Welcome to Keytron's Capital Markets Day twenty twenty one. We have a packed schedule, so let's move ahead. Next slide, please. As usual, there's a substantial disclaimer. I underline that this presentation contains forward looking statements.
There are always uncertainties and you should keep that in mind. Next slide, please. I'm Peter Nielsen, CEO of Keytron Group. With me today are parts of the group management team, Kathrin Nilander, CFO and Israel Salvador, COO. Together with the MDs for Norway, Sweden, Lithuania and China, we've been running the company for the past six years.
The agenda for today starts off with me giving a brief overview of Keytron, followed by markets and growth strategy. Catherine will then dig in down into the numbers with an overview of our long term financial targets, finishing off the presentation with Israel discussing how operations will manage growth and profitability improvement. Finally, I'll return for a quick summary before we proceed to Q and A. Next slide, please. So I understand quite a few of you watching this may not be acquainted with Keytron, so let me give you a quick introduction.
Next slide, please. Let's talk about our core business. We have our roots in a company founded in 1962 in Arendal, Norway. Today, we're an industrial partner to many companies you know and use products from. An EMS partner takes care of manufacturing and other services to companies that design, own, and sell those products.
So who are the customers? Well, we have just over to 100 customers, and the top 20 account for just about 75% of annual sales. Keytron's customers are often leaders in their market. They tend to lead technology wise, be innovative with new solutions, and grow more quickly than the market in general. So on to our positioning in the market.
Our tradition is to manage complex, high margin products with special requirements. Within several market sectors, Keytron is recognized as a strategic and critical supplier. Over the years, we've evolved to become a leader known for delivering agility and flexibility in many different market sectors. In terms of volume, I would say that we're a medium volume business from a few thousand to several hundreds of thousands of units per year. Taking a look at operations, we're just over 1,800 employees.
Our corporate headquarters is outside of Oslo, Norway. We have six modern, highly competitive facilities globally, Norway, Sweden, Lithuania, Poland, China, and The US. Overall manufacturing footprint is over 60,000 square meters or close to 650,000 square feet. Next slide, please. So briefly, our financials.
2020 turned out to be a record year for Keytron with over 20% growth. Contributing to the remarkable growth were extraordinary medical sales in the second and third quarter, driven by the demand generated by the corona pandemic. Operating profits grew more than 55% to $312,000,000. And although net working capital increased, 27,000,000 in cash flow was generated. Over the past six years, we at Keytronet have delivered a compound annual growth rate of 15% for sales and 48% for EBIT profit.
The company is listed on the Oslo Exchange since 1997. Our strong commitments to dividends and year on year profit improvements have resulted in more than 1000% increase in shareholder value over the past six years. Next slide, please. Let's talk briefly about sustainability. Our approach to sustainability in ESG is grounded in our code of conduct statement.
This is a guiding document for all employees and suppliers. We report on our commitment, goals, and progress in our annual sustainability report. Many of our investors are interested in how Keytron stands in regards to the EU taxonomy classification. According to a recent survey by Danske Bank on the Oslo exchange, 10% of the revenue generated by companies listed is aligned with taxonomy. We at Keytron can comfortably say that 20% of our revenue is aligned with the taxonomy classification.
We expect this to grow as we see a rebalancing between market sectors driven by new growth. When it comes to the global environment, we systematically work to minimize adverse impact to the environment. For example, we target energy efficient equipment and sourcing of renewable energy. To improve our working environment, we actively work with increasing the number of employees that think Keytron is a great place to work. We also promote gender and diversity balance and put effort into reducing the gender pay gap.
Next slide, please. So what is it that drives us as individuals and as a company? Well, let's start with vision. You see it in every logotype, every poster, and every roll up. Your ambition, our passion.
We are committed to customer success, to employee development, as well as the interests of other stakeholders. We know our mission is to help others shine. As leaders, we live by three values, commitment. We keep our promises. We know our numbers.
We're committed to being the best we can be. Innovation. We always look for a better way. We embrace change and we promote creativity. Engagement.
At Keytron, everyone gets an equal chance. We include support and promote participation. Our organizational structure supports agile operations. As a leadership team, we set targets for both the short and long term. And when it comes to execution, our organization is highly decentralized with each site manager being responsible for the p and l.
A strong common platform provides systems, group functions, and best practice procedures. We pride ourselves in creating synergies in a common way of working. To further align ourselves, we share common financial performance targets and incentive plans. We are committed to delivering year on year operational and financial improvements. In the short term, we focus on delivering annual targets on revenue, profits and growth.
In the long term, our focus shifts to improving shareholder value, I. E. Share price and dividends over a longer multiyear period. Next slide, please. Market overview.
We've had a brief introduction to ketone. Let's take a look at the general market in which ketone operates. Next slide, please. The European market trends. Well, the European EMS market is expected to approach 38,000,000,000 by 2023.
In general, smaller EMS companies less than €50,000,000 continue to struggle or are acquired. The market is filled with entry barriers with high demands on cybersecurity, contingency planning, and sustainability, and they're all sharpening the competition. Over the past few years, there's been also an accelerating trend on regionalization of supply chains. The main drivers was shorter lead time in designing and time to market, introducing new products, and a shorter lead time to customer fulfillment. Automation continues to level the cost playing field between regions.
And finally, trade barriers, intellectual property, cyber concerns, technological sovereignty, and geopolitical risks also contribute to the to decisions to localize supply. When it comes to Nordic growth, the market is expected to grow to more than 2,000,000,000 by '20 €2,000,000,000 by 2024. The industrial sector is now bigger than the previously dominating communications sector. European growth continues to be driven by cost savings where customers are choosing to outsource more, even higher level assembly and integration work. New companies choose to partner with an EMS company from the very beginning.
And the move to electrification and connectivity are replacing older generations of products, and this drives volumes on electronics. Next slide, please. So after that, really brief, quick review of the market in general, let's take a look at, the specifics of how will be successful and will continue to grow. So next slide, please. Starting this year, Keytron has updated its five market sectors.
Two old classifications are retired, so gone are energy telecom and offshore marine. This move will help us market Keytron's capabilities more clearly as well as focus our teams to further grow business. In addition, each of the five market sectors is built for and allow for multi level drill down to truly identify business growth, market share, what to grow, what to defend, and what to divest. Taking a look then at, the first one, market sector connectivity. Within this market sector, we find, machine to machine, Internet of Things or devices, sensors, wireless communication, networking products, optical transmissions, transmission, and much more.
In 2019, there were there there's approximately 19,000,000,000 IoT devices. In 2020, 35,000,000,000. By 2025, it's estimated that there'll be more than 75,000,000,000 devices in use. Many of these devices are connected to multiple sensors monitoring or controlling processes from water flow and level to temperature, pressure, gas, and a whole flute of other measurements. These sensors and IoT devices are of course connected to a backbone of wireless networks, optical networks, and many other devices and systems.
This creates a massive ripple effect in demand for communication infrastructure. To be successful in this sector, Keytron has to focus on expanding the customer base as many of the programs generate limited revenue compared to other market sectors. Volumes tend to be higher, especially when it comes to sensors and IoT devices. High utilization, competitive prices, and economies of scale are crucial to success. We win new business because we can demonstrate application knowledge and superior agility.
Next up, electrification. Within this sector, we find battery management systems, power grid transmission systems, power and electric drive management, charging and fuel cell technology. This is currently on its way to becoming the largest market sector for Keytron and will continue to lead through 2025. Customers are often large multinational entities with global sales. We expect to continue to grow with existing customers as well as adding new customers to diversify our base.
To be successful, we'll have to continue investing in capabilities and application know how. We compete on scale and technology. Onto market sector industry. Although we have moved out substantial sales into connectivity and electrification, the industry sector still remains impressively large. Within this sector, we find equipment for automation, robotics, recycling, and equipment for construction and infrastructure.
We will continue to expand the customer base. It's important to capitalize on our capabilities, wide application knowledge and reputation. Finally, two of our traditional areas of growth, defense aerospace and medical devices. Both sectors have extremely high requirements, high entry barriers to do business and long product life cycles. We will continue to grow with existing customers as well as adding a select few additional.
Next slide, please. So distinguishing, what are the distinguishing features from each market sector? Well, broadly generalizing. Keytron's market sectors can be viewed through several layers. We can look at volume, possibility for automation, and running high utilization on investments.
Typically, connectivity will be on the high side and defense aerospace on the low side. The cost of failure is usually lower on connectivity products and the cost of failure tends to grow as you move on to medical devices in aerospace. Much of the life cycle is determined by technology maturity. Newer technology and products resulting from this tech will often have a life cycle of six to eighteen months. Products that serve product public investments, infrastructure, and medical tend to have longer life cycles from three to thirty years or more.
Life cycle also gives an indication of visibility. The longer a life cycle, the further into the future we can predict sales. It's also important to understand how demand is affected by the general business cycle to be able to diversify appropriately. Viewed through this lens, we can in general say that connectivity and electrification products run-in higher volumes from tens of to hundreds of thousands. High degree of production automation is required.
The life cycle is relatively short, so time to market is continuously important. Our co development prototyping, supply chain setup, and production setup has to work flawlessly in a very short amount of time. And pricing is very competitive in the initial win. Keytron's industry sector is characterized by more fragmented customer base with lower volumes and more fluctuations in demand. Agility and flexibility is important.
Medical devices and defense aerospace share many traits. Volumes are often too low to justify automation and products are generally not designed for automation. On medical products, it's normal with a high degree of vertical integration. This means that we build and supply the product the way you see it in a hospital or medical center. Our quality reputation is critical.
Recalls and replacements are difficult and expensive. The life cycle is long. Price pressure from competitors and end of life components forces redesign initiatives to protect margins and delivery capability. The entry barriers are high and increasing. Investments in infrastructure, cybersecurity, security clearances, certification standards for aviation, for QSR and FDA approvals are some of the obstacles that competitors have to overcome.
Next slide, please. So what do we see in the market sectors in the next, five years up through 2025? Overall, our ambition is to grow faster than the market. We can achieve this as a result of choosing high growth customers and targeting high growth market sectors. Our repeat business is high, including when customers introduce new generations.
Our target from 2021 through 2025 is to grow this existing business with NOK1 billion. We also target NOK1 billion in new program wins. Much of this growth is targeted towards connectivity and electrification sectors as indicated by the 15% year on year growth. We expect a more moderate growth in medical and defense aerospace sectors. As a result of contrasting growth rates, the share of the total is expected to change by 2025.
Next slide, please. So 2025 targets. We're after an exceptional growth in 2020 and a continued growth in 2021. We feel confident in raising our targets for 2025. Our ambition is now to deliver NOK 6,000,000,000 in 2025 with an 8% EBIT margin.
2020 demonstrated what we can achieve on earnings improvement by focusing on an increasing economies of scale. As a group, we have enough capacity to achieve this. The challenge is to keep the load level across the group. In addition, any potential M and A would provide an upside. Next slide, please.
And with that, I'd like to hand over to my esteemed colleague, Kathrine Lander, who will give you more details on our finances. Catherine?
Thank you, Peter. So I'll talk about the long term finance. I am Katrina Lander, and I'm CFO, and I'll present our updated financial targets and give some comments on the current status. Next slide, please. We have now concluded on our first strategic period.
Our ambition was to have NOK3 billion in revenue in 2020. We reached almost NOK4 billion. The growth is mainly organic. The M and A added only a couple of 100,000,000. In 2019, we outlined a new ambition, CHF5 billion top line in 2025 through organic growth.
Now in 2021, we see that we have to raise the bar even further to NOK6 billion, which will give an organic growth trend of 10% per year. M and A will potentially add upside to this, and it's of course assuming no major macro or currency changes. For 2021, we have given a guidance of 3,900,000,000.0 to 4,200,000,000.0. We have had an exceptional year in 2020 with a revenue growth of over 20%. Let's break that down into the new sectors.
Next slide, please. This slide shows the revenue per sector from 2016, including an estimate for 2021. To the right, a table of the combined growth CAGR and the share of revenue in 2020. Starting from top left with connectivity, where we in 2020 ended at CHF335 million, a substantial reduction from 2019 and a substantial improvement going into 2021. The reason for the reduction between 2019 and 2020 is a disengaged customer at the end of 2019.
Adjusted for this, for the other customers, the CAGR is 20%, I. Strong growth and we expect even stronger growth in 2021. Mid top, electrification. Electrification ended at $939,000,000 and has a CAGR of 25% from 2016 to 2021 show continued growth or strong growth. Top right, our redefined industry sector.
Industry ended at 716,000,000 in 2020, down from 19. The reduction mainly in the oil and gas and infrastructure subsectors that has been substantially affected by the world situation. The other subsectors, however, show good growth. Going into '21, we see the infrastructure part recovering and the other subsectors continue their growth. The 16 to 20 CAGR per industry is 24%.
Bottom left, medical devices. Exceptional demand for ventilators in '20 shows very clearly in this graph. In the years before '20, cargo was 7%. There's a slight rebound effect in 2021 on the normal volumes, and the revenue is therefore expected to be in line with 2019. Bottom right, Defence Aerospace.
Defence has had a CAGR of 15% from 2016 to 2020 and ending at CHF $973,000,000 in 2020. We see continued growth in 2021, but at a slightly reduced level. Next slide, please. Margin improvements, targets up. Now moving on to EBIT and EBIT margin.
So what have we achieved so far? In 2015, we set a revenue target of CHF3 billion and EBIT margin at 7%, which corresponds to CHF210 million in 2020. What we achieved was 4,000,000, and EBIT margin was 7.9%, and EBIT in NOK $312,000,000. So we superseded with about 100,000,000. The EBIT margin in 2020 has been affected by the economies of scale and exceptional utilization that we had on the temporary high volumes in medical devices.
We will not have the same effect in 2021, hence the guiding back along the strategic trajectory and the guiding in 2021 to be between six point eight percent and seven point four percent. For 2025, we're increasing the long term strategic target to 8%. And the reason behind the increase is very short that the sites have stabilized their performance at a higher level and that we see that by further growth and utilizing our economies of scale, we will be able to reach percent. Next slide, please. Ambitions maintained.
We set three strategic targets, revenue growth, EBIT margin and return on operating capital, ROC. It's important to us to make efficient use of our capital to fund our growth and to be able to give dividends. During this strategic period, we have been only partially successful in keeping the capital efficiency targets. We are growing and that requires some capital and the industry at the regular intervals go through component allocation, which challenges the capital binding. In addition, the different sectors have different capital binding.
I think a correlation to the length of the contracts in the sector can be made. The longer the contracts, like with defense, the larger the capital binding ratios. In this sense, we've been growing rather strongly with defense, and that's part for the reason of the current capital binding. Going forward, efforts to reduce capital binding for all and a slight reduction of the defense share of the total revenue as the other sectors are growing quicker will improve our capital efficiency going forward. Net working capital in percent of revenue is currently at 27%.
We expect an improvement in 2021. For 2025, we maintain our strategic target at 20%. For CCC, currently, we're in line with our strategic targets for DCO and DPO, and it's the DIO that drives the CCC. Also here, we expect improvements in '21. The target for CCC is set to sixty days in 2025.
Next slide, please. Improving return on capital. An important measurement for us there is the return on capital. In 2015, we set a strategic target of 25%. Although we have improved the ratio in 2020, we ended below our strategic target at 19%.
However, moving forward, we expect this key metric to improve through a combination of higher EBIT and better capital efficiency. Our long term target is adjusted from 25% to 20% to 25%. We see that it's difficult to grow and remain at the higher end of this target. On this slide, we also show return on equity and return on capital employed, both having a more stable development than ROCE, ending at 2425% respectively in 2020. Next slide, please.
Cash flow. In general, our business has a strong operating cash flow generation. We are a growing company, so the challenge is to make sure that we are capital efficient as we grow and thus finance the growth ourselves. In 2018, operating cash flow was temporarily pulled down by the increase in inventory due to the component situation. In 2021, there are component challenges too, but on a different level.
And we are drawing on the learning points from 2018 to make sure that we see less of that effect in our cash flow for 2021. CapEx. For going forward, we expect the normal CapEx level to be around 2%. We have previously said 2% to 3%, but we're adjusting it down slightly as we see we can manage the planned growth at around the 2% level. Naturally, there might be deviations between the years, of course.
Next slide, please. Solid financial platform. Net interest bearing debt is slightly reduced from last year, ending at CHF $758,000,000. We have targeted net interest bearing debt over EBITDA to be less than 2.5x, and adjusted for IFRS 16 effects, it's 1.6. To the right, for information, we have specified our interest bearing debt.
The long term debt that we had is with credit institutions and regular term loans. Short term debts are also with credit institutions and mainly our ICP. And the increase in short term part of long term debt is due to short term loan we took last year to make sure we had enough liquid funds during the COVID. Finally, the covenants that we have are equity in percent and net interest bearing debt over EBITDA, both of them exclusive of any IFRS 16 effects. Next slide, please.
Strong dividend history. Since a few years back, we've had a dividend policy to pay out at least 50% of the net income. We have a very clear ambition, ability to pay competitive dividends and we are strongly committed to doing so. The graph shows our dividend has been growing over the years. On February 11, the board proposed a dividend on NOK 70 that is payable in two tranches, one in May and one in October.
The background for dividing the dividend into two tranches is mainly to split the cash outlay. We see that as we continue to grow dividends, this is becoming increasingly important. And this concludes the long term financial targets part of the presentation. Before we welcome our CEO, Israel Luzalez Salvador on profit and growth, join me on a brief virtual tour on a typical Kitran facility.
Welcome to Khitron Lithuania. My name is Mendoza Shashakas, and I'm the managing director of this facility. Ketron Lithuania has been operating since 2001. Today, it has 850 employees working on more than 13,000 square meters of manufacturing area. At this location, we are able to provide the full range of services from design and test development to manufacturing and repair and after sales support.
This facility has a variety of certifications. On top of that, we have put in place an operational excellence program to improve the service we provide to our customers constantly. Now let me welcome you to a virtual tour of our facility. My name is, Israel Lozada Salvador, and I am Keytron's chief operating officers and sales director. Today, I will talk about how operations is going to support Keytron's growth and profit targets.
But before that, I would like to give you a quick update on how Keytron is handling the ongoing pandemic and the shortages of components. First, let's talk about our facilities. All sites are up and running at full capacity. Preventive measures against corona are working. We have had individual cases at our factories, but we have ensured that transmission was contained and that delivery commitments to customers were kept.
When it comes to supply chain, these days the situation is challenging for reasons other than corona. There are widespread allocations in the global semiconductor supply and shortages in the raw materials for PCBs. And we have worked together with our customers and supply partners to keep the lines running. As for technical services, I am happy to report that all technical departments and all sites are fully available. Currently, logistics from China are still a challenge, but the situation has improved now that the pre New Year rush is over.
The freight rates of China and Hong Kong continue to be three times higher than the standard rates as the capacity is still reduced. But the situation is expected to continue for a few months until passengers traveling pickup. If we now talk about Keytron's ability to meet our commitments, it's worth mentioning that the current corona pandemic plus the shortages in the electronic components has forced us to constantly monitor the market to be one step ahead of events and to be very flexible to react quickly when needed. All in all, we are succeeding and making sure that our customers receive their products on time. Lastly, when it comes to traveling and physical meetings, some countries are opening for visitors from abroad, but there is still very little movement of passengers.
We will continue monitoring developments, and in the meantime, we will keep our preventive measures in place. You've heard me talking about the challenges we are facing on the supply chain side due to component shortages. So let's spend a few minutes talking about this topic. Next slide, please. Widespread shortages aren't an unusual event.
This kind of situation appears cyclically every few years. The last one took place in twenty seventeen-eighteen and affected passive components. Currently, the main issue are semiconductors. On the top left quadrant, you can see a table showing the worldwide demand for semiconductors. In blue is what the expected demand was, in orange, the actual.
2020 was supposed to be an adjustment year that would see a slow start in production while stocks were consumed, followed by a production ramp up in q three, q four. Reality was rather different as a result of corona. Q one and q two saw a very steep drop in demand when the pandemic broke out. Towards the end of Q2 and the beginning of Q3, when it was clear that the world was not going to end, the demand for semiconductors driven by five gs, automotive and Internet of Things shot up hard and fast. This might look like a simple case of demand exceeding supply that should be solved by having the semiconductor manufacturers investing in their own production capacity.
Unfortunately, it is not that simple. Let me explain you why. Let's move on to the top right quadrant. The base material to manufacture semiconductor chips are the wafers, which are produced in factories called foundries. A pure play foundry focuses on producing wafers for other companies, like the ones on both on the table.
Most electronic component manufacturers don't have their own foundries, and they buy wafers from pure play foundries. The issue here is that everybody must go to the same source for wafers. The only way to increase the overall availability of semiconductors is by increasing the wafer supply, and this takes time. If now we move to the bottom left quadrant, a shortage in supply is always difficult to manage. But if you can see it coming and plan around it, it's manageable.
One of the biggest challenges faced under the current situation is the abrupt increases in lead time. As the inventory of finished goods and wafers are depleted, the lead time increases in big steps. Eventually, every new order will face the full manufacturing lead time, in this case, thirty five weeks. The current situation is made worse by the panic effect. Everybody is trying to secure short term supply at the same time.
This is the same behavior that leads to massive purchases of bottled water in areas expected to be affected by a natural disaster, like Florida when there is a hurricane alert. This is confirmed by the fact that electronic component distributors currently have a book to bill ratio between one six and two one with deliveries before summer. Everybody is placing orders with immediate delivery to secure supply. The expectation is that the situation will improve for many component families and sizes by the end of Q3 and the beginning of Q4. For others, the shortage will remain until well into 2022.
At Keytron, what we did was to contact our customers at the end of Q3 to make them aware of the situation and to suggest them a course of action that included the immediate purchase of critical items to cover the 2021 and in some cases the whole year. That put us and our customers ahead of many others in the queue. That combined with the partnership that we have established over the years with distributors and manufacturers has greatly reduced the impact of the shortages in our ability to deliver product to our customers in timely fashion. I hope this brief explanation help understanding the current global shortage of semiconductors. Now, having described the landscape that we have seen around us for the past year, let me look further ahead into 2025.
Next slide, please. And let me explain you how our operations will get us to our 2025 targets for growth and equally important for profitability. Firstly, growth. Our operations can support growth by having a competitive offering, by working closer with our customers and providing integrated solutions tailored to their specific needs. And lastly, by increasing the utilization of our current facility footprint.
I will expand more on this topic in the next slides. Secondly, profitability. Several factors contribute to our profitability, including our relentless work on operational excellence, digitalization and automation, also a key focus for Keytron, and realizing the economies of scale or being being offered by our increased size. This is another area that I will cover in subsequent slides. All of the above can only happen if we have the right people.
We have to attract the best possible employees, train them, empower them, and give them the best tools to do their job. The following slides will expand on this. Next slide, please. Let's first look specifically at our growth. We have set a revenue target of NOK 6,000,000,000 for 2025.
That means adding roughly 50% to our current revenues. From an operational perspective, are we ready for that? Do we have the capacity? And the short answer is yes. We can deliver €6,000,000,000 with the current facilities.
That would mean an average of €100,000,000 or 1,000,000,000 for each of our six production facilities in Norway, Sweden, Lithuania, Poland, The U. S. And China, which is perfectly within reach for these factories under today's conditions. But our plan is to go beyond that. We are taking the necessary steps to ensure that by 2025, we can get revenues between €125,000,000 and €150,000,000 from each facility.
That means getting 10% more revenue out of every square meter offshore floor. And this can be done in several ways. We can invest in more equipment, new machines and production lines. We can also replace equipment with better, faster equipment. We can add more services to the revenue mix.
And we can run more shifts, getting more output from the same equipment. Some of this would clearly mean investments, and we see CapEx of about 2% of revenue moving forward, translating into about million over the period until 2025. That said, looking beyond 2025, we will need further expansion to continue growing. It's likely that we, in the twenty twenty three-twenty twenty four timeframe, will set up a seventh production site. Here, we will be looking at cost competitive locations, probably Eastern Europe.
What I would like to underline is that access to a skilled and well educated workforce is just as important as cost. That is one thing we saw very clearly in Poland, where we were able to onboard first rate colleagues who not only could do their job virtually from day one, but they could also contribute to improvement efforts. Our customers are very demanding and the services we offer them are advanced. So low cost without skill is worthless to us. In short, we can definitely reach $6,000,000,000 in 2025 with our current facilities, but we are making sure that we are able to do even more than that.
But growth is not worth much unless it translate into improved profitability. So let's talk about how we are going to further improve our margins. Next slide, please. Let me start by saying that we believe that we are not just going to be able to maintain our past EBIT target of 7%. We believe that we are going to push this to 8%.
Now throwing a figure out here is easy, but I don't want you to think that this is easy. We are in a very competitive global industry, so increasing our margin takes hard work. In fact, even maintaining our margin takes hard work. For me, the keyword is relentless. We are not in a business where you make money from a single stroke of luck or genius.
It's about continuous improvement of our operations, working smarter, improving the flow, reducing labor, reducing cost of material. It's a thousand little things, and yes, it is relentless. The end result is that we are able to hand on cost reductions of up to 4% to our customers year on year, while at the same time, we manage to improve our profitability. In this slide, I have illustrated various factors that contribute to our profitability. I have divided them into some factors that are primarily a necessity to maintain our operating margin, which is already above the normal level for the EMS industry, and then some factors that we need to focus on in order to move our margin from seven to eight percent.
Starting with lean. This, as you know, is about running smooth operations with minimal waste of resources. For efficiency projects, We do this all the time. And a key for us is bottom up. More and more, we have tried to build a bottom up improvement culture.
We would much rather have a 100 small projects at one site than a big one. It's about things such as an operator suggesting a small change to his workbench, probably something that can be implemented weekly and will cost almost no money. Automation and digitalization. This has over the past years been extremely important to us and will continue to be so. We need to increase output without just throwing more people at it.
Then we move into factors that can actually push our margin. The first is capability investments. This is about making our employees able to do more advanced work, and it's about adding more services to our offering, for instance. The last two parts are related to growth, which we have already talked about. It's about increasing the utilization of the equipment that we have, getting more revenue from the same machines with the same depreciations.
It's about realizing the benefits of economies of scale bring as we keep on growing. Increased purchasing power would be an obvious example. So in short, we have a clear growth plan ahead. We can get to $6,000,000,000 in 2025 with our current facilities. At the same time, we will start planning for further growth beyond 2025.
We have also a firm commitment to push our operating margin beyond our old target of 7% through relentless focus on doing things a little bit better every day and reaping the benefits of being a bigger player. With this, I finished the operation section of this presentation. Peter, back to you.
So next slide, please. We're into the summary section of the presentation. Next slide, please. So what are some of the key takeaways from this session? Well, first, we've introduced the new market sector segmentation, where we focus on high growth sectors, electrification and connectivity with a compounded annual growth rate of 15%.
Second, overall, we aim to achieve 10% growth each year with 5% from existing customer base and adding an additional 5% from new program acquisition. Thirdly, improvements in profits will come from improvements in capacity utilization and maximizing economies of scale. And finally, we will continue delivering a superior performance to customers. This concludes the presentation portion. We're ready to move on to Q and A.
So by all means, hurry up and get your questions in. Next slide, please. And I see here that we have a few questions already. Here we are. All of us are online.
First question is from Dieter where he says there is a comment really on on the size of the market and how many EMSs are in Europe, where where it looks like we're underestimating, I guess, what what the size of the market, which is a good thing. Because really the point of of of, the size of the European market is it's a large market, and there's no meaningful restriction for go growth from ketone. I think the variance may be that we look at the addressable market for ketone might be slightly smaller than the overall market. So that would be our answer. Any comment additionally to that, Israel?
You're on mute, buddy.
Yes. No. I I think, your comment is relevant. Of course, we we try to focus on what is our our target market. And, the relevant issue to bring up here is the fact that we have plenty of room over our heads to grow.
I think we we should just stick to to what's important in this message.
Yeah. Next quest question is from Thomas. Could you elaborate on no. Let let's see. Yeah.
That's it. Could you elaborate on your experience with the new Polish facility? What's the utilization now? Is it going to get better or worse than expected? Expected?
And what's the margin and margin development in line with expectations, etcetera, etcetera? Well, Thomas, let me just say that I'm extremely happy with the development in the in the Polish facility. Top line has been in line with expectations. Margin developments has been higher and better than expectations and somewhat surprising even. But we have a strong team and a strong management running the facility.
Our sort of economy of scale approach here where we try to use as as much support resources from from, from the Kaunas Lithuania facility has also meant that we've been able to keep control of the costs at a much more than we originally projected. The growth in going forward and utilization, what we expect our utilization of current footprint to be around 35%, I would say. And that's on footprint, you know, on capacity and people. We're a couple of 100 employees about now. And and and, so so they're fully utilized.
The amount of customers is still not not enough. So, you know, if there's a if something happens with one customer, if there's some seasonality, it it tends to have an effect on on what's going on at the site. We continue to grow the business this year. Primarily, if you're looking at volumes, most a lot of volumes are coming in from Lithuania because Lithuania is growing like crazy. So we have some more overflow coming in that way.
Customer interest has been has been magnificent. Israel, you could chime in here on the on the customer interest for Poland. Go ahead.
Yeah. We we have, decided to to be selective with the kind of companies that we introduce into Poland to be able to to match the the capacities and the plans that we have for for that facility. But what we realized is that there is definitely a great appetite for having facilities in that part of the world and and being able to benefit from from the great competence that we can get on on those areas. So, yeah, we we see the facility filling up at the pace that we consider satisfactory. And all I know, we seem to have very happy customers as a result of it.
Mhmm. Next question is from Corey. And he asks, when will the factory in America be be operational? And let me just give you a quick recap. Back in 2019?
July 2019. '19, we had some massive flooding. Nearby creek flooded and and really put put a river through the factory, with with, in some places, you know, five, six, feet or meter, meter and a half, of of water inside the factory, basically destroying the site. We quickly moved to a new external facility and in about two weeks we were up and running again, which is an extraordinary achievement. Then during the next year or so, original facility was completely renovated.
It's now looks like a brand new site. Everything including the roof was replaced and strengthened. So we have a now we have a really nice beautiful facility that we moved back in into by year end last year, so in in q four. And now we're in the new facility, and and and and building everything, and we're running like normal. Now, of course, there was effect when it came to customer demand and and possible lost growth opportunities during this time when we were in this external temporary facility.
We did, We were able to achieve a nice win with Medivale, a Canadian medical customer, where we're targeting, I can't really remember what the number was on the top line. I'm sure that, Kathleen or Israel will chime in But, the ramp up ramp up is now ongoing on on Medivale. We're delivering the first two units, in the next couple of weeks, and then the ramp up will continue over this year. But it's been a little bit of a struggle when it comes to top line.
So we're doubling down on our efforts on growth in The U. S. That's the most important part now in the facility. We're adding some additional good resources from a management perspective, and then it's all about growing. Now we have so many questions, don't know where to go, which is good, which is good.
Let me see. There we go. Yeah. There we go. Yeah.
Yeah. Exactly. Mason says you've earlier highlighted that it's tricky to retain margins above 7% in EMS business as end customers will push down prices to this level if they see their EMS suppliers are operating above it. How will you get around this dynamic to retain the 8% EBIT margins you target? I think we've answered it many times today, but let explain it a little bit.
And and and it goes back to to, you know, experience from last year when when we had a lot of medical sales and really, you know, did double of normal in an existing facility. So you have a facility. It's dimensioned for a 100,000,000, and you run it at 300,000,000. Right? The overhead and the whole production apparatus is set up for a much lower cost, but you push through 300,000,000 instead, three times or four times normal volumes.
The margins you've quoted to the customer, on on cost plus margin is maybe 7%. Right? Around that level. But since your overhead remains fixed as volumes go go up, you know, that falls down somewhere and it falls down into pro increased profitability. And at some point, it also falls down to in reduced cost to the customer.
So it's all about, you know, utilizing economies of scale, pushing the facilities we have to a €100,000,000 or above. Two of the sites are already there now with with Kaunas in in Lithuania and Norway. Sweden is is is quickly approaching and will probably get through over the next couple of years. And then our target is, you know, we need to get that in Poland. And in Poland, I'd I'd like to say, you know, probably easier to grow in Poland than it is in China going forward, at least the way I see it.
So maybe we will not have a €100,000,000 in China, but maybe we'll have a €150,000,000 in Poland. That's the sort of game plan we have internally. But it's all about that, you know, being able to to to run more volume, run more revenue even though you've quoted 6%, since you're more efficient than any other standard competitor, a little bit extra falls down on profit. If you want to jump in, anyone, you have to do that. Otherwise, I'm just going to continue on.
Mean, Henrik here, he has three questions. Wow. Please elaborate on investment in existing facilities driving revenues to a 125 to a 150,000,000 per facility. Is this plan near term, 21, 22, in facilities that that are close to maximum capacity? I mean, Kaunas already has that capacity.
Maybe not one fifty, but at least one thirty. And and then, you know, the the investments. Catharine, why don't you answer this? I've been talking for a long time now.
No. We are looking into it, and I think the investments will be, gradual because there are different stages, all the facilities, how much they can utilize, so they can utilize more shifts, etcetera. So you will see it won't be sort of a one hit investment situation. It will come gradually during this period.
Mhmm. And Henrik's next question is on m and a. Are you actively seeking any opportunities? And with regards to m and a targets, what revenue size, sector, and geography is most interesting? Let's see if you can take that one, Katrin.
It's a very good one.
See if we're all on the same team.
Yeah. Basically. Now we're looking into we're sort of opportunity based. What we have seen now is that the the valuation of EMS companies are quite high. So what you buy, you will buy with a substantial goodwill, and the balance sheets are rather small.
In addition to the COVID situation, when you actually can't meet and see the facilities at all and meet the people, makes m and a, at least in this time, very difficult. But we are looking, and, we are looking as you can see, we talked about extending capacity in Europe. So, basically, we're looking into Europe. People looking into anything, and as Israel said, probably Eastern Europe, most likely. So that's where we are looking ahead.
Mhmm. And Henrik's final question, and this one goes to you, Israel. We want you also to be happy here. So Mhmm. Are you are you not planning to do any greenfield investments in Europe before '23 or '24?
Yeah. I think I would like to mention two two things. First of all, you you heard us talking about how we're going to improve our margins, and and one of the key of it is making sure that we can get more production our out of our existing capacity or our existing facilities, and there is still capacity in all of them. So I think we're be careful when it comes to going out there and and getting a new facility before we have really harvested and and fully utilized what we have. There's still quite quite a long way to go in in our plants, and we can load them more and and reach the objectives that that we have mentioned.
Yeah. And and and and, I mean, speaking to greenfield, you know, we we we have we have additional expansion expansion possibilities in Poland. We have substantially more, you know, just by expanding existing facility, which is already one of the larger facilities we have. So that that's, you know, again, focusing on economies of scale, you know, putting more capacity or foot foot foot footprint in place. So both Kaunas and and and Poland.
Poland very easy because we have existing property. Kaunas, we'd have to go to a property, you know, close to, but not exactly where we are.
Also, Sweden has the same capabilities. We still have some land there.
Phillips asks, what's your repeat buy percentage from existing customers? Good question, Philip. It I I could probably
Any takers? So the the repeating purchase from existing customers is actually very, very high. And that is the case both, you know, when when you get a direct allocation of business, but also when we go head to head in an open competition with other potential buyers or potentially MS manufacturers. So I have to say this is extremely high. And, also, we have had very few number of customers actually deciding to change course over the last six years.
So from that perspective, I think, the company is well positioned and is doing a pretty good job.
Well, that's also, I would say, sort of a general rule in this business. If you're doing a really good job for your customer, right, and and and you're the incumbent, you have the business, even if someone else quotes, you know, below you, you know, you'll have a discussion with the customer and, you know, they'll try to figure out what's going on. And you I mean, it's with a with a high degree of probability, the incumbent will win. We see that when when we lose quotes. When we lose quotes on on on customers we don't have.
Right? They tend to stay with the incumbent, even though maybe our offer is, you know, on paper, stronger.
And comment also if there are new, new investors looking into EMS business. Their business as such is recurring. That's the the basic, term for it. Basically, keep the customers all all over the time.
Particular particularly in the in the European market. It tends to be, you know, long term partnerships where you co develop. And as I said before, our mission
is to make the the customer shop.
So so we we work really hard when it comes to getting new products to the market as quickly as possible. We know all about the market window. If you miss that window, you know, and and you end up as number two or three, you have, you know, best case, a 10% market share instead of 70%. Can you tell Eric has a similar question to the one on M and A, so I'm not going to address that one. Hey.
Johan says, how do you win new business? What are your selling points? Maybe he works for a competitor. I don't know. What do you say, Israel?
Well, I I think as Dieter was mentioning, the the number of of competitors in in our market is is rather large. So one of the key of the key things that we need to do when we try to win a new business is try to make sure that we differentiate ourselves from from the rest. And we have good ways to do that. The fact that we have footprint in three continents, which means that we can service our our customers literally anywhere they need to. The fact that we have a full portfolio of range of services that we can do from helping with design, industrialization, production, finding suppliers, and and even though at the end of it, logistics service, repair overhaul of of their products.
And then, of course, is the the secret recipe here is is our processes and the people that we have managing those process. The fact that we are able to to be more efficient than than many people around us, that we are able to understand what the customer needs, and we are able to service that in a way that makes them satisfied and want to do it again.
So final two questions. Where will the production of the new segments be? I'm I'm thinking of IoT and renewable energy or connectivity and electrification. And and, well, actually, it's it's it's mixed even though all sites, all facilities, all regions are targeting growth everywhere. The success has been varied over the sites and really, you know, depending on what their home market looks like.
So on renewable energy or electrification, you see a lot of strength in Norway. You see a lot of strength in in in Lithuania and Poland and also in China. When it comes to connectivity, there's more strength more strength more strength in Sweden than there is in Norway. So a lot of good, connectivity, sensors and and types of communication equipment is strong in Sweden. As it is also, if you go back to Lithuania and China, also strong on those on those section.
So there's no specific since all of our sites are set up to to manufacture difficult products and a a high degree of complexity and and meeting standards, the knowledge and the production equipment is there to deal with a lot of the issues. The the best practice and crossover knowledge from other sites helps new sites with with confidence also. Final question. Looks like, Israel, we're gonna go with you. Lean and operational excellence.
Is there any activities where the where gap analysis or assessments is being performed regarding to lean maturity level?
Yeah. It's a very good question. Yes. The answer the short answer is yes. We we perform an internal audit on every site, two to three year two to three times per year to to assess the level of of development and performance when it comes to operational excellence and lean.
I guess the short, again, answer to your question is that we are very happy, but we are not satisfied. We can do a little bit better every time. If you wanna have some facts and figures, and as I mentioned during the presentation, we we believe in a bottom up approach. So the number of of small improvement projects that we run-in 2020 was 350% more than we did the previous year. And the savings that we generated from those projects was 150% more than the previous year.
That those savings, those improvements go into cost reductions to our customers and into protecting and increasing our margins. That's the key of it. It's the same word that I mentioned before, it's relentless. We are happy but never satisfied.
Good. Thanks. I think this concludes, Keytron's Capital Markets presentation for 2021. Thank you so much for participating everyone. Thanks Israel.
Thanks Catherine. And, I hope to see you soon in real life somewhere. Thanks. Bye.