Welcome board, welcome employees, and welcome to all of you following us on our webcast. My name is Cathrin Nylander , and I am Acting CEO of Kitron. Today, we will present an update on our current strategy, and we will extend our strategic horizon until 2025.
B efore we start, let's do some practicalities or formalities. This presentation will contain forward-looking statements, and they are in their nature, uncertain. We wanted to be mindful of that. For the practicalities, this will be a presentation going on for about two hours without a break. I hope that is okay. There after, we will have queries and answers. Please, if you can keep your questions until that time, that would be very good.
Let's start. I would like to start with introducing the Kitron Chairman of the Board, Tuomo Lähdesmäki.
Ladies and gentlemen, on behalf of the board, I would also like to welcome you to this Kitron Capital Markets Day 2019.
I was elected to the board of Kitron, quite precisely five years aoo, and these five years have been quite substantial change in this company, in the company that has its roots until, 1960s. The last five years, we have been worked hard to accelerate growth, improve profitability, and use capital more efficiently. As you have been able to see from the reports during the last years, the company is now doing much better than it used to do just a few years ago. In fact, during the first two years of this transformation, the company was able to improve its sales and profitability every quarter. Ever since the development, has been positive.
The board has been also very conscious and very anxious about the interest of our shareholders as well. Of course, the improved operational and financial performance has had an impact on the capital markets and the share price, but we have also amended the dividend policy of the company and committed to pay a competitive dividend. Since the end of 2014 until today, the total shareholder return for Kitron stock has been around 500%.
We are of course very happy about this development.
Today, you will hear more about the accomplishments of the company, but of course, more importantly, about the ambitions of the company for the next few years.
We have followed the strategy that we set out in our Capital Markets Day three years ago. We are very well on our way to fulfill those targets and ambitions that were set for 2020. As Cathrin Nylander already mentioned today, we are going to set the time horizon to 2025 and tell you what we want to accomplish by that time. Over the last few years, we have been able to put together an outstanding management team that has driven the performance of the company.
You will meet most of the members of that management team. However, as one of the team is missing today, our CEO, Peter Nilsson, who has set up the management team and who has been instrumental for the turnaround of the company.
Peter is now on sick leave and undergoing treatments for cancer, and therefore unable to be here today. The good news is, however, that the treatments are going according to the plan, we expect to have Peter back in the summer.
In Peter's absence, the CFO of the company, Cathrin, has stepped up and taken also the role of CEO in addition to her other responsibilities. Now, Cathrin will tell us more about where Kitron is today and where we aim to be in the future. Cathrin, the floor is yours again.
Thank you, Tuomo.
I will start with presenting the speakers for today. I will start out with talking about the strategy, M&A, and financials. Israel Losada Salvador will continue on sales strategy and operations. In this presentation, we would like to point out two geographical areas, specifically where we recently have made or have extended our capacity.
We will present Central and Eastern Europe, and that will be done by Mindaugas Šeštokas , and also Northern America by Hans Petter. I would maybe like you guys to stand up so you can see where you are. There. As you can see, we're sort of a lean company. All of us has two titles.
Let's start. I will break a brief summary of our strategy.
Some of it very well, but for those who don't, I would like to spend a couple of minutes talking about it. Kitron is an Electronics Manufacturing Services provider. In this presentation, we will continue on calling that an abbreviation as EMS. An EMS company is an outsourcing partner that will provide production, manufacturing, and services related to production of electronic components. To give an example, very clearly, many of you here today have an iPhone in your bag or in your purse. Apple does not have its own factories.
They are all produced by different EMS providers. Kitron is a company that could have been one of those, but we are differently strategically positioned, and we work in other sectors. If you look on the bottom of the slide, you can see a value chain.
For all of our customers, we deliver manufacturing. For almost most of them, we also do industrialization. For a few of them, we do the full value chain, which we call product deployment. A little bit on our strategic position. To illustrate, for those who do not know it, we have made a graph where we have on the horizontal axis volume, and on the vertical axis margin or complexity. To the right, you see large volumes providers like those EMS companies that provide iPhones to Apple that are working with very high volumes.
They're huge outfits. Many of them are in Asia. They have a lower margin, but a quite a good return on capital. To the left, you will find a large number of smaller producers, local niche providers that might be within one country or even within one industrial region.
For the complexity, they produce simple products to quite complex products and have a wide variety of margins on those. We have Kitron. What we say is that we are a high-margin company that works with specific requirements and means that we can have an higher margin in general. When it comes to volumes, we present ourselves as a medium-volume company.
That doesn't mean that we don't do small volumes or that we don't do very large volumes. We do that too. This is a generalization to get an idea on where we are. Having said that, a presentation of our units. In Norway, we have a small headquarter outside of Oslo at Billingstad, and we have a production facility outside Arendal at Kilsund, which is the cradle of Kitron, as Tuomo mentioned.
In Sweden, we have a manufacturing facility in Jönköping, and in Lithuania, we have our largest facility in Kaunas. Moving west from Lithuania, we have Poland, where we have just recently starting the construction of a new site in Grudziądz in the northern part of Poland, which Mindaugas will come back to a bit later. In Asia, we have a factory in Ningbo.
That's about 3.5 hours south from Shanghai. Last but not least, we have a facility in Johnstown in the US, and we have just recently acquired the EMS division of API located in Windber, very close to each other. The map is slightly wrong here because that's actually only 15 minutes between those two sites. Hans Petter will come back to you and talk more about that facility.
During 2015, we worked on a new strategy for Kitron, and at the Capital Markets Day in 2016, we presented this vision of where we wanted the company to be in 2020. I will not go into details about our position at that point of time, but the company had had several years of less than satisfactory performance, and the stock market valuation of the Kitron share clearly indicated this. We come back to what we have done. Summing it up, we made a strategy of three points.
We said we want to grow the company organically by 10% every year. Secondly, we set up on a plan to improve operations step by step. We set an EBIT margin target of 7% and several capital efficiency targets. We also outlined criteria for potential M&A to further accelerate our growth.
As you can see at the bottom, we're trying to illustrate the difference berween the target years of 2020 and 2025. Between 2015 and 2020, we have a strategy that with significant changes to the company. The Kitron in 2020 will be significantly different from the Kitron in 2015. When we're now looking to 2025, we are looking at refining the strategy to continue on the same path, to expand capacity, to invest in our people and in technology, to improve efficiency and quality. What have we done to reach this?
As far as capacity, we have make an expansion in Lithuania, and we have upgraded facility. We have a new factory in Norway.
We have a new factory in Sweden. We have just recently signed a lease contract to double the footprint in China. When it comes to overall, we set out a well thought of investment plan in 2015, which we have followed. We have realigned the workforce. We have increased the number of people that we have in the lower cost countries. We have expanded our IT. We have invested heavily in data warehouse and different sort of support tools that we need. Also, we have moved group services to lower cost countries where that is appropriate.
When it comes to finance, one of the first things that was done, about over 100 different operational metrics were identified and which we started to follow up the organization on. EMS business is all about tweaking the details. The metrics are followed every week.
Every Friday, there is a meeting between the CEO and the different factory managers to follow the progress. We have also analyzed and concluded it's important for us to know exactly where the profit is coming from. We split our income statement into manufacturing and services and other types of development services that we do, so we know exactly where the money's coming .
We have also refined our cost model, make the same cost model all over, and make it align with what we have in our system, so it's easy to follow and to know and to make common RFQs for the whole group. For operations, we worked hard on common processes. Even though we were a group, we were not entirely a group. We have taken the lean process step by step and improved it, as Israel will come back to.
We have defined common production and equipment so that we can learn from each other and be more efficient, and that we can negotiate better prices. We're working hard on automation and robotization, and we'll continue to do so for the next few years. On sourcing, we started already in 2013 in sorting our components and in our different raw materials into different categories, sourcing categories. We negotiated deals with preferred vendors. We have systematically followed those preferred vendors and developed them.
We have created a global sourcing organization. As for sales, we have implemented a worldwide CRM system that all of the companies use in the same way. We also have a common RFQ model, meaning that we all deliver the same quotes based on the same type of criteria, which is more efficient, which we'll come back to what we're doing further on.
We have created a one sales model for the group, one sales organization, if you say. All of that done, has it had any financial impact, you might ask? I, to that answer, I will say yes. We laid up on the plan to have an annual increase of 10% in the revenue, which is represented here in the yellow line to the left. That line is pointing towards a target of NOK 3 billion in 2020.
We think that we're clearly on track on that target. By the acquisition of the API EMS division, we will surpass that target with approximately 10% in 2020. When it comes to EBIT margin, this year we delivered 6.4%. We have a target of 7% in 2020, and we're upholding that target for 2020.
The guidance that we're giving is to be between NOK 2.9 billion and NOK 3.2 billion in 2019 and to have an EBIT margin between 6.2% and 6.6%. We have to face it. When we started on our strategy in 2015, we had several very unhappy shareholders, and I would say it's probably all of them at that point of time. They've had very little increase in the share, mostly a decrease.
There was very little liquidity in the share as well. There were three large owners, and nothing much was happening. We are happy to say that through improved profits, growth, and hard work on the capital efficiency measures and the changed and amended dividend policy, as Tuomo talked about, we have been able to improve the shareholder return to 500% from 2014 to now.
The dividend that is proposed for this year is 40%, only NOK 40, which is about 64% of the net income, in line with the ordinary dividend we had last year. Last year, we also had an additional dividend, making it EUR 55 per share. Interestingly, I have to say when standing here, when we worked hard in 2015, we had an idea on where we wanted the share price to be in Q2, actually about this point of time in 2019, because there is a share option program going on. I have to say the figure is 930 that was said on that program, and that, we're a bit off, EUR 2 at that point of time. What are we saying? We're starting on a new strategy for 2025.
The strategy is very much the same as we had before. We're going to do complex, high margin products, and we're going to be within the medium volume. We're just going to do more of it. Does that mean that we can rest on our laurels? No, we cannot. It still requires a lot of hard work to do this. We will work on the growth, both on new and existing customers, and we have to expand our service sales, which Israel will come back to. As for the operations, this is a never-ending story of improvements, of continuous improvements.
We are severely evaluating M&A as a way to expand our growth going forward in this period.
To summarize, the targets for 2020 that we set and which we're holding on to, a NOK 3 billion, where M&A adding upside, and that is, in this case, the 10% from our acquisition in the U.S. EBIT margin of 7% and ROC of 25%. Going on for 2025, we're saying that the target is NOK 5 billion, which is approximately a 10% growth coming forward as well. M&A as well here will add upside. We're maintaining the target of 7%, and the reason for that this is inherently not a high margin industry. It's more important for us to drive the top line so that the end result, the EBIT in NOK will be higher than trying to achieve a higher margin in this sense. We're also maintaining the ROC target of 25% for 2025.
With that, talking about growth, I leave the word over to Israel. Welcome.
Thank you, Cathrin. My name is Israel, and I am the COO and Sales Director for the company.
I will be talking to you about growth and about operations. That means that you're going to be stuck with me for a little while. Be patient. I hope you had coffee. All right. We have most of our facilities in Europe, most of our customers in Europe, and most of our revenue coming from Europe, at least up until now. We thought that if we're going to be talking about growth, we should start defining or sharing the outlines of our marketplace. This is a picture of the EMS market in Europe.
The first statement is that it shows a limited moderate growth of about 3% in this period of time.
Let me say that this growth variates quite a bit between country to country. Let me also say that our expectations of growth, as Cathrin was saying, are considerably higher than that 3%. During the course of the presentation, I will try to explain you why we are very confident in growing 10% per year rather than just 3%.
As you can also see in this graph, there are literally more than 1,000 EMS companies doing EMS in Europe. There is a very small number of large companies, what we call Group One, and you see that there are more than 1,000 companies in what we call Group Four, small companies. You notice that the Group Two is highlighted with a square box. The reason for it is that Kitron belongs to that group today.
Our target for the period of between now and 2025 is to push to the upper limit of that group and eventually move to Group One. When it comes to Groups Two and Three, I think it is important to mention that there is a lot of consolidation going on. When it comes to Group Four, the small companies, there are many of them that are disappearing from the market, whether it is because they are acquired by Group Two and Three companies or because they are so small they cannot keep up with the investment rate in technology required to remain competitive.
That is one of the reasons why, as you see, we are quite confident that we can grow more than 10% or more than 3%.
If we go from this macro picture of the EMS market in Europe to some specific trends that we see across the world in the EMS industry, the first thing that we see is a higher degree of customization. Our customers want shorter batches. They want shorter lead time to market. They want more complexity on their batches. They're looking for industrial partners.
Some years ago, it was about contract manufacturing. The market is moving away from that and more into somebody that can help you from beginning to end, from the earliest stages of design all the way to managing the obsolescence. There is another clear trend that we see. We call it nearshoring.
What it really means is that in the past, I'm talking about 10, 15, 20 years ago, there was a trend to look for the cheapest possible supplier on the other side of the world. I'm sure you're all familiar with having things shipped from China and Europe into U.S. What we have been advertising and doing ourselves is build your supply chain around the place where you are manufacturing or where the place where you are selling. There is less and less of the shipments of things. As I was saying, there is a consolidation.
There is a consolidation in customers, there is a consolidation in competitors, and there is a consolidation in suppliers, and that is something that we are addressing, quite well. There is an increase of requirements.
I'm talking about cybersecurity, I'm talking about conflict minerals, corporate social responsibility, management of hazardous substances. The level of overhead, the level of requirements that you need to comply with to be able to do business in the sectors we do business in, it is higher than it has ever been. Somebody might say, "Well, this looks like a tough marketplace. It looks like things are hard." The harder it gets, the more requirements are necessary to do business, the better for us.
Why is that?
Well, we have a pretty good footprint. We have six, very soon seven, manufacturing facilities in three continents, so we can support a great portion of the customers out there.
We have a large workforce of very competent and committed people, and that has or is allowing us to provide our customers with a full range of services from concept to scale. We work in five sectors, and we are not solely dependent in one of them. What that means is that we have very strong five legs to stand on, and that has allowed us to stay profitable for a long period of time.
We are One Kitron. What that means is that we have invested heavily into same technology, same processes, one culture for the company. If you're a customer approaching us in China, you will get the same service, you will get the same attention, you will get the same documentation as you would get if you were approaching us in Arendal.
We are very focused on technology, and not only because we like gadgets, because we do, but because it allows us to remain competitive. This is a moderate margin business, a low margin business, and every single little thing counts. We have worked, as Cathrin was saying before, quite a bit with our supply partners. If you take into consideration that a great portion of our cost of goods sold is material, having the right partners, getting the right conditions is critical to succeed in this market. I'm leaving some of the best for the end, our references. The sectors that we do business in are challenging and are very demanding.
The fact that we have such a roster of references of customers that we can bring to bear when we talk to new customers, it is a great advantage for us. Back to the strategy, back to our growth. Personally, I like this because it's easy to remember, 10/5/10. Our plans are to grow 10% with existing customers, 5% with new customers, and make sure that 10% of our revenue comes from technical services. 10 and 5. For those of you with an advanced mathematics degree, you probably noticed that 10 plus 5 is 15, and we are growing at 10%, right?
Let me explain you why. We account for attrition. We know that there are products that will be ending their life while the new generations are picking up.
For us, this 10 and 5 is a gross, and the net is at 10%, okay. We stay on the path, 10% per year, every year, from now until 2025. If we now go into the details of how we are going to get these percentages, how we're going to achieve this growth, we start with existing customers. For us, the first and most important thing is to make sure that we catch the new generations of the products that we are currently manufacturing. We are making sure that we push more services to our customers. This is very important because we want to get into the life cycle of the product as early as possible.
What we are also doing is leveraging the relationships that we have in one division of a company to get access to another division of the same company. I have to say that so far, this is working quite well for us. The last thing that I wanted to mention is that we follow our customers, and I think a very good example of it is what we have done in US. You will hear Hans Petter talking about this. We started our operation in US in 2010 following one customer. For years, we only had that one customer.
Today, after the acquisition, 10% of our workforce is already located in US. For us, it's a simple exercise. Somebody needs something somewhere else, we run the numbers. Is this a good business? We do it.
When it comes to new sales, what kind of customers are we after? Well, we look for large, growing, profitable, and challenging customers. That's what we look for. We want to make sure that we leverage the footprint that we have and the competencies that we have, and again, the reference to be able to approach these new customers.
When it comes to geography, we have divided our markets, or target markets in terms of priority. Priority number one for us is what we call home countries, where we have a presence already, where we have a manufacturing facility, where we have an office. Priority number two will be the countries close to it, the neighbor countries, who share certain attitudes when it comes to business. That would be Finland, that will be Denmark, that will be Holland.
Our priority number three will be Western countries, where we have a limited presence. We are exploring what we can do there, but there's clearly an opportunity for growth for us. Now we move on onto the technical service revenue. You heard me saying we want to stick, and Cathrin said the same thing, 10% of our revenue should come from something other than pure manufacturing. It has to come from services.
Why is this so important? Our business, like I said, is a low margin business, but we're doing our best to try and make it at least a medium margin business. Services accept a higher profit than pure manufacturing, so the higher the content of technical services that we have, the higher we can push our EBIT.
The other very important reason is that the more services we can sell to our customers, the higher the level of loyalty and involvement and influence we have in the products. It is fundamental for us to stay there, to be able, what we say, push to the sides, get into development, get into industrialization, and get into the end of life of the product.
We have been talking about strategies, we're talking about numbers, we thought that it would be also rather interesting to show you what is it that we manufacture, because otherwise it looks a little bit abstract. Here you have pictures of products where we are involved, and we literally do things that go into outer space and into the bottom of the sea.
When you look at these things planes, weapons, medical products, subsea applications, the thing that all these products have in common is that they have very little room for error. You heard me saying before, the tougher the conditions, the higher the requirements, the better we do, because then we can really show the competitive advantage that we have versus all the other 1,000 EMS companies in Europe.
Also wanted to share with you some of the companies that we do business with. We work in 5 sectors primarily. We work in energy, telecom, defense and aerospace, offshore marine, medical devices, and industry. Our plan moving on into 2025 is to stay within these sectors. I'm sure that you recognize many of the logos on the screen.
Some of them you might not know, but that is because they are companies that do business to business sales rather than business to customer. What is worth mentioning, you probably notice it already, is that these guys are the leaders of their industry, and that's what we are after. We want to work with companies that are going to grow.
They grow, we grow, and they are so big that even with our rate, we can grow beyond the 3% of average growth. That is one of the other reasons why we are fairly confident that we will grow the 10% per year that we have announced. I have to say, I'm quite proud about this, and it's a great tool when you go out there and talk to new customers. Think about the product as, in a way, as their baby.
They want to make sure that they're handing that baby to somebody who has experience, and to be able to say, "Well, we've been doing this for all these companies, so don't worry. We know what we're doing." It is very powerful. Talking about the sectors, and what we are planning to do within these sectors moving forward. If we first look at energy and telecom, we are very interested in anything that has to do with power: power storage, power transfer, power cycling, power filtering.
Anything today has a battery. Anything today is run on power. This is one of the main focus area for us from now until 2025. We already have quite a few customers in this sector doing this application. What we plan to do is to use the knowledge that we already have to try to go after new customers.
When it comes to telecoms, I'm sure that you're aware that 5G is rolling out. That doesn't mean that we're going to start making mobile phones anytime soon, but we know that a high degree of investment is going to take place on infrastructure like base stations. That's of interest to us. When it comes to defense and aerospace, I guess the key is to try to stay ahead of the contract. We want to approach the companies, the OEMs, even before they approach us, and I think we have pretty good knowledge of what's happening in the market, so we have a good chance to hit them first.
The other thing that we do, and you will hear me saying this all through the sectors, is once again, we have to leverage the competence that we have, the knowledge that we have, the customers that we have.
When it comes to offshore marine, I'm looking at faces here, I know that there is a high content of Norwegians in the room. Thanks God, oil is picking up. Slowly, it's picking up. For us, that is very positive. We've gone after oil field services company. We will continue doing so. We have been involved in the seismic business for many years with different players. Again, knowing what to do, having the experience, having that leverage is something that we will definitely utilize. Medical devices.
There is a hub of medical devices in this part of the world, Northern Europe, Sweden, Finland, Denmark, Norway. That's something that we want to go after.
Once again, there are certain fields, certain applications where we have quite a bit of experience, may that be cardiological devices, pulmonary devices, imaging devices, laboratory analysis devices. We're going to go, and we go after customers that require those applications. When it comes to industry, here is one of the areas where we definitely are trying to push more and more to the sides.
Get involved in the early design, making sure that we help the customers develop the product to make it suitable for manufacturing, to make it suitable for buying the components for supply chain. What we realized is that these customers also want to have access to lower cost, when it comes to labor. What we're doing about that, we're building a new factory in Poland.
What you see at the bottom is what we expect our distribution of revenue in sectors will be in 2025. We don't have a glass ball. This is the best estimation that we can give you as of today. If you compare it to the current distribution, it's pretty much the same. Maybe a little bit of a growth in the offshore and marine. I'm wrapping up with a reminder. We are 5 10 5 10. That's what we do. 10% grow with existing customers, 5% growth with new customers, 10% of our revenue coming from technical services.
With that, I'm passing on to Mindaugas. He will be talking about Central and Eastern Europe.
Thanks, Israel.
As it was mentioned today that I have dual responsibilities in Kitron Group. As you see from the slide, first of all, I'm Managing Director for Kitron Lithuania, already for about 11 years, so nice journey done together. I have another responsibility as VP of Central and Eastern Europe. Before diving into Kitron, let me a little bit to describe a picture what we have in that region, in market overall environment. If to look into the slide, you see that rather clearly that during last some years or maybe decade, Central Eastern European market has passed Western Europe both in size and growth.
In general, we see very big demand for the production in the region. Large EMS companies have extensive capacities in the region, and typically they focus on higher volume products.
Why is that? Obviously, one of the main reasons is lower wages. Despite the fact that last few years, we know that you can see that on internet as well, that wages were growing in Central and Eastern Europe quite considerably, still is quite obvious gap, about one-fourth of Western European countries. I believe that remain over many years in front.
Another important thing is that talking about China, in China, wages were increasing last decade quite a lot as well. Gap versus Europe and versus China in cost really decreased. Another thing what we have in China, it's again trade barriers with the U.S., and all that makes to the customers' advantage and to us that it's better to have suppliers or customers closer to you. Proximity is advantage now.
Talking about the region, Central Eastern Europe as general, I would say that business climate, actually, it's really quite friendly. It's governments really paying a lot of attention to attract investments, and it's flexible, and so on. Here, we are talking about European Union countries mainly. Now, coming to Lithuania, to Kitron Lithuania. Kitron entered Lithuania in 2001. If to look to the slide, you see that was very nice journey.
Basically, in last three years, we doubled in size, and last five years, we tripled in size what we have in revenue in Kitron Lithuania. Naturally, we're nearing to our capacity. As it was mentioned, primarily focus is industry market sector, and it continues to grow. We know our customers.
We see from many customers that it's growing, and we have forecast which shows that trend to the future as well. Kitron Lithuania now has clearly the largest business unit in Kitron Group, and it's close to 1,000 our Kitron colleagues there. We have about 13,000 square meters of the production facilities in general. In Lithuania, we're really proud in Kitron Group what we did on the result side.
As from the quarterly reports, it's also supported by really quite good EBIT. This is quite simple picture how to look our factory in Poland, but where it will be located. It will be located a little in the northern Poland first of all, as it was announced by Kitron during last year.
It will be located in some city called Grudziądz, about 100 km from Gdansk. It's good infrastructure. It's international airport, like 100 km from our factory. It's really good place from the labor pool, from the competencies, and so on. First phase will be a little bit smaller than in, we have in Lithuania, but it's plant expansion possibility as well there if needed. Construction already ongoing.
It started, and we plan to open this factory by quarter four this year. If a little bit to summarize why we need that investment into Polish factory or in general into the capacity. As I mentioned, facility in Lithuania nearing optimal capacity. That's very clear and natural decision when to invest into that.
Industry market sector growing slow, strongly, that we see already for many years. Country diversification we see as advantage from two sides. One side, it's very clear that factory diversification is good from the complexity point of view, especially if in that field of business, complex business, which we have in Kitron. We think in our corporate management that size of the company or the size which we have in Kitron is optimal in the range of NOK 1 billion. Another important thing is that some customers, from the risk mitigating point of view, they see country diversification or site diversification as advantage too. In Poland is attractive business climate and labor pool.
What is very important, it's neighborhood by Lithuania, it's neighborhood around the Baltic Sea, right? It's very important country of European Union and NATO.
A little bit coming back to the growth and already summing up what was said. I would say, we were really happy about our success in Lithuania and what we will do in Poland, it actually will be supported a lot from Lithuania. We have that experience. We know our customers and a lot of good experience, things what we learned will be postponed or copied or transferred to Poland.
Another very important thing when you're starting new factory or you're starting new site, you need customers, you need volumes, right? You need to get profitable from the first year. As Lithuania nearing to the capacities, some of the production, especially in the beginning, will be transferred from Lithuania. That's why I believe that it will be really successful.
Another important thing that main focus will be on the industry market sector and as well to the Western European markets. That's already what I mentioned. Besides that, it's very important that Poland, we should not forget that it's the biggest Central Eastern European market in total. It's about 36 million people living there. For example, from defense point of view, it's very interesting market too.
We will explore that. It will be under our attention as well, the same as other segments like medical or energy, what mentioned Israel as well. If to sum up a little bit, our growth, which we will have and our growth we expect, we aim will grow from a little bit above NOK 1 billion, which we have now, over NOK 2 billion by our strategic period of 2025.
We believe that could be that we will come to the capacity with the new site as well. It's very tentatively, but we plan, we look deeper into our future on that. We think that third site could be needed. We plan in our long-term future that after Lithuania, after Poland, potentially could be third site in period till 2025. Summing up, Lithuania is successful and really growing revenue and profitability is good. That's why I strongly believe that we will be successful with Poland. We know what to do.
We know our customers. Potentially the third site in this strategic period. Here I would like to overpass what to my colleague, Hans Petter, who will tell about another very interesting region. Hans Petter.
Thank you, Mindaugas. Afternoon, everyone.
As everyone in the Kitron corporate management team, we all have dual roles, my area of responsibility is to be the managing director of our manufacturing site in Norway, down in Arendal. I also have the responsibility for North America, in essence, being the U.S. right now. Mindaugas has described how he will support our growth ambitions in Europe and how we are expanding capacities. We're also going to be expanding capacity and supporting the growth ambition in the U.S., and that's where we're going to focus on this presentation.
So far, our venture into the U.S. has been. It's almost a decade we have been there. We entered the U.S. based on following one of our key customers, Kongsberg, and we have been primarily engaged in the defense sector.
We've had a relatively small site with 20 employees, 1,000 square meters, supporting the efforts of the defense company from Norway and some of in the local region. As you see there, being that we have engaged in the defense sector, which is very project driven with a rather limited customer base and somewhat limited capabilities, we have also had significant fluctuations in our revenues. We have never really reached a critical mass. We needed to sit down and figure out how do we solve that challenge.
That's what we believe we are on the way to do now. We communicated back in November that we have the intention to acquire the EMS division of API Technologies. API Technologies is really a product company and not truly an EMS company, and that's the reasoning for their interest in selling that division.
Kitron is a true EMS company. It's the core of what we do. That's why it was a good fit for us when we just entered into this process. The facility is located in Windber, which is only just a few miles down the road from our current facility. It is part of the same industrial hub, really. We see a good potential to have synergies between the two sites.
We do onboard a site with a full-fledged EMS capability. It's a 10,000 square meter plant. It's 10 times of what we have today. We're joined by a good 100 dedicated, competent employees who have been there for decades. The Windber plant is a cornerstone in that little community. It has been there for a long, long time. The added capacity will truly give us what we have been looking for.
The footprint we had was not large enough to support the growth ambition that we have. That's what we have now acquired. A little bit of the reasoning behind this acquisition. First of all, we kept part of the name. The name of the Windber plant is Kitron Technologies. We saw this opportunity that they had a very, very good strategic fit in terms of their capabilities, in terms of their customer base, which is catering to the same customers that we do in the different market sectors in Kitron.
There is no overlap between our current US operations or any other European operation per se. It is a very, very good strategic match in terms of the customer base. Our European customers have interest in increasing their activity level in the US.
The footprint we had was not set up to match and to support that. With the Windber acquisition, we will be able to support that. We have to keep in mind that the defense segments in the U.S. or the defense market is probably somewhere between 8-10 times as big as the European one combined. There's a lot of interest from European OEMs to enter the U.S. market.
We also seen that the customer base we have in the U.S., they're also interested in entering the European domain, hence to have capabilities on both continents does give us some advantages when entering these relations. Another significant reason was the location of Windber. It's only a few miles away. We have already, after taking control now, seen that we're able to get synergies from coordinating the operational activities. The plant has certifications.
They are aerospace certified, they are medically certified, we have plans to capitalize on those capabilities. They're strong in the defense segment. A number of their customers have presence in other segments, they're typically, at this point, catering towards the defense side of the market. We do have the ambition to expand the presence in other sectors, also in the U.S., but it's clear that the defense will, for a long, long time, be the primary one. Operational improvements. Keep in mind I said that API was not an EMS company.
We are an EMS company. That's one of the main reasons why we looked upon this acquisition with interest. Israel has been on several Capital Markets Days talking about our operational excellence. We do believe we can do something different with this company.
We do honestly believe that we can make it grow and make it significantly more efficient by doing it the Kitron Way. That's the intention we have. That's the short-term plan. We took control only a month ago, and we're already well on the way to creating it into a Kitron company. Short and sweet, what will the acquisition bring us? It will bring us a competence base, infrastructure to support our growth ambition.
Finally, we do see an ambition that is in line with the overall group ambition. We are very confident that we will be able to reach this critical mass, to have stable revenue stream, to have a profitable company in line with the expectations that is on any entity in the Kitron group. Nobody gets off easy. We see that we can combine resources between the two entities.
We have already started that process, and we know just by doing that, we will achieve a higher level of efficiency. Overall, this is the platform that we're going to use to create sustainable business in the US with the capability to grow. That said, me and Mindaugas has outlined all the ambitions for the growth. Israel will take over and tell us all about how we're going to continue to excel on the operational side, so we will remain best in class, so we can do this again with success. Israel, it's all yours.
Thank you. Okay, talked to you about growth before. Now let's talk a little bit about operations and how we're going to be more efficient even than what we are today. When it comes to operations, there are five main building blocks for us. First of all, it's expansion. We need to make sure that we have the capability and the capacity to grow to where we want to grow by 2025. You heard it, operational excellence, lean, continuous improvement, the Kitron Way of doing things.
Our people. I'll spend a little bit of time talking about our people. Digitalization, ultimately, our technical roadmap. You already heard from Mindaugas, you already heard from Hans Petter, new facility, new facility. What we haven't mentioned is that we are doubling our capacity in China.
Today, we have with us the general manager of our plant in China, Gigi, he's at the back. We are in the process of doubling our footprint. We basically took over the building right beside ours, which is a carbon copy of the one that we have.
Our plan is to have this site operational between June and July this year. I think it's important to say that our plan for 2020 called for NOK 3 billion, and our plan was to achieve that with the factories that we had. What we realized is that to be able to achieve the objectives, the ambitions that we have for 2025, we needed more. That is the reasoning behind the new acquisition in the U.S., the greenfield operation in Poland, and the doubling of the size in China.
It is possible that we might have to get a new, a third site in Central and Eastern Europe, and it is also possible that we might have to get a new site in Asia. Ideally, for us, our plant should be between NOK 500 and NOK 1 billion. Why? Because the moment it gets bigger, we realize that there are too many layers. We lose a little bit of this operational excellence that we need to have. All things considered, we would prefer to stick to one factory per country. You heard a lot about the Kitron Way of doing things, our operational excellence.
Between 2015 and 2018, we completed a full cycle of implementation of our Kitron workbook of operational excellence. Does that mean that we are done? No. It means that we start all over again. We are continuously improving our playbook.
What it's having an impact is, of course, our performance. Like I said, we are a low margin business, every cent of a dollar that we can improve on material, every half a minute that we can reduce on our lead times on products, turns into small % in our EBIT margin. That's the way we build Kitron. Another very important impact that this has is that as we develop the Kitron booklet of running a business, it becomes easier to incorporate new entities like what's happening with U.S., as you hear Hans Petter saying. We are Kitron-izing them.
The more we do this, the better we become at it. Our people, our competence roadmap. I like to say that somebody could buy the same buildings that we have. Somebody could buy the same equipment that we have.
What our competitors cannot buy is the people that we have, and that is really our unique competitive advantage. The people that we have and the processes that we have. I know that it sounds a little bit like a cliché, but it is the truth. We need to make sure that the people that we have and the competence that they have continues developing to keep us this, or to give us this edge when it comes to competing. The first thing that we do is we need to make sure that we understand which competencies we need moving forward.
We need to make sure that we are an attractive company for people to come and join us. We need to make sure that we are able to transfer the required knowledge, the required competence to our people.
We work very close together with universities and other entities to make sure that we are aware of the latest developments in technology. At the end of the day, all this bundles up in a culture, the Kitron Way of doing things. I also wanted to spend a little bit of time talking about digitalization. We have aggressive plans for growth. For us, this 10% per year is an aggressive plan for growth. We want to make sure that we don't need to increase our headcount proportionally to the increase in revenue.
What that means is we want to do more with the same resources that we have. In order to achieve that, we need to push technology, and digitalization is one of the tools in that toolbox. What we're doing is we are investing and developing our Purchase-to-Pay.
What that really means is connecting the purchase order from our customers into purchase order to our suppliers, and ultimately paying for it. We're also investing in e-commerce. Simply put, what that really means is that our customers should be able to go to internet and buy services directly from us. Customer connectivity refers to the ability that our customers will have, and already do, but we will enhance this, to have real-time data available for them about what's going on with their, with their orders.
The last thing that I wanted to talk to you about is the supporting processes. You heard me talking about how important it is to make sure that our people has the right competence.
We need to train our people, so we are investing in a Kitron Academy to ensure that we can train people regularly, and we can do that at a reasonable price. The last thing that I wanted to talk to you about is our technical roadmap. Before I do that, I wanted to give you a glimpse of how a Kitron factory will look like in 2025. In 2025, products will move rather independently in our factories.
There will be vast amount of real-time data that will have to be collected and processed, hence the need of a 5G. We're going to have to have very flexible production line. Remember the first part of the presentation where Cathrin said we go for medium volumes. With medium volumes, you cannot fully automate the lines.
You have to automate parts of it, and they have to be very flexible. We see that in 2025 a Kitron factory will be even more flexible than it is today. We're working with collaborative robots, and we think that in 2025, the presence of such robots in our factories is going to be not only commonplace, but quite abundant. Collaborative robots are robots that can work side by side with people. I don't know if you have had the opportunity to go and visit factories five or 10 years ago.
Robots were these big monsters that were encased in glass boxes because they were a risk for people. What we have now is robots that sit literally side by side with our operators. 2025 is going to see many more of that. We have to have very competent technically, operators.
That ties up to what I was saying about developing our people. There's going to be a higher content of technology out there. That means our people is going to have to be able to manage all that technology. We using more simulation tools, and I wanted to point out that the two screens that you probably saw when you were coming in. One of them shows our augmented reality tool.
The one on the right shows our simulation tool for automated lines. I will talk a little bit more about this in the next slides. The other thing that I wanted to highlight is again related to digitalization and about making many more of the processes that we have in back office, like procurement, payment, and such, more automatic, more touchless in a way.
Now we cover our capacity expansion, we talk about our operational excellence, we talk about our people and how we can make sure that they have the right competence, we talk about digitalization. The last thing that I wanted to talk to you about is our technology roadmap. This technology roadmap contains different building blocks, one of them being additive manufacturing, 3D printing.
We talk about augmented reality, test development, virtual simulation, automation and robotics, and last, product development. Rather than spending 10 more minutes and showing you more slides, we thought that we could share with you a video that we have prepared that will not only explain what these blocks mean but will actually show you a little bit of how these things are already taking place in our factories. I'm going to click the button, and I hope that everything is going to work. Yeah?
Okay, let's go.
Among Kitron's customers are global leaders within high-tech industries, from medical devices to aerospace. However, we are not only a producer of technology, we are also a user of technology, and in some cases, we even develop it ourselves. In this brief video, we will give you a taste of this. We often group our use of technology under six headings: additive manufacturing, test development, automation, simulation, augmented reality manufacturing, product development. additive manufacturing, popularly known as 3D printing, is increasingly used in mainstream manufacturing and is a powerful tool to help reduce time to market and development costs.
We have been particularly successful in using 3D printing to customizing our fully automated production lines. Kitron has invested in additive manufacturing technology and competence. We currently have 3D printers in most of our sites, and we use them to produce prototypes, but also to manufacture our own production equipment.
Many of our customers' products come with very little room for error, be they fighter jets or medical devices. Testing the product, simulating and verifying functionality under load and stress, has always been at the core of what we do. Kitron has developed a proprietary test platform called SATS, Standard Automated Test System. SATS reduces investment cost and makes it easy to move production, as SATS is used across all Kitron sites. Automation is not the answer to everything, especially not as some of the production series we make for customers are limited in volume.
However, our ambition is to automate whenever appropriate, and there is no doubt that an increasing proportion of our production will be untouched by humans. We have installed complete automated assembly lines, including various functional tests, product marking, traceability, and packing of complete devices.
Kitron often works with customers at an early stage of the product life cycle. This phase can certainly be improved through innovative use of technology. One example is simulation. In the future, before we build a new product, we will first create and optimize its digital twin using a software model. In this way, we can avoid errors and optimize the product even before we make it. Another use of simulation is for setting up production. We simulate how the production line will work, including robots.
Both these tools are currently being used when discussing new business with customers. We demonstrate the production flow using virtual reality and are able to suggest changes to the product and production setup that will improve cost competitiveness. This means using computer-generated video, graphic, or sound to enhance a real-world view of objects.
In our world, this is especially useful in making better assembly instructions. This makes instructions clearer and easier to understand, improving quality and reducing training time. It also allows for remote assistance so that an engineer on one continent may guide the operator on another. Increasingly, Kitron is involved by customers in the development of new products, from early concept design to volume manufacturing.
We have been supporting our customers by improving the manufacturability and testability of their products. Now we are also fully designing products from concept to volume per our customers' requirements. The increased use of technology is helping Kitron to support our growth while improving our profitability.
Pretty cool. I think one of the most important things to mention is that most of the footage that you've seen is footage from our factories. We are not talking about abstract things that we might be doing in the future. We're talking about things that we have started doing, and we're going to continue doing from now until 2025. What we see is that the time, the effort, the resources that we have allocated to developing our operational excellence lean, the Kitron Way of doing business is paying off. It's never going to end. It's a endless loop.
We always trying to be a little bit better, always try to reach for that half a % in what we do.
We have expanded our capacity through U.S., through Poland and expansion in China. We will continue doing so during the strategic period. We have identified and acknowledged that our people and the competence is key to success. We're going to work, as we have over the past years, we're going to continue working very hard on ensuring that we have the best possible people and that we furbish them with the right competencies. The last thing that I wanted to mention after this cool video is that we will continue investing.
We will continue investing as we have been doing in the past, probably above average when it comes to this industry on technology, because we see that that gives us a competitive advantage. Not only that, it makes us more efficient and hence more profitable.
With this, I finish the part of the presentation related to operations, and I'm going to pass the baton to Cathrin, who will take you through mergers and acquisitions and finances.
Thank you, Israel. I will now talk a bit about M&A. As you've understood, growth is important to us. We work hard on achieving organic growth, but we also see M&A as a possibility to further our growth. When we talk about M&A, we're talking about exploring it across 3 axes. It's either by entering new geographies to leverage our existing customer relationships or expand our customer base. We're also looking into it in the existing geographies for synergies.
Talking about the acquisition we just made, the API transaction, we are actually entering or reusing an existing geography to actually achieve both synergies and expanding our customer base, so it's not necessarily that they are exclusive. We'll also talk about value chain expansion.
That will be a vertical integration that will may be acquiring a product owner that has something significant of importance to our customers and integrating that into Kitron. How do we think about this? What are the priorities and how do we work with it? We're trying to illustrate that and put some color onto it, and in this case, green, as you see, on where we want to go when it comes to the existing value chain and for the geographies. If we start on the not likely corner, we don't think that we will do a value chain expansion in an unknown geography.
The risk is too high. If we were to do it, which is a likely scenario, we will do it in an existing geography where the unknown variables are fewer.
When it comes to any acquisition in the existing value chain, it's more likely that will be in an existing geography, but we have said here it's most likely that it will be in a new geography. Why is that? It is because of what we talked about earlier. We need to expand our capacity either with a factory or a facility in Asia or in Eastern Europe.
We will look upon this as a possibility to acquire that capacity as to having a greenfield. We will figure that out when we get there, basically. As you saw on the first slide that Israel so presented, there is an ongoing consolidation in the industry, so there are several opportunities for M&As in the business currently. What will we focus on?
We will actually focus on probably something where Kitron can add value by applying our One Kitron knowledge that we have, applying on what we know on operational metrics to make something that is better than the previous owner could have it and to increase our shareholder value. What do we do? We are actively evaluating opportunities.
However, as you probably have seen on our action plan for 2019, we have enough to do, so it will have to go in some to 2020 or further before something happens. We're looking on the revenue range between EUR 10 million and EUR 100 million, probably more likely on the lower end there, between EUR 10 million and EUR 50 million, because that is a size that's easily integrated into our company. We're not using too much money to fund it, and there is a lot of opportunities.
As you saw in the graph on how the European EMS business is built up, there were about 1,350 existing smaller companies within that size, and many of them are for sale actually because there are teasers running into the office every day basically. We have to be able to see the same profitability level when we analyze the unit that we have in all the rest of Kitron, which is about 7%.
As Hans Petter said, nobody can avoid that demand. You need to be able to produce 7% profitability over time. Such a transaction will be financed most likely by cash and loans as we have with this transaction. When we talk about the revenue, this is the future. It's very hard to say when it will come and what sizes and how much, et cetera.
We're just saying we think it will add upside to the 2025 revenue. Finally, financials. Yes. We've said now that we're going to go for NOK 5 billion in 2025, but let's start on our 2020 targets. We're still just in the beginning of 2019. We continue according to our strategy. We've had an annual trend of 10%, and we are clearly on target to the NOK 3 billion in 2020. With the acquisition, we see an upside of about 10% of that figure in 2020. Going to 2025, an ambition of NOK 5 billion and an organic growth trend of about 10% per year. We just continued on the same path that we've had before with the M&A adding a potential upside.
Of course, this is assuming that there are no drastic change in the macro environments and currencies going forward. Repeating again on the EBIT, we have made operations improvements in 2018.
However, the results and the result improvement was slightly less than we wanted ourselves and basically has to do with the work that we're doing around the material allocations. We have managed to produce the top line we wanted to, but we did to do quite a lot of reshuffling of the production to make that happen, and that creates some inefficiencies. In addition, I would say that quite a lot of our managerial effort has been spent on managing that allocation. We're maintaining the 7% for 2020. Going into 2025, we say we continue on this ambition as the industry is inherently not on high margin business.
This is hard enough to achieve, we also say that we have an high, an higher ambition. Also, when you look upon this 7%, you have to understand that this is an average over time.
We might be higher, and we might be slightly lower going forward. An acquisition of startups might temporarily affect this margin naturally because when you bring them in, you will have to improve them, or when you start something up, it might not stabilize in the first months, to say so. Component shortages, we talked a lot about it this year, and we talk about it maybe more than many of the other customers, or maybe other competitors. That's because we have a large chunk of defense industry where this component shortage have been much tougher than in other industries.
The deliberate and temporary buildup of inventory has created a success for us, customers, and us to deliver in 2018, and we'll continue to do so in 2019. Even though we see that the situation is improving, there is still long lead times for many of the components. What is proving to see that it's actually happening, that we are seeing a better future, is that the storage or the warehouses of the distributors are increasing, so they're having more components available.
What we have done now is that we have hit the brakes, and we have spread the flaps, and we're trying to stop the ship from moving or the aircraft in that sense. It takes a bit of time to build down. We're working now on building down our inventory levels.
You will see some of it in Q1, you will see more of it in Q2 and going into Q3 and Q4. We've talked about allocations in 2 versions. We talked about those that are declared as a term, and that is when the distributor actually tells us it's under allocation.
We also talked about undeclared allocation, which are those where they actually haven't said it, but the lead times and actually the difficulties in getting those components is what we call an undeclared allocation. We see both of those levels tuning down during 2019 into 2020. Capital efficiency. We had a very good trend for the years going from 2015 to 2017, and where we actually were at the target level of net working capital in % of revenue at 20%.
We ended 2018 at 30%, and we see we're building down into 20% into 2020, and we'll be about halfway at the end of 2019 is our estimate currently. The cash conversion cycle actually follows this very clearly. Same development, set back in now in 2018, and coming into 2020, we're aiming for a strategic target of 50. We had 61 actually in 2017, and we're going then for 50 going forward.
We believe that these targets are hard enough to handle if you consider that we will have startups and we will have acquisitions going on, so we cannot really improve very much on them over time. One of the most important key ratios in Kitron is return on operating capital.
When we talk about operating capital, we include fixed assets and net working capital, which is inventory, trade receivables minus trade payables. This is an important measurement only in talking, in showing the financial, but also in the RFQs we calculate the ROC. It's really important that we have the return on capital for every new RFQ that we send out of the building. We see that we will come back to those levels that we have had in 2017. We had actually 23%. We were very close to our target in 2017. We're at 20% this year, adjusting for the one-offs that we've had in relation to the acquisition. We will continue to have these higher levels due to improved profits and a better capital efficiency, and this material allocation problem will go away. Longer-term target, 25%.
CapEx is also very important to us to stay competitive, to have the latest machinery, to be able to automate and to robotize that we need to do. In this graph, you see the expected sums of the total CapEx that we will do in machinery or in buildings going forward.
The line that you see in the graph is that sum in percentage of revenue. This is the CapEx that we have before leasing. We normally lease 40% of our machinery, so only 60% of those figures you will see will be actually cash out that year. The rest will be leased.
When we look into how do we split this, what is what, basically, I can say approximately 40%-50% will be capacity increase as we grow all these figures. The rest will be either investments in buildings because we have another greenfield or it will be investments in automation or in IT or in robotization going forward. For 2019, there is a hefty chunk of money going out for Mindaugas' new facility in Grudziądz. I'd say half of it is going to him or a bit more than that. Then we will have a sort of release on the heavy investments in 2020.
If we go for another greenfield, we will also have that. We are certain that we will cover those greenfields within this measurement to be below 3% and having the capacity needed in the new factories.
We need to invest to remain competitive in high-margin sectors. Israel didn't say so as much. He talked about the new factories, how do it look like in 2025? I think some of you are thinking, what will happen?
Do we need to replace a lot of the machinery we have? Will there come new technology, so there will be a new technology shift that will require special investments for that?
We don't think so. We think that the core technology will basically be the same, but we will add on automation and newer auxiliary equipment around it, but the basis will be the same. It will be capacity investments and robotization and automation that will have the largest chunk of this. Free cash flow, expected to rebound it says.
Of course, the free cash flow is in 2018 is not a pretty sight, and it's not where we want to be. The years 2015-2017 are more reflective of how we think about the free cash flow and how we foresee it forward. I think you will over time expect the free cash flow or the operating cash flow, not the free, to be in line with the EBITDA. I would think that's the best figure that we can give. Our gearing. If you look on the key ratios to the left-hand side on this slide, you will see that they are quite okay. We're not a heavily geared company. This gives us a platform for organic growth, for acquisitions, and also for dividends.
We will see that the capital that is bound in working capital and thus increasing our interest-bearing debt in 2018, that capital will go down and thus decreasing our interest-bearing debt, allowing for an improvement in these figures during the year. I won't go into it, there will be a bit different to analyze figures in the year 2019 than it has been before because of the new IFRS 16, which forces everyone to activate all their lease agreements on rented properties.
We'll come back to that when we have the quarterly reviews, and we'll try to be as explicit on what is what going forward so you can compare. Strong dividend capacity.
We have amended our dividend policy, I would say two times since I started, and now it's to pay out over 50% of our net income unless there are specific needs in the coming year. Thus we have. This year we are proposing a dividend of about 64% of net income amounting to 40 EUR per share. Last year it was slightly higher, but we had we didn't have as expansive acquisitions going on, so we also did an additional dividend. Basically, our dividend last year was almost 100% of our net income.
We are very mindful of the fact that we want to give a total shareholder return, and the dividend is a crucial part of that going forward.
The main financial ambitions, NOK 5 billion in 2025, M&A may add an upside. We're keeping on to our ambition of 7% margin and a ROC of 25%. For a summary of the things that we've said and a little bit on what we're thinking on doing to keeping those income levels and to do the growth. As we have done in 2015, we have created sort of a path, an idea on where we want to go and what we want to improve.
This is the start up, basically, so this will change and alternate as we see the environment change and how we are development. First of all, we have started already on preparing for the capacity needed to grow to NOK 5 billion.
By the acquisition in the U.S. and by the new factory in Poland and by doubling the footprint in China with Ziggys. We also see that we will need further capacity either in Central Eastern Europe or in Asia. When it comes to the overall roadmap, Israel talked about a competence roadmap. A map sound like, might sound like a static thing explaining a certain point of time, but for us it is not. It's an ever-going process for us to evaluate what competencies we need so that we can grow and develop our company. It's extremely crucial for us.
As we now are looking into even more greenfields and acquisition, it's important for us to implement the One Kitron Way, our culture, the way we think about things, the way we look about finance, the way we look about operational excellence, how we want people to be to each other, how we want to manage our leadership, the One Kitron approach.
We also want to be a bit practical. We're learning a bit now in our, in our M&A. We want to make sure that we have an efficient process for rolling out M&As going forward. On the finance side, to further standardize and automate our report, our financial model and also our reporting. We want to spend less time creating figures.
We have a lot of numbers that we look at every week and every month, and we want to make that process as efficient as possible, so we can take action more than actually look, creating those figures.
For most companies in this strategic period up to 2025, artificial intelligence tools and big data will be an important part of it to do analysis and understand because we do have a lot of data gathered in the system. Operations. Prove to improve for their products so that they can get a lower price over time, and we need to be better so that we can improve the profitability. We talked about the Purchase-to-Pay process. We need to be more efficient in that, and we're going to do a lot on it, and especially on the digitalization.
We need to refine our statistical process control to have less errors. When it comes to the sourcing, we are now having a more comprehensive and what I can say, more difficult value chain to make proposals on. The customers, they are not giving us more time, so we need to be more efficient in doing our quotes. Not only that, they require us to be able to select and quote and price alternative components at the time of the quote. Previously, that was done slightly later.
Now, everything needs to happen immediately. To reduce risk, we want to have a real-time supply chain status. As for sales, we're having a global quoting team. They have previously been working on the material cost, but now we want them to take over the full quote and to make it complete. Of course, that won't be for all the products and all the customers, but in general, for most part of it.
We are extending our service portfolio, and we are changing our customer connectivity. We want the customer to be closer to us, to give them more information in real time, so they know what's going on with the products. It's a glimpse on what we have planned to do. There will be more once we go, I'm pretty sure. On to summary, what we want you to take away with you when you leave here today.
We are on a steady course forward. We're on track towards our strategic goals for 2020. We have a new strategy set for 2025, which is building on and refining our current strategy.
With that, the presentation part of this Capital Markets Day is over.
After this, we will have a query and answer session.
However, we will close down the webcast after this before we do the Q&A.
With this, I would like to thank you all for following us on the webcast, and I hope to see you soon again.