volume production. And we can see your three-five years guidance. Will this serial production, will that be next year or will it be a hockey stick? Or how should we really understand the market acceptance of your technologies?
Well, if you follow most of the companies in the photonics sector, they always have a hockey stick somewhere.
In the future?
Yes, exactly. It's the ever moving hockey stick. We're working on a very broad front. We're not putting all our eggs in one basket. You saw all the products we have. There's a number of different OEMs that we are working with at the moment at different stages of maturity. Some, we have lasers in the field. On the medical side, for instance, through our acquisition and what we're doing. We have a large number of units in the field, and that's going to increase as we sort of talk along the manufacturing. You're going to see segments coming in as we progress. Now, I think as Jens said, technology companies, things happen very quickly. Especially in the industrial world, especially in the microelectronics world. If you think of phone manufacturers, tablet manufacturers, et cetera. Things move in a very fast way.
If you do get manufactured in, then you'll see a spike. There are many of them, and they're not so big that they won't double or triple or quadruple our size, but they will be coming in as we speak. There's not a hockey stick as such, but you're going to see more of a sort of accelerated growth as we go along. Especially with the new acquisitions as well, you will see more of a steady growth. That's what I'm saying.
Okay, thanks.
Anybody else with questions? Do you want to round up, chairman?
No, I would just say thank you very much for your interest. We are excited, as you can tell today about all the presenters, excited about the opportunities in our companies. We are excited about the possibilities now that will open up as we execute the demerger, and get a lot of focus in our two companies, also from our investors. We think we will have a very bright future. So thank you for your interest, and we are looking forward to your continued support. Thank you also to all my colleagues here who have presented today, and also to the ones that have already left, because they have to go back and deliver on these plans now.
Also the ones who have been fighting the last couple of weeks in NKT and Nilfisk to get this where we are today. Thanks. Thank you. Good. Thank you.