Welcome to Alleima's first Capital Markets Day. Thank you all for joining us here in Sandviken today, and thank you all for watching the event online. My name is Emelie Alm, and I am Head of Investor Relations at Alleima, and we're looking forward to spending the next few hours with you. At Alleima, we always put safety first. We always strive to make sure that all environments are safe for our employees and our partners. For those of you who are watching online, I trust that you are safe now and that you know the safety routines of where you are located. We just had a safety demonstration here in Sandviken, so we know what to do if something happens here. Now, let's continue with today's agenda.
We have a full schedule, and you will hear our CEO, CFO, and all divisional presidents talking about how we are positioned as a company, and a lot about our business, of course. We will also do a deep dive on how we aim to capitalize on the opportunities that comes with the energy transition. We will have two open Q&A sessions, and if you like to ask a question live here, you can dial in using the telephone number on the website of the event. You can also write your questions in the field below the webcast. After the presentations, when we have closed the live stream, we will do guided tours here for our guests in Sandviken. First we will go and see the steel mill, and then we will go and see the surface technology facilities.
We are hosting this event from our industrial site in Sandviken, which is actually one of Sweden's largest in terms of ground area. We are here in Tube Mill 98. About 1 year ago, this was in full production. Here, we produced tubing products like hydraulic and instrumentation, heat exchanger, high temp and fertilizer tubing. As part of our footprint and cost optimization projects, we moved the entire production to mainly our production units in Chomutov in the Czech Republic, and also some to Mehsana in India. This included all the equipment and furniture, which is why it's empty here today. This was done for Tube Mill 98, and also Tube Mill 09 a bit further away here on the site.
Today's presenters will touch upon what we have done and what we are doing, to optimize our footprint and cost structure, and to make us more resilient and reduce earnings volatility. This will, of course, not be empty like this forever. We are waiting for new external guests to move in. We have a long history, but we have a new brand name. Please let us introduce ourselves.
From the melting of our very first metal to the refinement of our very first alloy, ours has been a journey of constant, powerful progression. Fueled by a desire to care, deliver, and evolve, we've been moving materials forward, turning raw into precision and advancing industries for over 160 years for the benefit of our customers, our people, and the future we share. Just as we use our expertise so customers can be their very best, more efficient, more profitable, more sustainable, we look forward to new ways to serve them, new ways to progress. We are Alleima, a brand inspired by our heritage and our people to innovate new, unique materials, to spark potential, and above all, to advance societies, ambition, industries, materials, and our partnerships together. Alleima, forged from the past, engineered for the future.
I'm now here with our President and CEO, Göran Björkman. Welcome, Göran.
Thank you, Emelie.
You will now tell us more about Alleima. Please go ahead.
Thank you. First of all, also from my side, a warm welcome to Sandviken and our very first capital markets day for Alleima. Also you that is watching online, very warm welcome to you as well. I think we have, I mean, we're finally here, and I think we have an exciting and, I think interesting journey ahead, and this is what we're gonna share with you today. The main purpose will be to educate you on our offerings, our strategy, and how we would move forward as a standalone company. Before doing so, just a few words about myself. I spent 32 years within the Sandvik Group. I started when I was eight. No, that's a bad joke, sorry.
Spent my first 18 years in SMT, now Alleima, and I started as a production engineer, actually in the tube mill you have just close to this one. Several positions, and then I left SMT to another part of Sandvik in 2018, and just before leaving, I was the president, division president of Primary Products. That was its own division at that time. Spent nine years in Machining Solutions. The last years as global responsibility for SMLS oil production. Then Björn Rosengren recruited me back to SMT to this position end of 2017. I think SMT at that time was not maybe in the best shape. We had some tough years, mainly due to the oil price crisis 2014, 2015.
I think we improved a lot, both our performance, also how we navigate in a volatile business. We reduced our volatility. More of that later on. Let me start. I think first I'd like to say, we don't view ourselves as a sort of normal steel company. We have completely other offer. High added value products, high cost or price per kilo in advanced stainless steels, superalloy, as well as we have products for industrial heating. We have a strong market position in a number of industry segments. We defined our segments as ten. Some of the big ones being industrial, oil and gas, industrial heating, chemical, petrochemical. Also smaller ones like medical, renewable, and hydrogen, but where we see really strong growth potential going forward.
I think one of our core strengths is our fully integrated value chain, where we have our own strong R&D, our own metallurgy. I think that is a must if you want to be the technology leader, and that is what we want to be. Hot rolling, finishing, a lot of finishing mills around the globe. Majority of our sales is through direct to customers, roughly 80%, and almost all sales is through our own organization. We have 27 production units around the globe. We serve roughly 90 countries and more than 40 sales offices around the globe. We are three divisions: Kanthal, Strip, and Tube, and we'll talk about each of them in a few minutes. If you look at the numbers last year, we invoiced almost SEK 14 billion. The EBIT margin was 7.6%.
I think that number is one of the ones that I'm most proud of, how we managed to reach that kind of level with the oil business being at such low levels. More of that also later on. Most of our products is not sort of just a piece of steel. It's engineered for specific customer applications, and this is to illustrate a few of them. To mention a few, we have fertilizer heat exchanger for the chemical and petrochemical industry. Of course, you heard about umbilicals, important product for the oil and gas business. Heat wire and heating elements and heating modules for industrial heating. Medical wire for the medical industry. One of Strip's most important products is compressor valve steel to be able to produce really energy-efficient compressors.
These are just some examples, and this has been the history all over the time, engineered products for specific customer application. That is what we've been doing ever since 1862, when this company was started. That was 160 years ago. If we look at the timeline here, I promise I will not go through all the dates here. What has been going on all the time is material science and close cooperation with customer to develop their applications. All the time also mainly direct sales and also through our own sales organization. Some examples, we've been making stainless steels since 1921, so for 100 years. 1997, we made an important acquisition. That was when Kanthal came into the group.
If you look the last five years, we continued to improve our portfolio, make a few divestments, and also some smaller but important acquisition. I will go through them more important later on. Looking at the three divisions, Tube, as you can see, the larger one, with roughly 70% of Alleima sales. Tube has roughly 11% market share. And the market, also the competitive environment is the number of large players, and also many much smaller and even more specialized. Some of the I mean, Tube make, as it sounds, seamless tube in advanced stainless steels and super alloys, also the long products, and also the rock drill steel business is organized in the Tube division.
Some product I mentioned, the umbilical, titanium, tubes for aerospace, steam generator tubes is a nuclear product. Let's move over to Kanthal. I think many of you have heard about Kanthal, but I'm not sure that many of you know what Kanthal really does. They are a global leader for materials and products for electrical heating. Think of a toaster or a hair dryer at home, but much, much more complicated and also much, much higher temperatures. If you look at the competitive position of Kanthal, there are no real global competitor in the more advanced part of Kanthal where we have the added value products. Of course, there are strong regional and local competitors, but no really global one. In Kanthal, we also have an interesting medical wire business.
All three divisions are active in the medical segment, but I think Kanthal is the bigger one with its medical wire. In looking there at the competitive position, there are a few large players and a lot of small ones. Last one, Strip, roughly 10% of Alleima sales. Precision strip for many different products, mainly for the consumer segment. Important product I mentioned before, compressor valve steel. I think you would be surprised if you would know how much of the world's electric energy that is used for cooling in freezers, refrigerator, air conditioners. To have a very good compressor valve steel means you have energy-efficient compressors and reduce the electricity you need. I said at the beginning, I think one of our core strength is our fully integrated value chain. It gives us a number of advantages.
I mean, obviously we control the value chain, and we have seen recently in the last couple of years how global value chains can be sensitive if you don't control them, and we control our value chain. It also enables close customer cooperation. I mean, the history of us is that we have many customers where we have long-term relations, and we have sort of interactions on different levels. R&D talk with R&D, top management talk with top management, et cetera. I think that is very much appreciated by our customers. Of course, we have a premium offering, so being in control of value chain also means you have control of the product quality. Last, I think very important, if you want to be, and I think we are, and we want to stay in that position, the technology leader.
If you're a technology leader where you invent new materials, you need to have your own metallurgy. That's why I think this is so important. We have a global footprint, both when it comes to market and also, of course, production. We serve roughly 90 countries, 90 markets, and serve them from 40+ sales offices around the globe just to be close to the market. 27 production units all across. All of this gives us, I mean, it gives us proximity to customers. It also brings flexibility for different reasons. One could be one unit has an issue, the other one can support. But also for geopolitical reason, trade problems, et cetera. I mean, I could give you one example.
When the United States implemented import duties on steel, of course, we were affected, but we are the only one of our competitors that has an extrusion press in U.S. Of course, we need to import to the U.S. the bar, the low added value product, while our competitors, they had to import the high added value products, the tubes. Being in different places is a strength. The largest site of the 27 is here in Sandviken. Obviously around 3,000 people for Alleima work here. This is where we have the larger steel plant. We also have a smaller one in Hallstahammar in the Kanthal structure. The rolling mills, the forging, and a number of tube finishing factories.
This is also where we have the precision strip factory, the rock drill steel factory, the surface technology for fuel cells that you were gonna visit later this afternoon. This is also where we have the larger part of our R&D, the largest R&D unit. We have three more, one more in Sweden, in Hallstahammar, one in China, and one in India. Let's start talking about our strategies. Based on four pillars: profitable growth, materials innovation, technology leadership, operational commercial excellence, and industry-leading sustainability. Let's start with profitable growth. First of all, I think we have improved SMT, now Alleima, to the point where all three divisions are at the profit level where growth is the main priority. I will show you soon that a lot of the megatrends play in our favor that will drive growth.
Also, there are still, in some segments like oil and gas, aerospace that is in transportation, still recovery happening from the downturn due to the pandemic. They are not back to pre-COVID levels, so to say. A lot of opportunities. Materials innovation and technology leadership continue to be best in class in the two things that I mentioned before. Material science, innovate new materials, and work closely with customers to support them and develop products for their applications. Look at operation commercial excellence, I think we've done a lot of good things the last few years. But by definition, you are sort of. You're never done. You need to continue. These are things like, continuous improvements, footprint changes. I mean, we are in Tube Mill 98. It was not built for what we're doing here today.
This is one part of the changes we have done, and Emelie explained that. There is still things ongoing. For instance, we are, as we speak, closing two Kanthal units in U.S., moving into a third one. Mix optimization and price leadership is also areas where we have improved, but there's still always potential to do more. I mean, many of our parts, we say that we are market leaders. If you are the market leader, you also need to dare to be the price leader. In some areas, we have improved there, and there are more potential. Last one, industry-leading sustainability. I will dig more into that later on, and it's much more than climate. If I should say a few things about the climate anyhow.
I mean, a lot of people know that, steel industry is a huge CO2 polluter. That is true. If you remelt steel like we do, that is not the case. Our CO2 footprint already today is very small. I think the largest impact we can have on the climate is through our products and how we support our customers. Then it starts to be interesting, because then number one and number four is in a way connected. Sustainability is a good engine for growth. Let's look at, and you know, of course, you know this, but I will look at some of the megatrends and how they play, and I think mainly in our favor. Look at changing demographics. I mean, more and more people, of course, that drives consumption. It also drives energy demand. We're also getting older.
The share of people on Earth above 60 is expected to grow, and that is a good driver for the healthcare and the medical business where we have a good position. Increasing and changing energy demand, I already said that. Today there is an energy shortage, and due to the pandemic, parts of it is underinvested, so here investments will happen. If I look back, I think this week, it's six months since the tragic war in Ukraine started. I think that has turned a lot of things upside down. There's a new trend now when it comes to energy, and that is energy independence, both regional and domestic. I think that will also be a driver for the energy business. Of course, probably most important, the shift towards fossil-free sources.
All of that gives us opportunities. Electrification is obvious. I think most of us know that, and I know that we know, the electrification transport sector is a strong trend. We also there through our Surface Technology. Also, which is clear, also industries are electrified. Industries are moving away, for instance, from fuel gas-fueled furnaces to electric furnaces. This is something that plays well for Kanthal. The last one, growth in emerging markets. We have, as I showed, good global footprint. I think what we've done recent years, which is obviously very good, is that I mean, if I look at our Asian units, we don't look upon them only as sort of low-cost alternatives. We have the strategy to move the most premium products also to Asia. That has been really successful.
That has improved the market position in Asia a lot, and it's been driving growth for us. I think that's an area where we will continue. We define, as I said, 10 business segments. The market study that we have done as a support and input to the prospectus shows that we expect these segments on average to grow about 5% the next coming five years. Of course, some of them will grow more and some of them will grow less. This is how we view the market. Since the strategy is profitable growth, we don't have the same ambition in all of the segments. Segments with lower margins, maybe we will not grow as much. Others where we have good position or the market growth is strong is where we're gonna focus more.
We defined four segments where we do sort of extra focus on growth. They are chemical and petrochemical, medical, hydrogen, renewable, and industrial heating. Before moving into them, this is a slide sort of try to illustrate how we view our business portfolio. We divided it in three parts, where we see growth in the existing business. What I mean with existing business, that's the main part of business. This is oil and gas, this is industrial heating, it's medical, et cetera. Of course, there's a lot of opportunities there, both from organic, but also from inorganic growth. We define something we call growth in sort of new business creation. That is where we have sort of almost no business today, or it is a very sort of starting point of its development.
Those are areas mainly related to renewable hydrogen, also parts of the industrial heating, and where we spend a lot of the resources, efforts in business development, in R&D, et cetera, to capture those opportunities. The last one is managing contribution business. That is the more low margin part of our business. That is still important. We need that to be flexible for filling the mill, so to say, but you should not do too much of it. It's important part of our business. Most of that, not everything, but a big part of that is within the industrial segment. Based on that, we don't have really high growth ambitions in the industrial segment.
For sure, we will not grow that from a volume point of view, but there is still potential to grow it from a mix and also price point of view. To manage this puzzle, both strategically, but also operational and tactical is one of the sort of keys to how to be successful in our kind of industry. Mix optimization is so important. One day it's the right decision to take an order. A month later, the same order could be the wrong decision. You need to be fully in control of what gross profit do you have in your order backlog, full control over your lead times. Where is the market pointing? How should I play this puzzle? I think this is something we improved a lot on. Back to the four segments where we have an extra focus. Start with chemical and petrochemical.
As you can see, we estimate that market growth like 4%. You could ask, "So why so much focus on that? It's growing less than the average." That is because we have such a good position here. This is, of course, a typical traditional tube business. As I said before, tube has done excellent work on improving their Asian factories. They today, in a very good way, producing and selling the premium products. Looking into that segment, the main driving force for that growth is Asia, and the largest in China. Using the position we have in Asia will help that. We also see a development for even more, let's say, difficult or high alloyed products like high nickel products. That also increases the addressable market for us.
Next one is industrial heating. We define it as the high added value part of the Kanthal business, where it's elements, modules for industrial heating. The sort of general trend, gas to electric, move away from gas-fueled furnaces to electric furnace plays well in Kanthal's hands, of course. We also see another development which will sort of increase the addressable market. We see that sort of high power industries like steel, petrochem, cement, are also starting to move in this direction, and that will open up much more addressable market for us. Let's move to medical. Medical, a strong market growth, and this is looking forward five years, if we look back, it has been as strong. We have grown faster than that.
We have been then basically taking market shares, and that is what we intend to continue to do. We have a good position, I think, in all three divisions, but the strongest one is in Kanthal with the medical wire. That is applications. I mean, you see the woman there. She, what she has on her belly and on arm is a Dexcom, where you measure the glucose content in the blood and, this is an insulin pump. That's one of the star products in, where we produce wire for that application. Applications like that, growing fast. We have grown in a very good way. We also made an acquisition, last autumn where we, sort of improved our market position in Europe.
We made an acquisition in Switzerland. Last one, and it's the smallest one from sort of sales today, but it's the largest one from how we assume growth going forward. That is hydrogen and renewable energy. It's a small part of the business today. I would say just below 1%. We estimate it to grow at a pace of 25%. Here I think we have both already defined ready-to-sell products. We have, I mean, you're gonna see the Surface Technology line today. It's fully industrialized. It's sort of the growth will come with that market maturing and growing. Other parts is where we spend time on developing new materials, also looking at new business opportunities.
I think in the renewable area, I mean, if I want to go back two years, we didn't see so much potential as we do today, where, I mean, especially the tube division has studied the value chain of a number of energy sources and found much more potential than we thought before. I think we are in good shape and good opportunities to have this as a growth engine for Alleima. Of course, I cannot be standing here talking about growth without mentioning oil and gas. We're coming from a tough situation. In April 2020, when the pandemic really hit the world, global oil consumption went down by roughly 30% since oil is so dependent on the transport sector. We managed.
We had a very good backlog, so we managed 2020 with still good revenue, but the order intake sort of disappeared. Starting 2021, I mean, the backlog was almost empty, and the business was at a low level. The revenue from this segment, 2021, was record low. It was less than half of the lowest year in the oil price crisis, 2015, 2016. But now it's recovering. Maybe we haven't seen the large, huge projects yet, but it's recovering. I would expect if I look at umbilical business, I think we would be pacing end of the year, maybe 80%-90% of where we were before the drop. If we look in the long term, I mean, some people think that this will sort of disappear. I don't think so.
I think it's fair to believe that long term, oil will have a decline since oil is so dependent on the transport sector, and with electrification, the need of combustion engines will go down. That will have an impact on oil long term. Gas, on the other hand. When you look at oil and gas long term, you need to look at oil and gas because they're totally different market dynamics. Gas is mainly used for heating, but also for electricity production. The world would need more electricity, so I strongly believe that gas will have a much better future than oil and will most probably continue to grow. Gas, we can also look at gas as a sort of bridge fuel towards renewable, but moving away from even worse fuels like coal.
I think many of us has been in cities like Beijing or New Delhi. It's not only from the CO2 perspective, it's also from air pollution point of view that you want to move from coal to gas. We're investing and focusing a lot on the renewable and hydrogen business, but we will, at the same time, defend our market shares and our position in oil and gas. Second pillar in the strategy is materials innovation and technology leadership. Already mentioned two important things. One is to be best in class, developing new materials. In parallel, close cooperation with customers, finding products to develop and innovate their applications for their processes. I think that both of them is the strength of us.
I mean, we have, looking at our steel plant, maybe not every, but well, I think we have over 900 active recipes. We basically, I think that is pretty unique. In the same metallurgy, we are running carbon steel, which we use for the rock tools business, ferritic steel mainly for the Strip, normal austenitic and duplex, and also special alloys in the same metallurgy. I think that is pretty unique. We have about 850 patents. 230 people are working in R&D in Alleima, and we invest about 1.5% of our turnover in R&D. The strategy is based on three parts. One is focusing products on sort of growth industries, new things. One example here is Megawatt Heater.
It's a huge gas heater developed by Kanthal for completely new power. Second one, defending core. This is very often sort of next generation products. So you can see an example here on FreeFlex. That's a next generation compressor valve steel from Strip, improving energy efficiency one step further now. The last one is to widen the materials portfolio. So what you can see is the Tube is a Sanicro 35. It's the newest or latest innovation where we have a material that sort of closes the gap between stainless and high nickel alloys with a very high performance, but at a lower nickel content, meaning lower cost for the customer. So moving over to operation commercial excellence, I think we've done a good job.
We've been focusing to optimize our footprint, both from a market perspective, where we want to sort of be close, both with our sales and our production close to customers. We also closed a number of units to increase efficiency. I mean, you're sitting in one of the examples here. Of course, this has improved our efficiency. I mentioned before, improved price management and product mix. What I described, you need to be sort of on your toes, understand what you have in your order backlog. What order should I take, not take to optimize this? Also drive price management. If you are the market leader, you should be the price leader.
I think one thing that, I mean, looking at the quarter two report, one of the things that was, I mean, the market situation order intake was really good. I think what I was mostly proud of was how this Alleima organization had managed to increase prices to offset the pretty high inflationary pressure. Also better control of our net working capital, more transparent, looking at supply lines, max stock levels. This is how much we can have. If we have too much, reduce your flows. Improving. I think all of this has led into that we were enabled to mitigate the pandemic downturn in a way that I think many did not expect from us. I will come back to that soon. We also worked with our portfolio.
During last years, we have divested both welding wire, stainless wire. We divested our share in 50% share in Fagersta Stainless. We made five acquisitions, two within the area of industrial heating, one in medical, one in aerospace, and the last one, the Gerling acquisition, was a German engineering company that would give us more added value in the hydrogen business. Coming into the pandemic, it took some while because we didn't see much. I think late quarter one or early quarter two, 2020, we started to understand this will be bad. We set up our own scenarios. Let's guess that we will drop this much in order and take in this quarter and that much in the next.
Then we prepared actions and we run the actions before we saw exactly where we're heading. Of course, we adjusted. This time, we focused cost. We did everything to take out cost. We also, of course, reduced the net working capital. We spent less on CapEx, but the majority efforts was cost. I mean, reduced, I mean, we made redundancies, we reduced the number of temp workers, et cetera. I think all in all, we reduced FTEs were roughly 1,000 people. What we didn't do that I think we've done before was filling the mill too much. In recent downturns, we sort of have done everything to keep the production volumes. What will happen then, you force yourself to book the wrong orders at too low price. We didn't do that this time.
Because it will always turn up again. What happens when business turns up and you have done all the things to only just sort of fill the mill, what happens when it turns up again is that you have a very lousy backlog. You have a lot of bad orders in your backlog. That was not what happened this time. I'm very proud of how we did it. You can look at sort of our resilience compared to peers. I think this was a good performance from Alleima. The last pillar is sustainability. As I said before, we already have a good CO2 footprint. If you put CO2 on per revenue, big part, roughly 90% of our business is also in accordance with the EU taxonomy.
Looking at some of the graphs, I mean, circularity, we are today above 80, around 82%. 82% of the steel we produce is recycled, so only 18% is sort of a virgin material. The taxonomy in the kind of business we are, threshold is 70%, so we're really on the right side of that. We had a tough time when it come to health and safety during pandemic. People were, I mean, the managers was not there. All the things we implemented with the sort of shift meetings, et cetera, was in a way, disappeared. Now we're moving back again. Share of female managers, yeah, real improvement sort of last year, but all in all, this is something that takes too long time, and I think we need to improve.
I'll come back to that soon. We're looking at the goals. Our ambition and goal is to first we are today looking at the Scope 3, to understand Scope 3, because we also want to commit to the Science-Based Target. The decision is not taken, but I think that will come. Even if our position today is low CO2 footprint, that should be reduced by 50% until 2030, and we will continue to improve, circularity. You're gonna see the steel plant today, and it looks pretty rough. Imagine that we have how we load the furnace, what kind of scrap, what kind of material, we actually use artificial intelligence, machine learning to optimize, cost, of course, circularity, and of course, quality.
We're gonna reuse our assets, and we have started a cooperation with AllBright Foundation because we need to improve how we attract women to our industry and to our company. The majority part of the important everything is important, but I think the biggest impact we can have on the climate is through our products. We want to be seen as the industry leader in sustainability. Our sustainable product should grow more than average in our business. To sum up, I think we are already today a world leader in our industry. With this separation and the listing of Alleima, we will have a greater focus. We will have our own board, fully focused on us. We'll be easier and faster to execute on a strategy. We will be in charge of our own cash and capital allocation.
Of course, it will also mean a more fair valuation of Alleima. What has been obvious, because we worked with this for some time, how much energy and pride it has created in the organization. Energy pride is a good start when you want to develop a company. We're highly experienced management team. This is the team. We are also the ones who have been driving the improvements the last number of years. We have a very decentralized governance model, so the three divisions operate sort of on their own. Highly experienced board, their commitment to our development is very strong. To sum up, I think we have a winning platform to create shareholder value. We have a premium offering, we have solid market positions in many customer segments.
We're fully integrated, and have a strong R&D, strong metallurgy, strong sales, et cetera. I think we have multiple ways to drive growth, not least from the energy transition. Last, I mean, I think we have a solid financial and attractive situation, and I think industry-leading profitability. That is my last slide. Now I want to introduce my CFO, Olof Bengtsson, to go through the numbers a little more in detail. Thank you.
Good to see so many here today in Sandviken, and a warm welcome to you on the web as well. Yes, I am the CFO. I joined Alleima in December 2019, so I don't share the same length of experience with the company as Göran. My professional experience mainly comes from finance director and CFO positions in other listed companies. Since I joined, I spent a considerable time and effort together with my colleagues in my different teams to set up the structures, policies, and procedures to operate as a separately listed company. Now we are ready, fully ready to go. Today, my thinking is to take you on a short financial journey through Alleima to show some of the financial performance and also talk a little bit about some financial specifics in our books.
If we start with Alleima as it looked in 2021, revenues of close to SEK 14 billion, an adjusted EBIT margin of 7.6%, free operating cash flow a little bit more than SEK 1 billion, and a net debt to equity, that is a very recent number, though, post the final capitalization from Sandvik, we had a net debt to equity of very close to zero. Looking at revenues per division, Tube accounted for the most part, 69%, Kanthal 22%, and Strip 9% of revenues. If you look at geographies, Europe, if we see that as one market, 51% of our revenues, while North America 23% and Asia 21%.
We operate in, as Göran said, 90 markets, so of course, there are a few other markets accounting for approximately 4% of our revenues. That's the high-level picture. If we look at some more specific financials for the past 3.5 years, it looks like this. If we start with the order intake, coming out of a strong 2019 into the pandemic downturn that affected most of us in 2020. Of course, divisions were differently impacted by the downturn. Seeing a good rebound into 2021, which has continued into 2022. Currently we are at a 12-month rate of roughly SEK 20 billion. Revenues, not as much affected by the downturn as the order intake. We had a good and solid order backlog coming into 2020.
Coming into 2021, we didn't have the same size of order backlogs, so a more flattish development between those two years, and then a good rebound into 2022. SEK 16 billion is the rolling twelve-month rate at the moment. That corresponds to an organic growth rate of roughly 13% in the first half, and the order intake was up organically by 33%. I should also say that some segments, some customer segments are not fully back to the pre-COVID levels yet. Looking at the EBIT, this is the adjusted EBIT, where we adjust for metal price effects and items affecting comparability. Coming down to 7.6%, as Göran mentioned, we took a lot of actions in 2020 to mitigate the downturn. Swift actions, temporary work time reductions.
We even had to resort to some layoffs, and then discretionary cost savings. In spite of a loss of a lot of profitable volume, we managed to dampen the fall to 7.6%. Now again, we are in a good rebound this year. 8.7% is the rolling number, 10.4% is the half-year number. One of the things that we've been fairly successful this year, we think, is the pricing strategy. We have managed to compensate for inflation and higher energy costs in a very good way, we think, this year. Finally, cash flow. We are normally fairly cash generative.
In 2020, in the downturn, as things slow down, we managed to release quite a lot of capital from our balance sheet, inventories, accounts receivables, et cetera, but also cutting back on our CapEx, to protect the cash flow. Going into 2020 with increased activity normally means more cash consumption, and the same goes for 2022, when we also see the very high metal prices, and I will come back to that later. But also longer freight times, of course, and this of course ties up more capital. Resilience is something we are focused on quite a lot, and Göran talked about it in his operational and commercial excellence part. These two lines here show the EBIT. The orange line is the reported EBIT.
That's the EBIT including the metal price effects, and as metal prices swing, so does EBIT. The dark red line is the adjusted EBIT. I think you can see that on both lines, I would say that volatility has decreased, and we've taken a number of actions throughout the years. I'm not going to go into all those actions, but they contain divestments of non-core activities, footprint optimizations, price and mix management, and also flexible cost structures. Above all, I think one of the most important learnings that we have is swift action, to act quickly on downturns in order to be able to do all the actions you want to do in good time. I think resilience has increased.
If we start looking at the income statement, if we start with the top line, a lot of things moving in the top line, and I've tried to dissect the top line here. If we start with structure, that is normally divestments and acquisitions. Göran showed a few acquisitions that we've done over the past years. Been mainly bolt-on acquisitions, small acquisitions, so they haven't moved the top line that much. Alloys, this is a way for us to transfer the cost of the metal to the customer. An alloy surcharge, I will explain it in a few minutes, and that can of course vary quite a lot with the metal prices. Here you see the impact over these three years, up until the first half of 2022.
As you can see, metal prices have increased quite a lot, especially in 2022. That impacts our top line. It also dilutes the adjusted EBIT margin, I should say. Currency, yes, we invoice in many currencies, dollars and euros are main surplus currencies for us. This year, we have some currency tailwind, as you can see, around 5% positive currency effect on the top line. Organic then, that's so to say the true growth that we see. As you see a fair, good recovery into 2022 with a 13% growth. Overall, the top line has actually grown by 34% in the first half, but a lot of it is explained then by the alloys.
Going further down the income statement, cost of goods sold contains about half of that, raw material, that is metals for us, consumables and energy. Of course, these costs have a high degree of variability over time. If we stay a little bit on the energy costs, in relation to metals, energy costs are not that high, but they're still important, of course. We consume about 800 GWh every year of electricity, which is by far our most important source of energy. It's a hot topic nowadays, electricity costs, and what can you do to reduce the impact of electricity costs. Well, short term, if you have the possibility, you can of course temporarily shut down production to avoid the price peaks.
Over the long term, of course, you have to pass on this cost to your customers. We have introduced energy surcharges, and we have been quite successful in doing that, and we have also, of course, a hedging strategy for taking care of electricity costs. We've hedged at the moment a little bit more than 80% of our electricity costs for the remainder of this year and for the next year. And then other sources of energy are natural gas and liquid natural gas and also liquid propane. We have a hedge strategy there as well. Going further down the income statement, sales costs vary a lot with activity levels. Admin costs are more stable.
They were at a low in 2020 when we had a lot of work time reductions and so on, and they have increased from the separation and stand-up project. We are putting a lot of resources in place. R&D costs fairly stable over time in absolute numbers, of course, don't move with volume, are approximately 1.5% of our revenues. Then going down further down, so to say, going from EBIT to adjusted EBIT, the adjustments we make are mainly impairments, items affecting comparability, which relate mainly to structured projects and the separation project that we have been through. Then we have the metal price effects, and I'll come back to them soon.
Going further down from the adjusted EBIT to the adjusted EBITDA, you have to add back the depreciations and amortizations, and they are in the range of SEK 750 million-SEK 800 million. The EBITDA margin comes out somewhere around 13%. The metal price effects. I have three slides here on that, and I'll try to explain what that is about. We have metals in our production, as you know. The main metals are iron, nickel, chrome, and molybdenum. We of course use more metals than that, but those are the main metals in our basket. Nickel is, from a value perspective, the most important metal, and it's also a metal that varies quite a lot in price.
If we look at the pricing to the customers, there are mainly three main approaches to cover the cost of the metal and passing it on to the customer. One is on large project orders. Normally, the price is fixed to the customer, and thereby we hedge, and therefore, it's very important for us to hedge the metal price or the metal content in the order in order to be able to, from a metal perspective, to secure the margin on the order. There we use hedging and a fixed price. We have smaller orders with a fixed price. Normally, we don't do any hedging here, but of course, we have to make sure that the, so to say, the base price for the product covers the metal costs.
We have what we call the alloy surcharge. That is applicable to roughly 40% of our revenues. In addition to the base price, we apply an alloy surcharge, and the alloy surcharge is based on official price fixings for the metal in question on the London Metal Exchange. It's a very transparent and clear way of, so to say, putting a price on the metal. It's well known among our customers and of course, also used by our competitors. I think it's called the European model, even though it's used in other markets as well. That is the starting point, the alloy surcharge. When we come to the accounting then, the price to the customer is then based on this alloy surcharge.
It's normally in fairly simple terms, based on the official average price that is fixed in the month before the sale to the customer. So everyone, so to say, knows the price when they buy the product. While when we sell the product, of course, we have to recognize the cost for the product in our income statement, in our cost of goods sold. That cost is based on the actual purchase price for the metal. We use the FIFO principle, so the metal that first comes into our stocks is the first one to leave. As the normal is a time lag between us purchasing the metal and us pricing the metal to the customer then, it will be different, so to say, prices and costs.
That means that there will be a result and impact in our P&L on our EBIT from the metal. It can be positive, or it can be negative. If you look at the table below here on the slide, you can see that the metal price effects have been quite substantial over the years. They can vary quite a lot. Only in one out of these four periods we had a negative effect. In order to summarize the effect on our financial statements of the metal price impact, I've tried to put together this slide, and you have to assume constant volumes, mix, and lead time. In a rising market price trend, order intake and revenues are normally positively affected, higher prices, of course.
Profitability is normally positively affected as well, as we normally buy the metal for a lower price than we sell it for. That gives a positive effect. A side effect of this is that we pay tax on our reported profits. Of course, the tax bill will increase as well when you make more money. If you look at the balance sheet then, in the inventory, a higher value, as we are in inventory, as we are replacing cheaper metal with more expensive metal, we will of course over time tie up much more capital in our inventories. Same goes for accounts receivable. We will tie up more capital in our receivables. Our invoices are bigger. And also the same of course goes for the supplier invoices, the ones providing the metals. Those will also compensate partly.
Overall, normally in a rising metal price trend, we tie up more capital in our working capital, meaning that we have a negative impact on our cash flows. Conversely, in a falling metal price trend, profits are negatively impacted, but cash flows is positively impacted. That is the metal price effect. It has different effects on the profitability and different effects on the cash flow. Another feature of our business is seasonality. As we are now in the third quarter, the third quarter will be our first external reported quarter as a separate company. Be aware of the seasonality effect. The third quarter is from a volume and sales point of view, a lower quarter.
We have, of course, the vacation. We have the summer stops. We normally stop our production for maintenance, which means that we have lower absorption of costs. If you look at the average of the three last year's quarter three here, you see that we are just below 5%. There's also a cash flow seasonality. Normally, we build stocks for the summer stop. Normally the second quarter is negatively affected by, on the cash flow side, by the buildup of stocks, which are then released in the third and fourth quarter. Normally, the cash flow is much stronger towards the second half of the year.
A quick overview over our divisions, organic growth on order intake and revenues, and also the adjusted EBIT that is then adjusted for the metal price effects. Here you can see a little bit the impact from the downturn in 2020. Divisions were a little bit differently affected and also recovered at different speeds. One thing that you should note here and I would like to draw attention to is that we also have, in addition to the divisions, we have a common segment as well, which are the central costs for running Alleima. They are roughly 2% of sales and or revenue. As revenue has increased, you don't see the effect on the percentage.
If you look at the absolute numbers, we are a little bit higher on the central costs. That is very much due to the fact that we have been running this separation project. Not all of the costs from the separation projects are on the items affecting comparability line, but are taken in, so to say, the normal costs. Those are mainly the stand-up costs. We have been running dual structures this year in certain functions. Being both in the Sandvik world and in our own world. But these costs I expect to come down as soon as we have, let's say, become listed and are a separate listed company. Comparing us then to some peers, I find it always difficult to compare to peers.
There is not an identical peer out there that we can compare us to. I think if you're gonna make comparisons, you have to look at division by division. Here is a try, at least. These are mainly, I think, mainly tube competitors here, but there are some, that's one Kanthal, and I think there is also a strip competitor. Anyway, so to say, the length of the line here shows the variability of the margin. These are the EBIT margins. This is not the adjusted EBIT margins. I think we are fairly unique in presenting an adjusted EBIT margin. These are the reported EBIT margins. As you can see, variability is larger among the competitors.
Also the average margin, which is then marked by the white dot here, is higher than the competitors. At least it's a try to compare it. I think our work with volatility and all the actions that we have taken to reduce our volatility has paid off. We are less volatile than many of our competitors, and also on average have a quite decent margin. A few words about CapEx. CapEx mainly goes into machinery equipment, plant refurbishments in our core production facilities. We had a temporary CapEx reduction in 2020 and 2021. We estimate that we need about SEK 400 million per year to be able to sustain our production capacity and capability.
Now CapEx is going back up again. Among other things, we have a big project in India, where we are expanding our capacity and capability on the tube site in India. We expect going forward to be around 4%-5% of revenues on current revenue levels. So that means that of course, in addition to the maintenance CapEx, we also have some expansion CapEx plans. For this year, we think we will end up somewhere just below SEK 650 million. More CapEx at the second part of the year. Cash flow, I talked about it already. We are normally fairly cash generative. This has been a pressure on the cash flow this year from higher metal prices and also from longer freight times.
I think the takeaway on the cash flow is that when activities reduce, so to say, our activities slow down, normally cash is released from the balance sheet, so cash comes out. Metal prices also have a big impact on the cash flows, and rising metal prices normally means lower cash flow, and lower metal prices, or falling metal prices normally means a better cash flow. It's so to say, it's the change that impacts the cash flow. Once the prices have stabilized, that the cash flow is not affected per se by the metal prices any longer. It's the change, it's the rise and the fall. And then we have seasonality as well.
I think you should keep those in mind when looking at our cash flows and many impacts. A quick look at the balance sheet. A compressed balance sheet, capital employed of SEK 16.6 billion at the end of June. Some components, goodwill, not a very big item, SEK 1.4 billion. I think it actually dates back to the acquisition of Kanthal once upon a time. Property, plant, and equipment, fairly stable, just above SEK 7 billion. Then we have the working capital, SEK 6.6 billion. Obviously the item in the balance sheet, I think that probably moves the most over time.
Looking at financing, we have been capitalized by Sandvik in the spring, and we had a net debt or actually a net cash position of SEK 139 million at the end of June. If we adjust for our net pension liability, about half a billion SEK, and also some leases, we have very few leases, we own most of our properties, we end up at roughly SEK 840 million in a cash position. Equity, SEK 15.3 billion, obviously a result from the capitalization and our earnings. Overall a very good and strong balance sheet, we think. In terms of financing, we have put in place in the process here a SEK 3 billion multicurrency revolving credit facility with six of our core banks.
It's a five-year facility, possible to extend 1+1 year, and this is obviously our core backup financing. In addition to this, we will also, of course, have bilateral lines with our banks, and also put in place a Swedish commercial paper program if we need to, so to say, short-term fund ourselves at good levels. Finally then, some financial targets. We have three targets and one policy. The first target then is on the top line, organic growth, organic revenue growth, to deliver a profitable organic revenue growth in line with or above growth in targeted end markets over a business cycle. Göran talked about it. He showed, if you remember his slide, he showed a 5% growth on average for the five coming years in our core customer segments.
We are not giving a specific number here as such, but we will be selective. We are not interested in always growing all customer segments. Like in the industrial segments, we have long products. We find it more interesting maybe to grow the targeted customer segments that Göran talked about. Earnings, adjusted EBIT margin to average above 9% over a business cycle. We think that's a realistic and reachable target, and obviously based on the performance that we showed in 2021 with a 7.6% margin, we think that this is a good level to be at. Capital structure, net debt, that is then the total net debt in relation to equity to stay below 0.3x
As I've just mentioned, we have a very strong balance sheet, no debt, no net debt. Our intention is not to load the balance sheet with a lot of debt as soon as we are on the stock exchange. It gives us at least some flexibility to use our balance sheet should an interesting opportunity occur. Finally on the dividend, our intention is, on average, to dividend 50% of the profit for the period. That's the profit after tax more or less. Of course, you have to take into account the impact on metal prices here, as they can impact your reported EBIT line quite a lot. Our intention is to pay a stable and rising dividend over time.
This is also in line with what Sandvik has today, I believe, 50% of the net profit. I think that is more or less all from me. I hope I have managed to enlighten you a little bit, and thanks for listening.
Thank you. Thank you, Olof. Now I would like to welcome Göran Björkman up on stage as well, so we can start our first Q&A session. To the webcast, please dial in on the conference call to ask a question and press zero one to ask a question and zero two to cancel. You can also again write questions in the field below the webcast, and we will address them live if time allows. However, we will start with questions from the audience. Do we have any question? Right there, we have Fredrik. Is it you?
Yeah.
Yeah.
Well, thank you. Yes, Fredrik Agardh from SEB. I have a question relating to your margin target and the outlook. You're targeting 9% recurring adjusted EBIT. Looking at the past three years, you're essentially already there. If you push through a mix shift from contribution products, which I would assume is 20%-25% of your volumes to more high-value-added products, could you quantify what the potential margin pickup in that would be and the top line potential there are hopes in terms of value-added products?
Thanks for that question. I mean, it's true that the contribution business is at the size that you say. It's true that that is sort of very low margin, I think around zero, but of course, giving contribution. The 9%, I mean, we are right now in an upgoing trend. From that perspective, you could have views on the 9%. If you look at our track record back, we have never been 9% over a business cycle. Part of what I've shown, part of the way to drive Alleima is to work with the mix. But it takes. It's not very fast shifters. So it would improve, but don't think I should come to a number.
Okay, thanks.
Oh, sorry. It's an important part of the strategy, obviously.
Yeah, fully understand. Thanks. Could I have a follow-up then? If you look at the backlog, and you're not gonna give me a gross margin number on the backlog, I guess. It has been a quite steep increase recently. It's mostly in the two businesses where I guess you have most of the contribution products. Is the backlog filled with contribution products or is it filled with higher margin products? How should we look at that once that filters through to revenues in the next year or two?
I think we have a solid backlog. It's high. We don't disclose the size of it. If I compare the backlog, I'm gonna give you a long answer, so I don't answer your question. You follow that. If I look at the backlog prior to the downturn, on average, it was more oil and gas in that backlog than it is today. What we have seen is that both Kanthal and Strip that are sort of normal have much shorter lead times from taking orders to revenue has also increased their backlogs. So there's more on average of the total business than it was some years ago. I would say it's not filled with commodity business. I think we have a healthy backlog.
If business, for some reason, macro would go down, I think one of the strengths we have is a very solid backlog at the moment.
Right there.
Hi, Markus Almerud at Erik Penser Bank . To continue a little bit on the margin question. Looking at the average adjusted EBIT margin trend over time, it seems you've not actually increased the lower end of the adjusted margin trend looking back to 2012, 2013, 2014, whereas the reported margin has gone up, the lows are higher than they were before. I guess it has to do with the contribution from metal prices. How does that have to do with the umbilical tubing being lower, and how would you expect for that margin trend to change once oil and gas actually comes back?
I think, I mean, the oil and gas business is normally a fairly good business. It's that you should see. I think you should see it come back. I would refrain from giving any specific numbers on the margin itself. There, I think there is potential.
I mean, I would not give you the number, but I could give some more flesh on the bone still. I think 2021 was at a level for oil and gas business that we never ever thought about when we made worst case continuous scenarios, was really low. It was, as I said, I think I said it before, less than half of the lowest volume we had in the oil and gas.
Downturn in 2015, 2016. Really bad. Now it's coming up. As I said, we are pacing, I don't know, maybe 80%-90% of a top year end of this year. Of course, that will improve our margins.
That's the pace, so to say.
That is the pace. It's pretty long contracts.
Thank you. My second question is on M&A, and maybe we'll come back to that, but you haven't spoken much about the M&A strategy, if you have an outspoken strategy on the M&A.
I think if you look at our growth targets, the majority of them will come from organic growth. Sort of that is still the nature of our business. We have made five acquisitions in the last five years, and before that, I think it was a 10-year period where SMT did not do any acquisitions. We will continue to have a M&A strategy. I don't think that the pace should go down. The M&A strategy is to make sort of selective acquisitions within the segments where we want to grow. I think that has been the case the last number of years as well, because what you see we've done one in hydrogen, two in industrial heating, one in medical, and one in aerospace. I think you could expect sort of the same kind of acquisitions, and I foresee not at a lower pace.
If you look at the financial targets, you could calculate backwards, and there is a room for making acquisitions, at least on the pace we've done before.
Right here.
Hello. Hi, Gustaf Schwerin, Handelsbanken. I have two questions related to your capacity. If we start with the rolling lines and the finishing lines, what kind of utilization levels are we running at? With the backlog that you have now, would you see this as any kind of bottleneck over the next years as you're ramping up? I'll start with that.
I mean, we don't disclose capacity utilization. Not that I couldn't tell you, but I don't want my competitors to know their capacity utilization. If you look at sort of where we have the bottlenecks, I mean, I think the pacemaker, if I put it that way, that is hard working. But the largest capacity potential we have is within the contribution business, where we could reduce that a little bit and take a more high premium product, and that's sort of always ongoing. Looking at the numbers in our internal targets, we assume to have a negative growth in tonnage in big part of the contribution business, and that is a way to release more capacity.
Yeah, okay. 'Cause the second part to that, at least my own assumptions, if you look at the melting side, if, say, the volumes grow 3%-4% over the next decade, then you'd be running pretty much flat out. The solution then is you take out contribution volumes rather than having someone else do the melting for you. Or how should you view that? Is there any point where we actually see you guys adding more melting capacity within the foreseeable future?
Not in the big steel plant. We have a remelting capacity where we re-melt some of the high nickel and superalloys. There I can see us increase capacity, but that's sort of still low CapEx. In the big plant, I don't see us increasing capacity. I think you answered your question in a way yourself.
We have a question here.
Thank you very much. So on energy costs, just so I understood you correctly, have you hedged that at SEK 400 million? Is that the running cost base? On the energy surcharges that you're about to implement, does that effectively mean that you will have a positive impact from rising energy prices in the second half in 2023?
If you answer the first part, can I answer the second part?
No, we are at SEK 400 million+ . We are a little bit above that with the current levels of when, as they have started to say, hedges rolling. It's not far away.
It was more risk mitigation not to end up in a really poor situation during the winter.
We hedged, we initiated hedging fairly early on.
To your second question, I mean, if I look at the three divisions, I think all three of them has made sort of really good job when it comes to mitigate inflation. They've done it a little bit separately. It's Tube that has implemented clear and transparent energy charge surcharges. Kanthal has, of course, used the higher energy cost to improve the prices, but they have done it on base prices. In the energy surcharges models that Tube has implemented is both electricity, LPG and LNG, and you have to correct me, Mick, if there is something more. But it's a transparent model. We don't see ourself sort of being clever and hedging it and have them pay for it. It's transparent price.
Maybe a follow-up on that, but you showed a slide where you showed the, let's say, greenhouse gas intensity compared to peers. Would you say that it's a fair assumption that this also, you know, is reflective for the energy intensity so that, you know, you maybe even get a competitive advantage, cost advantage to other producers?
I think it's part of it. It's not that straightforward. If you look at our energy part, I think we—I mean, we consume the most electric energy in Sweden, where we have the smelters. Sweden is a good country if you want to buy fossil-free energy. Pricing is going up, as everyone knows. It's a good place to be in Sweden. Some of the customers, I guess, have more sort of fossil-free in their scope too. I think this is an area where benchmarking needs to improve. All these numbers, when we look at the competitors, are not that transparent. I guess they think we're not to be transparent as well then. Overall, the lower you are, that's also an evidence of energy prices, of course, or energy costs.
Just a final one, maybe you touched upon it, but in the umbilicals business, you said 80%-90% of a good year by year-end.
The pace.
The pace.
Not the average for the year, but the pace.
The pace. Would you be able to give us the figure where you stand as of Q2?
I think Q2 this year, first two quarters, we invoiced roughly this, as much as we did the full last year.
That's correct.
Okay, super. Thank you.
Now we have the data. Now we can connect them.
I have to look in the sheet.
Super. We have one question from the webcast here, and it comes from Magnus Kruber at UBS. In terms of, if we stay with the electricity and gas.
Yeah
for a while, what was the split in COGS between electricity and gas for 2021 approximately? A follow-up, how large a portion of these costs are incurred in Europe?
Okay. I mean, if you look at the cost of energy, 70% is electricity. I believe around 60%-70% is liquid natural gas, and the rest is propane, 13% then, of the energy costs. Sorry, what was the follow-up?
The split geographically.
In Europe.
The split geographically.
Mm-hmm.
I think that if you look at electricity, I mean, we consume 800 GWh. 600 GWh is consumed in Sweden, and 150 GWh of natural gas as well, and most of the propane is consumed here. There is, in general, very little natural gas outside of Sweden. Most of that comes from China, India, U.S. Is that a good enough answer?
I think so, yes. Any further questions from the audience? No. We have two more minutes, so perhaps an easygoing question, here from the webcast. Where does the name Alleima come from? What does it mean?
Alleima means alle, that's alloy, and ma is material, so it's alloyed material. I think that is exactly what we been doing for a long time.
Super. No further questions from the audience, then I think we can.
Just one more. There's one here.
Oh, good.
Yeah, just a quick one. On R&D, you spend about 1.5%, if I remember correctly, on R&D. How has that changed? If you look further back before 2019, how much did you spend then, and what are your plans for R&D? Is this a level we should expect, or do you expect to ramp it up?
First of all, you should be careful on only using the percentage. I mean, right now, revenue go up due to metal prices, and we don't recruit more engineers due to metal prices. Historically, I need to come back. I don't see us. I mean, I think we have what we need to stay in the position that we want to be, so I don't see us expanding that a lot. I think at least the last 3-4 years, that it has been at that level.
Uh-
One more thing on that. When, I mean, when you start to benchmark R&D costs, that is not always that scientific. I think some companies, they include quality organization. We don't do that. We have process engineers that work with improvements in the production. They are in the COGS. They are not in the R&D as well. There's sort of more pure R&D that we talked about.
Super. We have time for one quick question from the webcast. It says, "Outlook for Alleima's CapEx to sales ratio of 4%-5% appears a bit lower than historical levels for the last 10-15 years. What's keeping the ratio structurally lower levels into future years?
I think we're, if I use the word, prudent with our CapEx. We are more making sure that the CapEx really is profitable, so to say. Of course, we have the maintenance CapEx and the growth CapEx, but we will of course be very careful with where we put our money. I would say that's. I would think that would be the main reason without having the history, so to say. That's what I think.
All right. Super. Thank you, Olof and Göran.
Thank you.
Thank you.
Thank you for all your questions. Now it's time for a lunch break. See you at the webcast again at quarter to one CET. Hello and welcome back. We are now ready to hear our divisional presidents talk about their divisions. First up is Michael Andersson, President of Tube.
Hello, I hope you have had a good lunch. I have been working for this company for 20 years in numerous leadership positions, mostly within the Tube division, but also for group functions at SMT previously and for the Strip division. Since 2014, I have been leading the Tube division within Alleima. Today, I have the opportunity to speak to you a little bit more about our division and our position as the world leader when it comes to production of tubes, pipes, and other alloys and stainless steels. The Tube division offers a wide portfolio of seamless tubes, long products to interesting segments like industrial segment, oil and gas, and other related energy segments, chemical, petrochemical, automotive, and aerospace. We operate in a very narrow niche, a very specialized space. It's a super small piece of the total stainless steel market.
We focus on the most critical applications for the niche end users in those segments. We obtain a premium from the market we serve, thanks to contributing to efficiency and reliability in industrial processes through the world-leading metallurgy and manufacturing technology. In numbers from 2021, we had a top line of SEK 9.5 billion at an adjusted EBIT margin of 7.4%. Our sales distribution, you see it at the bottom of the slide, that shows a strong European home market, but also with a clear growth agenda, both for North America and for Asia, with ongoing capacity investments in both India and United States. I think I was a bit quick there. Aside our quality and closeness to end users, one strength versus our competitors is our global reach and presence.
Over the last five years, we have optimized our regional footprint with the intention to create robustness, both for resilience to the increased amount of trade barriers, but also to drive cost efficiency. This exercise has really provided us with top-class cost positions for the different regional markets. As well, it has helped us to develop capabilities for regional and local product adaptation to end users' needs, which varies in the different regions. We estimate ourselves to hold an 11% market share on our serviceable addressable market. By that, we are the leading actor in our market, followed by main competitors such as Nippon Steel, Japanese company, Tubacex, Spanish company, and Jiuli, Chinese company. A historical glance at our financials reveals a near past of recovery from the pandemic.
If we take a look at the years step by step here, 2020, we saw a decline in both order intake and revenue from the COVID breakout. However, this is important when it comes to understanding the Tube division, with approximately 60% of our business being larger and longer term CapEx-driven projects, many projects from the pre-COVID time were still in our backlog when the pandemic hit. That partly protected us, especially from a top-line point of view and an EBIT margin point of view in that year, and that is easily seen on the picture. This is an important characteristic of our business.
One, in this case, you need to understand the dynamic, the time lag between order intake and top-line realization for the Tube division. In 2021, however, the effects from the pandemic shock the year before started to result in significantly lower top line and production volumes. We found ourselves, and Göran has already mentioned this, running the tube business on record low levels of high margin business from the oil and gas segment. However, and this has also already been covered by Olof, I believe, we took very swift, prompt, and strong actions to mitigate, to handle that situation, and the resilience to our profit margins could be achieved and was very clear. This is a major step of improvement for the Tube division.
We do not thank the pandemic, but at least it gave us a good chance to exercise in a very sharp situation, and I think we proved to succeed with that. In the end of 2020, we also saw some of our key segments coming back again, recovering. If you take a look at the 2022 half year so far, this rebound has continued, and it has also materialized for the important oil and gas segment, and not the least also for the aerospace segment, which is important for the Tube division. That in combination with sharp increases in raw material prices, has led to first half with record high order intake, upturning top line, and a recovered margin development. You have already heard Göran speaking about the 10 important segments of Alleima. I will speak about five, the top ones of that 10 for a tube perspective.
These represent approximately 90% of our business. We start with the industrial segment, the biggest, the broadest, and the most general one. Products we offer here are typically hollow bars and billets. From that you hear they are the least refined products. We have heard some comments and questions referring to commodity business, slightly lower margin business, typically to the industrial segment. These products at our customer will undergo milling, machining to become components, shafts, valve housings, and different components further on. We also have products such as high pressure tubing for water jet cutting in industrial processes. The second largest of our segments is the chemical and petrochemical segment. Some of those products are fertilizer tubing, hydraulic and instrumentation tubing for high temperature applications.
These are all highly specialized products used in critical production processes such as urea production, ethylene cracking, steam cracking. You might have heard about that. PTA production, which is, I would say, the largest commodity used for production of different plastics, as well as sophisticated control and measurement systems for all those industries. The third largest segment for Tube is the oil and gas segment. Our three main products in this segment are umbilical tubing, control lines, corrosion-resistant production tubing, sometimes also referred to as OCTG tubing, oil country tubular goods. The applications for those products are, for example, the high integrity hydraulic systems for subsea infrastructure control, but also downhole production and casing tubes to extract the hydrocarbons, the oil or the gas from the well up to the surface or to the bottom of the sea, for that sake.
Our fourth largest segment is mining and construction. The main product here is not a traditional stainless tube, but a hot-rolled rock drill steel for mechanical or handheld top hammer drilling. We hold a leading position in the world as the main supplier to the largest actor in the industry. Last but not least, our fifth segment is the nuclear power generation segment. Today, we offer three product categories into this segment: cladding tubes, steam generator tubes, and nuclear tube and pipe. These products goes to applications such as fuel and control rod support in the nuclear reactor, as well as the primary circuit heat exchanging for steam production to the turbines in a nuclear power plant. In the previous picture, I shared the top five segments for Tube.
Let us now focus on where we will concentrate our efforts, our sales, our R&D, and our technology development going forward. Internally, we call these five areas the Tube growth pillars. They are the areas where we foresee the main growth to come for the next coming five years from a Tube perspective. I will briefly present them, and then I will make a small deep dive, like an example, on a few of them. We start with the first one, sustainable energy. This is a promising challenge. We have heard a bit about it already. It's happening now. We are well-positioned to become the leader for this industry when it comes to high-integrity fluid solutions. We see double-digit growth rates, and our ambition is, of course, to capture a significant portion of that growth. To back this up, we have established a global cross-functional renewable segment initiative.
We address six specific key technologies that are relevant for our capabilities, for our business. In these six technologies, we will exploit growth. We also look at nuclear and nuclear power as an important component in the future fossil-free regime. Our successful history and our very, very strong position when it comes to nuclear power is also a part, and because of that, we include the expansion of nuclear power as a vital part when we speak about sustainable energy initiatives. We have medical. This is a small business for Tube today. It's a very small business, so one could wonder, why is that a growth pillar? We believe, just supported by the megatrends, a growing and aging world population will fuel this market to high growth, and our ambition is to grow by new product development and focused sales initiatives.
Medical is also one of the segments where we actively search to expand our addressable market through M&A. Aerospace. Aerospace has taken some really big hits during the pandemic, but we see a steady bounce now. Our long-term work, which has been going on for quite some while, with production footprint and also with product development, has established us now as what we believe is a customer first choice position when it comes both to titanium, where we already today has the number one position in the world, but as well for stainless steel tubes. Chemical and petrochemical, what about that? Our largest opportunity, I would say. We already now have a very strong position in this market with our application tubing offer, but also with our long product offer, bars.
All the things we have prepared and worked on the last five years when it comes to footprint optimization, that together with the addition of high nickel alloys, which are necessary for the most demanding applications in that segment, that has really helped us. The regionalization of the footprint has also followed by a regionalization of the market strategy. In all, this has given us great opportunities in a big and growing market. The greatest growth bet for Tube. Oil and gas. What about oil and gas? It might stick out for some of you, not all, that oil and gas, after all, isn't it a bit old-fashioned? Isn't it actually even something you should start to kind of leave? We think totally different.
In reality, this is an energy source that you and I are totally dependent on, as the rest of the world, for many years to come. Eventually, we all hope, I support, believe, that the world will find green solutions, alternatives to fossil energy. Until then, we are committed to stay in the leading position, serving our customers in this very important segment, just by the sheer size of the oil and gas business. Personally, I look at this as a main asset in the transition for us to a new energy regime where we are a main supplier to renewable technologies. Now let me share some of the work going into these growth pillars, both new innovations and new insights about current markets. We are truly a broad player, and we have segments with many opportunities. Let me start with renewable energy and hydrogen.
We are well-positioned, I've already said, to become a leader in this industry, especially when it comes to high-integrity fluid solutions. One example is our work on hydrogen. Hydrogen itself, but you know, is not really an energy source, is it? It's a great candidate, a promising candidate, to become the bridge between renewable energy sources and practical use as a form to carry energy and to store energy. Tube Division recently developed a tailored system for installation of hydrogen refueling stations. With the forecasted exponential growth of hydrogen vehicles, the installation of new hydrogen refueling stations is believed to follow the same pattern. In close cooperation with main market actors, we have developed a mobile tube supply system where the installation at site, imagine you're going to install a refueling station in the corner in a city center.
Having this support system that we have developed that can really gain improvements for the installer in cost efficiency, in safety, in logistics and sustainability. It all fits into one container, just like the one you saw at the entrance here. It's actually one of them. The concept includes both the sales, the product sales of high pressure tubes. It's also contains a service component of the customer, the installation company renting the system. It has shown great success in Europe, and we recently acquired the German engineering company Gerling to enable scale-up and logistics support for this growing business. The mobile tube production concept that is not the only work stream we are focusing on when it comes to hydrogen.
We concurrently work with other innovative solutions, providing advantages for hydrogen applications, such as specialized heat exchangers, but also tailored alloys, materials that are suitable for hydrogen exposure. Also here, we work very close together with market leaders in the different industries, in the development process and in the verification process. On the right-hand side of this slide, I cover some of all the other parts included in our renewable initiative. I mentioned six key technologies. I will not dwell into them, but later on today, you will hear from one of my colleagues, Mr. Phil Sheedy. He's responsible for strategy and business development at the Tube division. He will talk more about it. But there's a wide range of applicable technologies where we see opportunities for growth for the Tube division. I will finish off this growth pillar with maybe not such an obvious case.
To finish off, solar power photovoltaic, solar panels. That might not tick for you as an applicable focus for a tube producer. There are quite limited amounts of tubes in a solar panel. Mapping, which we have done for all these technologies, in detail mapping the full supply chain, that has shown we are well established into that supply chain and revenue stream as well. Solar panels are produced by ultra-purified polysilicon. In the chemical purification process, high-performing specialty tubes are needed. We have an established business in Asia for this application, and we foresee that this business will continue to grow as solar power through photovoltaic continue to expand. Let me move on to this growth pillar, chemical and petrochemical. I want to tell you a bit about our successful strategy in APAC region. Göran touched upon that.
The importance of a successful APAC strategy when it comes to heat exchangers is quite obvious. The APAC region represents 70% of the global heat exchanger market for the chemical and petrochemical industry. You need to succeed in APAC, right? We have had a good development in this segment over the last five years, and we continue our expansion of both product offer and capacity going forward. The direction is maybe easiest explained by just three activities. First, we direct investment spend in steps to expand capacity in India, in our Indian facility, both from a capability and a capacity point of view. When time allow, we're looking at China as well. Today, it's rather a monitoring considering the geopolitical situation. Secondly, we work intensively with marketing and positioning towards new applications in the chemical and petrochemical segment.
This require in-depth know-how, not only about our materials, but of course about the processes as well. That's why we put a lot of effort into technical marketing. Third and lastly, we expand our product portfolio with new materials that expands our addressable market. The most important being development of high nickel materials, as well as super austenites. You heard about the Sanicro 35 launch quite recently, for example. On the right-hand side here on this slide, I'll try to visualize just the portfolio expansion over the years with new alloys. I also want to give a good example of what such expansion could lead to. Material expertise and local technical marketing, I'm coming back to local technical marketing, is our way of selling new products for these niche segments.
This is one of numerous examples of how we grow our chemical segment, thanks to new products as well as new capabilities. C276, it's a super alloy, and it was added to the Alleima portfolio just a year ago. In this example, we showcase an award for an application in a biodiesel refinery. This is also learning how business is covered. Development capability, technical knowledge, addressing to the end user and the fabricator. Project is won in India. Production goes to India, end customer in U.S., producing biodiesel. That's a typical situation what could happen. It's all a result of intensive development work and efforts put into new products. Our oil and gas, this is about maintaining leadership. It's a highly profitable segment where we have two strategically important products, the OCTG products, the oil country tubular goods, and the well-known umbilical tubing.
As I said, I look at this business also as a way to take part in the transition into renewable energy solutions. We will expand our capacity for OCTG products, and together with new development, we see that that will also be a bridge to a few of the renewable technologies as well as the supporting technologies for a sustainable world. By that, I mean carbon capture and storage, and I think of geothermal energy. For the umbilical tubing, we are now developing the next generation of materials. This next generation is lighter or rather stronger, and it will meet even the highest demands in the subsea markets. The next generation of umbilical is truly a result of close cooperation with our customers, and that will continue to be the way we keep the market leadership and how we strengthen the market position.
The last example from our growth pillars is nuclear. We see nuclear power as one important component in the future fossil-free energy system. Here we're already now ready to leverage on a quite likely nuclear renaissance. We are one of the world's largest suppliers of steam generator tubing, and we are the only independent supplier of cladding tubes for fuel rods. Now we foresee an exciting future with new product developments and next generation accident-tolerant fuels, as well as steam generator tubing for the new generations of reactor technologies, fourth generation and small modular reactors. Here in Sandviken, actually just next to our building, the building we're sitting in now, we are ready to expand our steam generator tubing business. In a three-phased expansion, we have the potential to double the current capacity. Let me try to summarize the T ube division.
First, the Alleima Tube division, we are a niche market player with highly specialized portfolio. We are a market leader in our key segments, industrial, chemical and petrochemical, oil and gas, mining and construction, and nuclear power. We have in the recent past proven our margin resilience, also in the swings we have seen in the oil and gas segment. We have a growth agenda focusing on five distinct areas where we will develop, where we have also very well-developed execution strategy. Last, we are very well-positioned for the ongoing transformation of the global energy system. Thank you very much for paying attention, and I will now introduce the next speaker, and that is the President of the Kanthal division, Anders Björklund. Welcome up.
Okay, now we're going to talk about Kanthal, a world leading provider for heating materials and heating systems to the industry. We are also the world leader actually in ultra-fine wire production for the medical applications. Personally, I've been working for Kanthal for two and a half years. I've been with SMT or Alleima for four years, and I have a history within Sandvik of ten-plus years in total. Looking on Kanthal in brief, as I said, we are a world leading brand for electrical heating. We also provide services in the area of the electrical heating, and we are very strong in the medical segment. We are divided into three different business units, depending on both the market or the customers, but also on the production, how it looks like, so to speak.
If you start with the business unit heating materials, that is the origin of Kanthal. That is where Hans von Kantzow started Kanthal 91 years ago, in Hallstahammar, making resistant materials for, like Göran said, toasters, hairdryers, and so on. Today, we are in a completely different scope of settings, but I will come back to that later. If we look on heating materials, 30% of the volume production is actually sold internally to the next business unit, which is business unit heating systems, which takes the material, refine it, put it into modules, put in other control systems, etc., and make solutions for furnace industry or other industrial customers. The last business unit is the medical fine wire production. Here we do extremely fine wires and even components to the medical industry.
If we look at the size of these three business units, heating systems and heating materials are approximately the same size. Looking at medical, it's a little bit smaller, but it is a highly profitable business. 2021, we ended up at SEK 3 billion approximately in turnover with a margin of 14.8%. We are a little bit more than 1,000 employees globally. If you look at how we sell our products, you can see that we're quite evenly spread over the regions, Europe, North America, and Asia. If we drill down and look at the different business unit, the picture is a little bit different. For the heating materials business, North America and Europe are the home markets. For heating systems, it's actually Europe and Asia.
For the medical business, that is primarily today the North American market. Göran told you earlier today that we did an acquisition in October last year, the Accuratech Group with head office in Switzerland. Now we have a good and solid footprint for the medical business also in Europe, and that is something that we will continue to build from going forward. Looking on our locations, our head office and origin is Hallstahammar, which is 120 km west of Stockholm. In Hallstahammar, we have a full value chain. We have everything from melting to actually a ready heating system. This is actually very unique in the industry. No one of our competitors in the heating industry has a full value chain.
The strength of having the value chain is actually that we have control over the quality because this is an area where quality matters really, really much. This is a real strength for us to have the full value chain. We also in Hallstahammar have an extensive R&D department focusing on both having labs for testing, having research, but also having application knowledge and application development present close to our production facilities. The prime location for the medical business is not Hallstahammar, it is actually Palm Coast in Florida, a very nice place, I can tell you. There we have both R&D for the medical business, but we also have the full supply chain for wire drawing and some component manufacturing. That is the prime location for the medical business.
We have a market share of 18% in how we have defined the market. We are the number one leader in the industrial heating area, and in the medical area, we are number two. Looking at the historical performance, 2020 to 2019 or 2019 to 2020, we had of course a drop due to the pandemic. It was primarily in the heating area and the consumer segment. It was compensated a bit due to positive development within the medical area. But we still managed quite well to keep up the profit margin because we had a very strong focus on productivity improvements. If we compare 2020 to 2021, we had a very strong order intake and invoicing in all areas, actually.
We improved the margins even further, primarily driven by volume, of course, but also by price and mix management because we have a portfolio with really nice areas of profitability, which we need to maneuver in. Of course, we continue the journey with the productivity improvements. Looking at 2022 now compared to last year, we are pretty much on the same level, but we are also investing into the future now for future growth, which I will come back to in a minute. Looking at the segments, we have 10 within Alleima, and I'm going to talk about three. We have the industrial heating, which for Kanthal is around 60%. Both heating materials and heating systems are present in that area, but it is primarily heating system working in this area.
We go to market under the brand name of Kanthal, a very well-recognized brand in the industry, that pretty much due to that we actually invented the industry 91 years ago. Example of products you can see here, it's metallic elements and modules. We take the elements from the heating materials, and we build it into different kind of modules. It's not only metallics that we're working with. We also have production capabilities and capacities for ceramics. If we would like to go to higher temperatures, we go into the ceramic area. Then you have the heating tubes and the Tubothals, which you can see actually out here in the showroom, just before you enter in here. A Tubothal is a very efficient way of actually running your operations in terms of electrical heating.
Applications for our products within the heating systems area could be heat treatment furnaces in the steel industry. It could be glass industry, both window glasses, but also these Gorilla Glass that you have on your smartphones or tablets. It could be melting furnaces. It could be continuous furnaces like in the automotive industry when you're going to dry paint in the painting line. There, you can use our products. Our second biggest segment is the consumer segment. Primarily it is heating materials that is present in this area. We go to market under the brand name of Kanthal. Prime product here is wire and strip products. Example of products here could be appliance wire for home appliances like tumble dryers and things like that.
Our last segment is the medical segment, and here we actually go on to the market under the brand name Exera. This isn't an Alleima brand, but we are using that in our go-to-market model. We produce ultra-fine wires. What is an ultra-fine wire? It is actually wires which has a diameter from 0.01 mm up to 10 mm. If you look on your hair, a hair is around 0.02 mm, so it is extremely thin wires that we're producing. We can also do components. We can coat the wires. We can coat with plastics like PTFE, or we can coat with gold, platinum, or silver, depending on what the customer wants. We are also making micro tubes used for medical applications.
Example of product areas or applications that our products go into is, or could be cochlear devices for hearing, it could be continuous glucose monitoring for people with diabetes, it could be different kinds of heart failure devices, pacemaker leads. There is a big variety of different application areas for our products. I should also say that our customers in the medical area is primarily to the OEMs, so we never go to the end customers. We go to OEMs or sometimes to the tier one to the OEMs. If we dig a little bit deeper into the electrical heating and talk a little bit about future potentials for us, this graph is the global CO2 emissions from energy combustion and industrial processes.
As you can see, 2021 was actually the highest year ever since the Industrial Revolution of emitting CO2, 36.1 gigaton. There are a lot of different pledges and commitments from institutes, countries, companies and so on to reduce the CO2 emissions. If you look on an industrial footprint, one of the biggest contributor is actually industrial heating today. Because 75% of all industrial heating in the world is actually fossil fuel, and only 25% is electrical heated. This is an opportunity for us. This could be a little bit of a complex picture, but as you can see from left to right here on the bar, you have different areas of temperature ranges.
We, as Kanthal, are operating in the temperature range of, like, 400-850 degrees. Today, as you see, we are operating in lower heats. We are operating in the kilowatt area, and there we have existing good technology and products to serve the market. If the customers of us and the industries going forward are going to address what you saw in the picture before, they need to also attack the larger heats or the larger polluters in the industry. Then we need to go into what we call the megawatt area. It's a completely different range of heats. This will also open up a new opportunity for us. There is no available technology today.
We are in collaboration with several different customers in different segments, like steel and petrochemical, developing new technologies to solve this problem. This will leverage our future market quite substantially going forward. If we do a deep dive in the customer case and how we are working within Kanthal, this is an example of actually our heating systems business that was approached by a customer in the semiconductor industry. It was a wafer manufacturer. They wanted to increase their productivity, and you increase the wafer productivity by increasing the size of the wafer. There was some complications because the heating was not good in a thermodynamic way, and the elements were bending. Heating systems then turned to heating materials and R&D and our R&D department.
Together with the customer, there was a development of a new alloy, a powder-based alloy that we call Kanthal APM, which actually solved the problem for the customer. This APM alloy is now starting to become the standard, industry standard in the wafer manufacturing. This is the way how we are working together in the heating area, where heating materials are one of the enablers to actually be successful in the heating systems area. Looking at another customer case, we are supporting a lot of different metal industries in the world. I would say we are supporting all the major, like, steel suppliers in the world, or in the steel industry. Supporting these kind of industries, it's a twofold type of industry.
First, we have the project when we do the electrification of the furnaces that they want to reduce the CO2 emissions. Whereas you have actually done the electrification, this is a consumable is maybe a strong word, but there is an OpEx business afterwards. Because depending on how the customer is running their furnace, they always need to change the elements between 1 to up to 5 years on average, depending on how they run their operations. When we have done a project, then we can also get some more business in the future from the operations that they are running. As an example of a customer, Ovako, a Swedish-Japanese customer here in Sweden, wanted to reduce their CO2 and NOx emissions.
They contacted us, and they wanted us to convert 14 roller hearth furnaces. We took on the challenge, and we sold 86 Tubothal elements, the elements that you can see outside here, a little bit bigger though, to each furnace. That is a good business. This helped Ovako to actually save 28,000 tons of CO2 emissions per annum. This is how we are working together with our customers to help them perform better in terms of CO2 emissions, but also to run an electric furnace. There you have an efficiency rate or a yield of 90%. If you go to a gas-heated furnace, the yield or the efficiency rate is around 50%. You can also sit with an electric furnace in the control room and steer all the elements.
While if you have a traditional gas-heated one, then you need to have maintenance people out running, adjusting the furnace. Going into the medical area, very interesting area. We are supporting deliveries and materials to over 10 different subsegments of sensing and stimulating applications. It could be within the cardiovascular, neurovascular, or remote patient monitoring area. As I said before, our key customers is primarily the OEMs. Sometimes it is the tier one to the OEM. We are serving more than 100 different customers in this area. The life cycles are very long in this business that we have. Normally it is 10, it could even be 10+ years for a product.
The qualification times are also quite long, one to two y ears, for qualification, where we work very, very close together with the customer in improving and qualifying our solutions to them. I would say that in terms of wire forming, we have a unique position, and we have a very strong brand name, well known for quality and reliability. One of the areas that we are delivering to, and Göran showed it before on the picture, that is continuous glucose monitoring. When you have a little piece of thing on your body and you can see in your smartphone how your blood sugar is developing.
One of our customers that we have been delivering to for many years have been approved and competitive in the diabetes Type 1 area, which is, as you can see on the slide, 14% of the total market. Now, when they go for the next generation, they will be approved for Type 2 diabetes, which is a substantially larger potential for us going forward. We see a lot of opportunities in the area of medical business within Kanthal. What are we aiming for as our strategy? Heating materials is a profitable business today. It is not our growth case. It is an enabler for the other businesses. Going forward, we will continue to work with performance management and footprint optimization.
Continue to work with operational excellence that Göran has described before, and actually also work with mix and price management because we have pockets of really profitable product as well within the heating materials area. We have some more opportunities to grasp going forward. Looking at heating system, that is our growth case. This is a highly profitable area already today. Here we need to expand and grow our existing offering. We also need to grasp the opportunities that we can see in the megawatt area, in the steel, in the petrochemical, in the cement industry. We also see that here we have an area that we actually can do acquisitions for specific niches, capabilities, or covering areas where we are not present today to strengthen our customer offering.
For medical, that is also a true growth case with a very nice profitability. We need to continue to develop our component capabilities. We need to fortify and grow our forming capabilities. We also need to secure the raw material supply, but we also need to look for niche niches and capabilities and applications that we could lack if we would like to take a little bit of a step forward to become even more of a component supplier than just a wire manufacturer. Here is also an area that is relevant for new acquisitions to add to the portfolio. To summarize Kanthal, I think we have a unique product offering. I think we have a very strong position in niche markets. We have a strong customer stickiness, especially in the heating systems and the medical area.
We also have, if we should call it after-market sales or spare parts sales in the heating systems area. I believe that we have a very strong sustainability profile. We have an attractive profile from a financial perspective. We are running on good profit margins, and we see that we have a good growth potential also going forward. We can do that through adding new companies in specific niches into our portfolio. We have a very strong and well-invested R&D portfolio and an R&D organization. That was all for Kanthal. Now I will introduce the next speaker, which is the President of the Strip division, Claes Åkerblom.
Finally, it's my time to shine here then. Of course, smaller division have not had the chance really to be as visualized as we're able to be today. I'm very happy then to be able to present the Strip Division for you. We are a world leading supplier of precision strip material and coating of strip steels. Before we go into that, a little bit short about myself. I also have a long Sandvik career. It's 20 years plus, working across the Sandvik Group in many different positions, in Sweden, but also spent four years in Asia. Prior to taking on this role in 2019, I was actually the CFO of Alleima. If we then, I do my own clicking, yes.
If we then move on to the brief Strip, and you'd recognize the structure as now after the other two divisions then. We are the global market leader for highly niched material. We consist of actually the two different businesses: Surface Technology and Precision Strip. If I start with the Surface Technology, that is our ultra-modern facility, which you will get to see later on when you are out on the mill tour, where we put a functional coating upon a steel substrate. You will hear more about that also in the next session. The main part of our division is the Precision Strip part. That might also need a little bit of a definition because, of course, I know that you're very well familiar with other steel suppliers, maybe they're in the region.
To put things in perspective, I mean, we do steel coils that are maximum 400 millimeters in width. I will use actually the same parallel as Anders, even though we didn't rehearse that. Down to a thickness, which is almost half of a human hair, so around 15 micrometers. We're talking about extreme, highly niched material. Mainly supplying then into consumer segments, within white goods, shaving, as well as industrial. I will have a look at that later. Our main production facilities are based here in Sweden. Also for the Precision Strip industry part, we do have a service center strategy, which means that we cater to the local markets, being close to our customers, mainly in China, U.S., and in Japan.
2021, we landed the result at SEK 1.3 billion and around 12.7% in EBIT. We are around 508 FTEs. If you look at the revenues by geography, you can see that they are heavily influenced by Europe and Asia. If you take a sort of a next step by looking to where our customers actually operate, they are all over the globe. The main production facilities where we sell into, where our orders go to, is in Europe and Asia. This has not always been the case. This has changed over the years. Right now, this is the way it looks for the current products that we have today.
Looking at the competitive landscape, we have a market share of our defined market, which is 28%. We believe ourselves to be the number one priced global market leader. However, it is a fierce competition in our defined area segment, and main competition comes out of Japan, Hitachi Metals, and also voestalpine in Austria. They have, just as we have, the benefit of having fully integrated mills. We do have some more competitors also worth mentioning, but these are our main competitors, and they have basically the same setups with the fully integrated R&D, et cetera, like we do. They are just not as good. Historical financial performance. I think this is of course no news to any one of you, but 2020 was a year which was heavily affected by the pandemic.
You cannot really see that just by looking at the numbers because the 2021 or part of the year started out really good, and then during quarter two and quarter three, you know, it heavily dropped. But also, we saw a very quick recovery in the end of the year. The year ended quite good then, even if you look at sort of a historical performance. It did affect the revenues in 2020, but you can also see the kind of effect it had on 2021. The recovery has been incredible. The order intake was at record high levels here in 2021. The market was really favorable. What I'm also really proud to say that we were able really to capitalize on this good market situation.
We've been driving price and mix improvement during 2021, really well, which also led to the highest revenue ever in this division's history and also the highest margin that we've ever seen in this division. Quarter two, 2022 or this first half year, we continued sort of the journey on price and mix improvement. As everyone knows, we've also been heavily affected then by increased inflation and cost, which we have plans for, and we've been able to sort of to keep at the level ground. We did have even higher hopes, of course, before all of this hit us. What do we do with them?
I said before that we sort of are into extreme niches, but these are some examples then of our customer segments, and you can see that the consumer segment is by far the largest one, followed then by industrial transport. Then you have medical and hydrogen and renewable energy. Of course, the last two, these are our strategic focus areas going forward. This is where we want to put a lot of effort into to growing. I'll come back to that in our strategic direction going forward then. Now, if you look at the example products, they look fairly similar to the untrained eye here. So in every customer segment, they look very similar. But behind the scenes, we do not really have a standard product within the Strip division. Every product and every customer basically have their own specification.
That is the way that we lock in our customers. We're making sure that we know and understand really our customers and our customers' operations in order for our material to work the best. Because a competitor, when you're doing this high sort of value-added products, can, on paper, have a very similar product, but it behaves differently in the customer's operation. That's why it's so important for us and our sales and marketing guys and R&D guys when they're out to really understand the operations of our customers. Because then we can adjust our product just slightly. It could be anything from the width, the thickness, which oil we use, which oil we don't use, packaging, et cetera. This is the lock-in effect, and that's why we are a little bit unique.
That's why we've been able to keep this good customer base. A lot of these customers that we have in our customer portfolio are actually customers that existed over decades, and some actually even more than that. In order to do that, you need to be innovative. You need to come with new materials the whole time. If we look at some examples of our product, I think I will stay in the consumer part of it. I think that's where you are most familiar as well. We do deliver to all of the major brands, the high-end major brands within the razor blade industry, and of course, the electrical shaving parts as well. Knife steel is a huge sort of thing for the Strip Division, mainly because of marketing.
I think around 90%-95% of the hits that we get to the strip division internet, they're looking for Sandvik steel today. That's why it's so important for us now going forward in the new company name here, making sure that everyone understands that after the name change, Alleima steel means at least the same quality as Sandvik steel means today. Last on the example of products which I will bring up now is the compressor valve steel. This is our little jewel, and I will do a little bit of a deep dive into this and why this is so interesting. I mean, this is a product, and you saw that in the exhibition out there. It's a small application, but that also requires a lot of things.
There are extreme tolerances that is needed and extreme demands on cleanliness, and this is not something that someone can do. We are definitely the world leading supplier of compressor stainless steel. If you look at what the customers are demanding, and this is fairly simple to understand of course. This little material goes into a compressor. I think Göran described that before. Compressors are used in basically everything that's creating heat or cooling. Our main sort of focus areas is the refrigerator industry and also the AC industry. This is a product that's definitely driven by the global mega trends. Increasing population, increasing demand on new efficient solutions for energy sustainability, and all of this is of course what our customers are asking for right now.
They want us, and they do develop together with us, how do we design a compressor that increases the efficiency, that improves the lifetime reliability, and also noise reduction. It's a very important part of it, actually. Anyone that slept close to a refrigerator which has an old compressor knows probably what I'm talking about. This is what is driving the materials evolution for the Strip division into this area and segment. Actually, it's a little bit horrible to say, but the global warming is actually also helping this product in many different directions then. We launched the latest product all in our portfolio here in 2021.
We call it FreeFlex, and I hope if you have the opportunity to go by that little stand, you can actually see some of our marketing promotion material on the iPad next to the examples of the flap valves. I also brought with me an example. Over the last decade, the energy efficiency within the compressors have improved with around 18%, and that is due to improved materials, basically, and improved designs. Which then helps, of course, the mechanical properties. And the 18% energy efficiency is over 10 years corresponding to the power output from five modern nuclear plants yearly. It has a significant effect. These small things can make a big effect. What have we been doing these last years? How have we improved profitability the way that we've done?
We have focused a lot, and Göran mentioned that earlier on. I mean, we have focused on commercial and operational excellence. We have a very interesting customer base, we can grow with them. They are actually driving us towards the new future. Being close to that consumer industry is really good for a company because it puts a lot of pressure on sustainability and becoming an even better company going forward. This has helped us. Going forward, we will continue to build on the strategy execution that we had over the last years. Price and mix management, we've said for a long time that we are price and market leaders, but we have not really utilized it. We have not really understood the value of our products, and I believe we're getting better and better there.
There's still a lot to do. Ongoing improvements in productivity and quality, this is extremely important for a division like the Strip Division, because when you're doing high value add, when you buy something fairly cheap and sell it for many thousand percent more expensive in the end, of course, every kilo that you drop along the way is a loss. So there's a lot of money to gain from improving the process and the output quality in the end. Digitalization has something that we really haven't been focusing on, but over this last year, we've made significant improvements in the digitalization. Of course, that helps a lot, the commercial and operational excellence when you are able to really measure each point in the production and really understand where you have your problems and where you need to do something about it.
Existing offering or in growth there is very important. As I said, I mean, the customer base that we have and have had for a few years, they are driving growth, and they're driving growth way above the GDPs that you can see. It is really important for us to continue and protect our core business. If you are the leading manufacturer in the compressor valve industry, you want to stay there, and then you need to come up with new materials just like we're doing, and we actually have new materials lining up as well to stay ahead of the competition. R&D, very important for us. Improved environmental offering. This is what sort of a big thing for us. Of course, this, you know, stainless steel is 100% recyclable.
This is something which I think the whole steel industry will benefit from going forward. There's a lot more knowledge now in the market of what they need to do, and everyone needs new material in order to improve from where they are today. Very important for us to continue and grow with it, with the current business that we have. We're not happy there. We are trying to outgrow and find new markets. Specifically, just like the other divisions, we're focusing in on a couple of segments. Medical, I don't know if you quickly saw the segments or consumer segments that I showed before. We are present in the medical segment, so we already have a name, our material is sort of acknowledged by FDA and all of those things.
We have a possibility to grow this to a different. Of course, maybe utilizing Kanthal as a support in this, and all of Alleima. Medical is definitely something that we will grow into. We might need to develop some new materials in order to be there, and that of course needs some new capabilities. These are the focus areas that we're looking into. How do we do that, and how do we do that in a quick way? Then, another development area is of course the new hydrogen society. As I said, we'll talk more about that when we get into the Surface Technology part. Also for the Precision Strip business, that's an industry that we are looking into. How can we be relevant in that?
These are our two main focus areas, all in on top of the normal organic growth, so to say. In summary, Strip Division, we have a unique and highly specialized product portfolio, and we have customer relationships that have existed over years. These are customers that we would like to continue and keep with, and then continue to work with. Global megatrends are definitely working in our favor. Very happy to be able to say that we have a proven strategy execution over the last years with a much improved profitability. It wasn't mentioned there, but over the last five years, we have more than doubled the profitability for this division. We continue then on the journey that we are on. It's been a success so far.
We will definitely continue on that road, improving profitability and making sure that we are the market leaders and that everyone knows that. As I last said, we need to develop new offering and expand our target market, which actually means lowering our market size. That is where I would like sort of to end. Thank you very much for your attention.
Thank you, Claes. The green transition is happening as we speak. As you heard today, we are well-positioned to capture opportunities that comes with this. To tell you more about it, I would like to welcome some of my colleagues for the deep dive section. Now I'm here with a few friends. We have Göran Björkman, President and CEO. We have Eva Lindh-Ulmgren, Head of R&D at Tube. We have Phil Sheedy, Head of Strategy at Tube. We have Anders Björklund, President of Kanthal. We have Mikael Blazquez, Head of Group Strategy, and also Head of the Surface Technology business. Perhaps we can start with you, Göran. Can you share your thoughts on this topic?
Sure. Thank you, Emelie. I think we have multiple opportunities to grow in this area. In some cases, like Surface Technology, we have a full industrialized setup where it's all about ramping up. In other parts, as has been described, now been described even deeper, we're entering into close cooperation with customer, looking at the full value chain to develop new applications. In some cases, it's about inventing new materials. There are some new challenges. In the hydrogen part is hydrogen embrittlement, high temperatures, corrosion challenges, et cetera. We're gonna through now, Tube, Mikael showed it, and Phil will go through it, lot of different opportunities we're looking at the value chain, Kanthal, deep into the electrification, and Strip with the surface technology.
I have to say, I mean, this year I'm much more excited by all the opportunities we have in this area than I'm worried about sort of the future downturn in the oil industry. Eva, maybe you should start then describing what we do on sort of in the R&D area.
Absolutely. I will give some examples from our strategic research portfolio. I will start with hydrogen and the foreseen hydrogen society. We see that many nations around the world, they come up with roadmaps how to implement large scale introduction of hydrogen. We see that hydrogen will be used in so many different applications, and all these applications will require different materials.
Hydrogen can be very detrimental for metallic materials, can cause embrittlement and catastrophic failures. But we do have materials that are safe to use in hydrogen already today. We have heard Mick talking about the tube business. But we also see a demand from customers to have even more high performance materials that are safe to use in hydrogen. So we are working to develop materials that have a higher strength, and that can enable lightweight solutions, because mobility will be important for hydrogen. The aim is to have a portfolio with the different materials that are suitable for different applications in, for the hydrogen society. We see a business for all the divisions within Alleima. Hydrogen is really interesting, and all these applications will of course require much hydrogen. Of course, it's green hydrogen that we are aiming for.
The process to produce green hydrogen is by electrolysis, and that is when you use green electricity to just split the water into its basic ingredients like hydrogen and oxygen. We do have materials today for bipolar plates that is an important part from the electrolyzer. But from the research side, we are also working on increasing the service life for the materials for the electrolyzer, 'cause we see that the cost for green hydrogen must come down in order to compete with the gray fossil-based hydrogen. We're working longer service life is one important development, but we also have looking into the next generation materials where we'll use less scarce and less costly materials to drastically reduce the cost for the electrolysis process. Those two examples was from hydrogen, and my next example is from green energy production.
Because we will see that the world will need very much green electricity. I've selected example from geothermal. Geothermal, it's used already today, like in Iceland, in New Zealand, California, where you have volcanic activity. We also see that the geothermal will be expanded into new regions, and the trend is to drill deeper to increase the efficiency for this kind of process. Geothermal is extremely challenging for the materials. The brine is hot and it's saline, and it contains a lot of nasty elements that affects the material. We are working on cost-efficient materials that can withstand this type of environment, so it is a really interesting development work that we are doing. My next example is from energy storage.
We know that several of these renewable power sources, like sun and wind, they need to be stored because the sun is not always shining and the wind is not always blowing. Efficient ways to store energy is extremely important. One such example is when you use molten salts, and that could be used, for example, in concentrated solar power plants where you use the salt to store the energy overnight. The trend is to develop new salts that can withstand higher temperature because then you have a more efficient storage process. These new type of salts can be chloride-based. They are extremely aggressive for the materials. We have ongoing projects together with technology providers where we look into the materials to see how they behave and also to understand these new type of salts, which kind of materials they will need.
My last example is from use of green electricity. We have heard from Kanthal about the heating technology that is electric heating. From the research side, we are looking into the next generation powder-based materials. Being able to tailor the materials for specific customer demands is one important development, but we're also looking into the possibility by process development to make thin-walled tubing that is needed for higher process efficiency. It's also very interesting for next generation nuclear when you can have these accident tolerant fuels. That's also an important research that we are doing. Next slide, Emelie. Our approach in this area, we see that it's a lot of emerging technologies at the same time. It's extremely important to participate in early demonstration projects.
We do work with potential customers and technology providers, and we help them to select materials, and we have a lot of knowledge by doing that about the materials, how they behave, and also ideas how to develop the next generation materials. Of course, if we have a positive outcome from that kind of collaboration, we also have a very good chance to set the industry standard. Because when you're doing the ramp up of the technology, you would like to use materials that you know they do work in a good way. In general, you can say that most of these technologies, they are still too costly to be competitive, but we also see that materials can really be enablers.
For Alleima, it's really good that this technology will require high performance materials, so it's high temperatures, high pressures, that can enable higher process efficiency. Also by longer service life of the materials can also lower the cost, of course. Since it's a lot of new technologies and we don't know which technology that will win, we have to work in a very agile way because the technology can ramp up suddenly. We have a very good setup for that because R&D is a very integral part of our value chain. We have the chance to work very close to our marketing and sales people. We have a lot of insight from customers, and we also have collaborations directly with customers to develop new materials.
Also, of course, to have very deep insight into the production, so the materials that we develop can be possible to produce in our production routes. That is also very extremely important. If we look into the budget that we are spending into the renewable segment, we can see that we have a large and also increasing share towards renewables. It's like two years ago we spent around 45%, and today it's almost 70%, so it's increasing. I would say we see so many different opportunities in this segment. We do have materials already that we can supply, but we also have several very exciting and promising projects into our pipeline. Over to you, Emelie.
Phil, how are you working with this, in the Tube division?
Yeah. Thank you. Thanks, Emelie. Thanks, Eva. The wind is always blowing in Scotland, so fill it with wind turbines. How do we translate the research and innovation, the development that you've heard into a commercialization within the Tube division? First of all, I think it's important to understand the context, and I think you've heard that today there is a dual narrative at play. We are seeing a strong rebound in the oil and gas market, not least the current macro environment, but also many years of underinvestment in that segment. You've heard from Mikael and from Göran how important that is for us. This is not an either/or scenario.
We have the rebound in the oil and gas segment, but all forecasts show that global demand for energy in absolute terms is increasing, and we need new sources of that energy. As you've heard from my colleagues, we see a very strong opportunity within the renewable segment. There's a number of reasons why we believe within Tube we can capitalize on the opportunities that we see within the renewable segment. One is that our existing customer base, which today could be the international oil companies, they themselves are transitioning their business to become a more integrated energy company. I think that's a well described story. I won't mention names, but I think you know who they are.
Another important feature is that our existing product portfolio is often very applicable to many of the applications within a renewable energy context. We do have a slightly ironic example within the Tube Division that a Sandvik proprietary grade that we developed, Sanicro 25, which was developed for ultra-supercritical coal-fired power generation, has found a nice home within bioenergy and biofuel application. Now, that is only possible because of the strength of R&D that you've heard from Eva, where we can test materials and show the suitability of materials in certain environments and in certain applications. You've heard a number of times already today about these six prioritized segments within the Tube Division. Why these six segments? I think you heard very clearly from Michael that we operate in a niche environment.
We operate where there are big material challenges, and in these segments there's varied material challenges. It could be high pressure, it could be high temperature, it could be environmental challenges, things that drive corrosion, and they are applicable to one or all of these segments. You will of course notice, and I think you've heard that already today, they're not all renewable energy generation per se. I'm thinking particularly of carbon capture and storage, which is very much a bridge really to facilitate us moving from a fossil fuel economy to a more green economy in the future.
It will be the case that there are certain processes, industrial processes where fossil fuels continue to have to be used, and with carbon capture and storage, there's an opportunity to decarbonize those processes, and yet continue to use fossil fuel. You've heard about our OCTG portfolio, and oftentimes, carbon will be stored perhaps in depleted oil and gas fields. The need for downhole tubing and casing will be there, and we see opportunities already today in carbon capture and storage. Biopower, biofuels, it's a very diverse segment. There's a number of areas from waste to energy to sustainable fuels. Often it's analogous to the chemical, petrochemical segment that you've heard about.
Product form in terms of heat exchanger tubing, that kind of thing is very applicable in this segment, excuse me, in this segment, and we believe we have a leading portfolio and the portfolio to win there, and you've heard of a number of areas where we're securing business today within that segment. I'll just mention finally hydrogen. Maybe we've overloaded with hydrogen, but you've seen one example today of translating not just our product capability but our solution capability, and I heard the container running at lunchtime.
Some of you have seen the opportunity that we believe is there for us and we've proven within Europe and need to extend to the other regions of bringing solutions to our customers, tube production on site, blending our experience in terms of tubular production with a solutions-oriented approach on our customers' site. The acquisition of Gerling that you've heard about last year is helping us to ramp up that business and grow it globally, which we're very excited about. We see these six areas. They may transition over time as the industry evolves, but we believe with our research and development, our sales and marketing, and our product portfolio and capability that we're in this market to win, and we see the opportunities for the Tube division.
Thanks, Emelie.
You, Phil, and Anders, you already talked about how Kanthal is benefiting from the need for electrifying industries. Any further insights you can share?
Yeah. I will elaborate a little bit more. We talked about it before that the largest emitter in the industries are many times the heating processes. We touched upon it before that the reason for it is that 75% of all heating processes is done by fossil fuels, and 25% is done by electrical heating. Looking into ambitions for different types of industries, we have identified that the steel industry is kind of a forerunner in this area. You have some examples on the right-hand side there on European and Asian steel manufacturers and their ambition levels. This is primarily something that is primarily or happening in Europe and in Asia. We now see new signals that things are waking up also in the United States.
I actually saw today that SSAB announced that they will produce fossil-free steel in North America as well. As you can see here, the ambition levels are, it's one company that has an ambition for 2025 already, but primarily it is aiming for 2030 to do the reductions. We are in collaboration with several of the steel manufacturers in developing this new technology, because if they are going to meet the demands or the targets, they need to attack the large-scale effective industrial processes, the megawatt areas. To be completely fossil-free, there are a lot of opportunities downstream, and we have now established within Kanthal an organization focusing solely on the opportunities that we see in the steel industry.
Because we have a lot of products already available for downstream use in the steel industry, sometimes with small modifications. We have an offering that we can now, in the discussions with the larger scales, actually address to the customers. When we are developing these new technologies, these technology that we'll develop can actually be utilized in other industries going forward. Sometimes we need to do modifications, of course, but the basic principles will be the same. We now see the trends also in the petrochemical industry. We see the cement industry is coming up. There are a lot of very interesting opportunities ahead, but they are a little bit in the future. Thank you.
Mikael, we are targeting the hydrogen fuel cell market, and we have full production facilities in place, which we will have a look at later on. But please, can you introduce the Surface Technology business?
Absolutely. Thank you, Emelie. We will see the facility later on. It's gonna be quite exciting. We touched upon hydrogen several times during the day, and that's because we strongly believe that hydrogen will play an important part in the future energy mix, but also as a contributor to reduction of its CO2 emissions. Now, the total market of hydrogen is estimated roughly $130 billion, but over 95% is fossil based. That means that less than 5% is considered as green. However, the green market or the green hydrogen market is growing very, very fast, double digits every year, supported by governmental funds and initiatives, making investment coming into the sector.
In the EU, for example, we have the Fit for 55 initiative that you're most likely aware of with the target to reduce the emissions with 55% until 2030. Most recently we saw the Biden IRA or the climate plan coming into place. We mainly see three applications. The first one is transportation. Here it's all about electrification of vehicles. We're talking about forklifts, trucks, trains, ships, aviation, and of course, cars. The second one is stationary power. This market is developing fast with energy backups and combined heat and power applications driven by the need of independent and sustainable energy supply. The third one we also touched upon today, that's electrolysis, clearly driven by the need of green hydrogen, but also as an enabler for energy storage, primarily generated from renewable energy.
The very core of producing electricity from hydrogen is in the fuel cell stack, and one of the key components in a fuel cell stack is the bipolar plate, which are a repeating unit. Just to give an example, a car needs 400-500 bipolar plates. If you just put into perspective, if only 1% of the cars produced in the world annually would be powered by hydrogen, that will require hundreds of millions of bipolar plates being produced every year.
We have developed an advanced steel strip coating concept, coil to coil, ready to be pressed into bipolar plates in high volumes. What we do is that we in this growing market, we help our customers to scale up and bring down manufacturing costs by shortening the value chain, but also removing the costly need of coating on individual plates. In the portfolio today, at Surface Technology, we have products for both low temperature and high temperature fuel cells. In addition, as we heard, we have products for electrolysis based on the same coating technology under development. To capture the market, we see four advantages. Number one is, of course, the coating concept or the pre-coating concept that we have developed, which enables high volumes and cost-efficient production of bipolar plates. The second one is the unique competence.
We are a company with in-house competencies covering the entire product, both the metallurgy or the material itself, but also the coating expertise. The third one is our production capability. We are ready today, high volume ready, proven technology, and we have qualified products. These three capabilities makes us both relevant and interesting for the OEMs. Over the years, we have built several close and long-term relationship where we together have developed products for this fast-growing market. Thank you very much, and I'm really looking forward to the mill tour later on.
Thank you, Mikael. Göran, we obviously have interesting opportunities within this field, which is highly linked to our R&D spend as well. What does this mean for us in the future?
I think it's obvious, and I reflected on the presentation, also what we heard through the day, that, I mean, we have a lot of opportunities, and it's all about really understanding the application, the customer application. It's about working close with the customers, and it's about developing new material. Exactly those things that has taken us from 1862 to where we are today, that also will be valid in the future. I think multiple opportunities. If we look at the numbers we have, and then I exclude industrial heating here. If you look at the numbers and look at the segment we define as hydrogen and renewable, today it's less than 1% of our turnover. We assume, with some help, of course, that the market will grow by 25%.
If you're fast, doing the math, that would mean that in five years, we would end up around SEK half a billion. I can tell you my ambitions are higher than that. I think the opportunities are so high.
Super. Thanks, all, for sharing. That was today's last session. It's now time to start the Q&A section, the last one. I will ask our CEO, CFO, and all divisional heads to enter the stage. To the webcast, again, if you'd like to ask a question live, please dial in on the conference call and press zero one to ask a question and zero two to cancel. This time I have saved some questions from the last section, but you can again write your questions in the field below the webcast. Let's start with questions from the audience. If any. All right.
There is a question, Emelie.
Good. If we can get a mic, please.
Just interested in the container solution you're showcasing here outside, which obviously should have quite material, you know, opportunities. Is it possible to just sort of give some sort of quantification for, you know, how many units you could be looking at in a fair number of years?
I think it's a question for you, Mikael.
Can you hear me? I'm quite hesitant, especially with the very unique system we have developed. I'm hesitant to give exact numbers. I could say that for the moment, there are just a few of those containers operating on the European footprint, and we have great success with them. But then you need to do your own estimates considering exponential growth in the hydrogen vehicles and the following pattern we expect on refueling stations. I mean, otherwise, everything will fall down, right? You need to refuel your hydrogen cars as well. But it's a very small start right now, but there are reasons why we went for also acquisition to help with the scale-up and the logistics support because we expect this to be a significant growth.
Sorry, just a follow-up, because if I understand it correctly, today only for the hydrogen solution, but as it seems, it should be able to scale to other, you know, application areas also.
Really good point. If you think of this is one of the most famous logistical values, isn't it? Postponement in a supply chain. If you could delay the decision-making for the very last step, you know, deciding the length of a product, that's actually one of the true values in the hydrogen example, because every site look different. What you really want to do in an installation of a high-pressure hydrogen system in the city of, in the center of a city, you want to reduce risks, right? You want to eliminate absolutely the most you can the number of joints. Long continuous tubes with no risks of leakage, that's one of the key values. You have typically the same values from a cost efficiency point in other industries. Would it be automotive? Would it be aerospace?
Of course, this is also an applicable solution to move the last stages of a typical firm fixed tube factory to the customer side. You're totally right. This is not only applicable for hydrogen, but we see great benefits, especially from a safety point of view for the hydrogen installations.
Thank you.
Very cool innovation.
Very cool innovation.
Super. Anything else from the audience? Yes.
Thank you. Yeah, my first question is you said less than 1% in hydrogen and renewable energy. If you take a broader view, you talk about transition, the transition, energy transition, how much of your portfolio today is to those types of products?
You could summarize that small part with the big part of the industrial heating, for instance.
Uh-huh.
It depends where you sort of stop. I think energy efficiency is also part of that. You add on parts of the Strip business. Talk about energy efficiency, engine efficiency, also in combustion engines, and bring on the GDI tubes in, too. It depends on how you do the math, so to say.
Okay. Then I appreciate the opportunity in this, but I still need to ask about the oil and gas business. You're talking about the order intake now is 80%-90% or so the peaks where you were before. Can you talk a little bit about the portfolio and what you see out there in terms of potential orders, et cetera? What does the market look like? We know that the E&P CapEx has come down some 20% during the pandemic, and it was down 40%-50% since the peaks in 2012. Of course, it's difficult market, but we also know that there is an imbalance in the market.
If you could talk a little bit about that, because it will also, could also mean potentially big revenues for you there as well.
I think you're.
Would like.
You're the best one to answer that, Michael.
Yeah, you're right. We have seen, should I say a two-stage downturn, just as you say. We also see a very clear and steady recovery of this market. How far will that go? For the moment, we do not foresee that we will be lower than those 80%-90% of pre-COVID pace going forward into at least the coming years future.
Is it? Do you say anything about the product portfolio overall out there? I mean, what kind of opportunities are there out there? Because obviously, there's been a big shift, and the consumption has not come down, but CapEx has come down significantly. That would be just interesting to hear your views.
The deep water.
Yeah. For the moment, actually, we see more subsea projects going to deep water. Maybe that is unexpected, but we do see that. Relatively speaking, on the total amount of projects up there for decisions, we see more deep water projects. But one should also remember that for the Tube division, it's not only about subsea infrastructure, it's also about onshore oil extraction. As I shared, we have three product categories. We have the control lines, we have the umbilical tubing, and we have the OCTG tubing. The OCTG tubing, I mean, that is used wherever you need to extract oil or gas, whether it's onshore, typically in the Middle East, you know, or if it's a subsea well installed subsea on the seabed.
You need always to kind of balance these. One is for controlling the infrastructure subsea system-wise. That's the umbilical. You have for all type of extractions, you have the OCTG tubing because you need that one.
Thank you.
All right. I have a question here, or perhaps two questions for Claes and Anders. You both showcase an impressive margin uplift in the recent years. Can you please elaborate a bit on what you have done and what the margin potential is?
Well, I think I mentioned it a little bit more, but I'm more than happy to mention that again. I think, of course, in order to improve, you need to work it from both ends. A lot of operational excellence, reducing waste. This is sort of a popular thing, of course, a lean thinking within the production environment. More than that, really taking on our responsibility. I think Göran mentioned that before. If you're the market leader, you should be the price leader. Really understanding the value of your product.
We've started to do that on certain segments, and we've pushed hard, and we are sort of willing maybe to risk losing a customer or a specific segment because to get away from that contribution business that we talked about before or transforming it to something else. I don't think that we really should have too much contribution business within the Strip division. We should be able to transform that because we're talking about very complicated products to manufacture. We have all the opportunities if we continue on this journey then to turn maybe the same products that are contribution today into profit in the future. It's not much more complicated than that from the Strip perspective. Kanthal.
Yeah, from Kanthal, it is pretty much the same recipe. From a Kanthal perspective also, we have actually done a decentralized organization. We didn't have these business units before, so it is about focus, it is about responsibility, and clear measures. Of course, working with productivity and so on top of that. That was the recipe for Kanthal.
All right. Anything else from the audience? Yeah.
Thank you. Alexander Vilval, Pareto Securities. I have a few questions regarding sourcing. You have described your integrated business model and so on, but when it comes to, say, the smelters here in Sweden and procurement of scrap, how much of that is sourced locally here in Sweden and how much is there larger imports for your sourcing regarding scrap?
Oh, I'm not sure I know the numbers. I think it's within your area. Do you know that?
Distribution-wise, I'm not sure I'm ready to kind of give an exact number, but of course, that's an international market, and we're sourcing from basically the Western world the most. Nickel, very important, of course, Norwegian and U.K. Nothing Russia. But no exact distribution of, you know, sourcing pattern from Sweden versus rest.
Good guess would be that most of it is outside Sweden.
Thanks. Looking at the last few years with, perhaps more, of an impact for other industries, but with supply chain disruptions and so on, have you been affected? That may be for perhaps smaller components or smaller volumes of your input materials, but have you any problems with this?
Arpi? I think I can answer. I think inbound, no real issues. I think outbound, some issues. It's not components as such, but I mean, the lack of containers. I'm not sure where all the containers went, but we have longer lead times in our shipping, clearly. We tie up some more capital on sea, so to say. That has been the main impact from sort of disturbances.
Thank you.
If I may add on the scrap, we have quite a lot of internal scrap.
Coming back, so to say, in the process. I think it's 100,000 tons or something like that. That's sourced internally.
But.
It's Swedish
The components, not. I think there are a couple of investment projects where we lacked some electrical equipment that we lost a month or so. That's otherwise not.
No need or plans to sort of integrate further backwards in the value chain when it comes to.
No.
Thanks.
A question for you, Mikael. You mentioned that the key for understanding the tube business performance is to understand the time lag between order intake and top line realization.
Could you tell us about the characteristics of your project business? How big is it, and how does it differ from non-project business?
Yeah, I mentioned that. Approximately, of course, that varies over time as well, but if I give you some sort of number, 60%, that is project related. Typically, that comes from infrastructure installations, either to the petrochemical and chemical industry, to the oil and gas industry, or to power generation industry. Of course, there are many differences. Olof mentioned one, the typical way we safeguard ourselves from volatility in raw material prices, but that's one thing. Lead times are, of course, the thing you need to understand. Sometimes, Alleima will probably announce, we hope, press releases about great orders, and you need to figure out what will that mean? When will this realize as top line?
As always, it's not easy to tell, but if I give you a ballpark number, a project business at Tube, that's, should I say from order intake to starting of invoicing. Then there could be a shipment schedule over a number of months, but it starts like approximately half a year, so 6 months. But that is the starting point, and then it can extend up to, I would say, 24 months, with the higher end numbers typically related to nuclear power. Typically, in the industry, the proactivity from the fabricators of steam generators to nuclear power plants, they have quite some, you know, horizon when they place orders. The lower side typically being petrochemical, chemical, and somewhere in between you will find, for example, the oil and gas umbilical and OCTG.
That should be put in relation to the non-project business. Also there, of course, with such a wide portfolio in different segments, we will see like different varying order to delivery time. If I give you also here something I would say, like it could be as short as like three weeks because we run a business of standard stock items, where order is automatically just hitting the order intake and it's prepared at the automatic warehouse, and it's shipped. Then it goes maybe up to like five months. Having said all this, you could certainly try to kind of put that into parameters in the order to delivery model. Then one also need to understand that this is all subject as well to where in the business cycle are we? Basically, how does the backlog looks like? That will come into play.
If I only talk about the expectations and the typical behavior of these customers, it will look something like that. 6-24, three weeks to all up to six months. Does that? Okay.
Yeah. Super. Thank you. Yeah, we have one for Anders. It's a tricky question, but I think you can handle it. How much could you expand your serviceable addressable market if you expand the scope from megawatt exactly.
Yeah. That's a very good question. I will not go into numbers here, but I will say substantially. It will take time until it actually will materialize, as we saw on the slide with the steel producers, where SSAB is the first one to have ambition already 2025. Substantial.
Any other questions from the audience? I think this is the last one we'll do.
Thank you. Just a quick one on how we want the balance sheet to be going forward, because you mentioned several of the business unit or area managers mentioned M&A potential. You also said that you won't increase debt. The first thing you do, you have the credit facility of SEK 3 billion. How do you want to run this company in, let's say, three years' time? Do you want to have this credit facility just to have some headroom for dividends going forward? Because you also want a rising dividend, you mentioned earlier.
I can take it. Yes. I mean, right now we are at 0 net debt, more or less. We have the financial target of 0.3x that we can go to if we find an opportunity. I see sooner that we will grow out of cash flow, so to say, that we can take a lot of the acquisitions that we might see from the cash flow. I think you should see the banking facility as a backup. We have swings in the liquidity over time. There's seasonality, as I talked about. There are metal prices impacts and so on. There is possibility should an opportunity occur.
Dividends and I would say balanced growth, inorganic growth, we can take out of the cash flow, as I see it. I don't see, as I mentioned, when I talked, I don't see a big load of debt coming onto our balance sheet in the short term.
Thank you.
I think we will continue, actually. It was wrong. The timing was wrong here. We have some more time and some more questions. Another one from the webcast then. Mikael, if you can comment on any leading indicators for the different customer segments of Tube.
I mean, you need to come up with your own leading indicators. Just to share how we look upon the different segments, to mention a few, oil and gas is obvious. The most important here is the oil price, and especially Brent crude. That is what we follow. Of course, one cannot say for certain because it's never just one indicator telling the story about the appetite for investment. There are political, geopolitical situations and so forth. Looking at you know a steady Brent crude on above 50 or say 45, typically what we see is then we have an interest in the subsea market to go for subsea oil. You need to add all the other aspects of the economic situation.
At the same time, for more cost-efficient oil extraction, all down to $30 per barrel, you will see activities for onshore oil extraction, especially in Middle East and Asia. I think that is for oil and gas, one can never neglect. That is a very important indicator because it tells something about is it worth to invest or not. Of course, that comes from a demand and supply situation, and on top of that, you have geopolitical tensions. I talked about aerospace a bit. Naturally, we saw it also in the pandemic situation. It's very much driven about volume of air traveling. That's the key. Then, of course, you follow that, which means standard macroeconomics. It's about GDP development, it's about inflation rates, it's actually about consumer buying power, isn't it?
That's whether we travel or we do not travel. One thing that is important to say about that business, I think, is if you have studied that industry, extremely long, global and complex supply chain. Sometimes we get quite surprised about. Because there is one thing that you easily can get hold of, and that is announcement of airplane manufacturers, like the big ones, the majors, their plans for how many planes are they going to to assemble and produce. You could think that that could be an easy kind of translation to tube demand. Here we really see distortions because of the long supply chains. I would say they could easily kind of improve their supply chains by adding some competence in supply chain management.
Because of swings, distortion in intermediate inventories in those really complex and long global supply chains, we have learned that many times over the business cycles, that it's not a direct translation about what's going on in the airplane manufacturer's facilities. You need to understand the supply chain there as well. Underlying it's about how many travelers there are. Mention it last because it's very important and I talked about it, the nuclear power generation. Here, I guess there's a talk today about the energy crisis and what's going on in the whole world, that's probably as good an indicator as anything. As you understand, from an Alleima point of view, at least we believe that that is a clear trigger for planning for expansion of nuclear power production.
You have official numbers from not least China. China is very important, but of course, they are not alone. We pay quite some attention to the official communication from the Chinese government about their plans for releasing new sites. We have the same for more or less the rest of the world. A few comments on, I'm not sure if, well, what you are following, but for us, those are very important KPIs and indicators.
Super. Thank you. Göran, M&A contribution to total growth.
Not sure we share a number. I think we said it. The majority of our growth will be organic. Looking at the pace we've had the last five years, we made five acquisitions, I think. Entering into Alleima, at the time they did a little more than SEK 400 million, so a little bit below SEK 100 million each. And then you can assume a multiple in the business we are. If we find the right targets, we can do that at a higher pace and, connecting to your comment, we could do that with cash.
Okay. Thank you. Olof, can you please explain the financing strategy in short and medium term? How will the intergroup loan be paid? Does the company use any working capital facility?
Yes. We currently have a loan from Sandvik financing ourselves as we have not been able to enter the bank and debt markets yet, and that will be paid back upon separation. That's within very short, in a few days. We have cash reserves for that. Then we will have, in addition to our syndicated loan facility, which is the committed facility, we will have other facilities like bilateral bank lines, and commercial paper programs that we can use for short-term financing needs should the need arise. Then over time, obviously we will have to, based on how our, if we take on any debt, we will of course have to see how to finance that, but primarily through bank facilities.
Super. Any last question from the audience? Yes.
Thank you. My question is regarding the dividend strategy. You talked about the fact that you didn't want to put on a lot of debt, but I see that you got headroom for up towards SEK 5 billion in debt. I was wondering if you plan to keep your dividend stable or if you're okay with a cyclical volatile dividend.
I can take that. I think that a stable and growing dividend over time would be the preferred route, I think. That's why also in the dividend policy we have brackets adjusted for metal price effects because metal prices can vary quite a lot between the years, and of course, affect the bottom line. But I'd rather see, again, a stable and rising dividend instead of a dividend that goes up and down with the metal price. So that's my view on it. I don't know if that's a good enough answer?
Would you say that this headroom that you have in depth could be like a buffer to cover that strategy?
I think it's not a good thing to long-term borrow to pay a dividend. Short-term, I could do it, but not long term. Long term, you have to have a sustainable cash flow to pay your dividend as I see it.
Okay. Thank you.
All right. I think that was today's final question. Thank you all. Now we have only one thing left, and that's the closing remarks from Göran. Göran.
There, there it is. Thank you all for being here today. It's really been a pleasure for us to explain who we are. I think many—I hope you have been given some insight. I think, I mean, we've been in the shadow of Sandvik. I don't think that many of you known sort of to the detail level that we explained today, at least that was our ambition, to give you insight who we are and where we're heading. If I should make a very, very short summary, I think we have a lot of opportunities to create shareholder value. We have a premium offering, high added value products. We have a solid positions in many customer segments.
A fully integrated value chain from strong R&D, own metallurgy, own global production, mostly direct sales through own highly competent sales organizations, clearly one of our advantages. You've seen examples. I think there are many growth opportunities, both in what I call the existing business and clearly also in the new business creation, not least in the energy transition. Last but not least important, I think we have a solid financial situation, and I think we have industry-leading profitability. By that, I think we're coming to the end of this part and coming close to show the steel plant and the Surface Technology plant.
Yes.
Before that, should we talk about some dates coming up?
Yes.
Yeah.
Go ahead.
Today has of course been. We're working with this project for a long time. Today has been a small dot in our plans, and it's been a very important dot, and now we have done it. Next week, on thirty-first of August, we will be listed, another very important dot in our time plan. The first interim report from Alleima as a standalone company will be published on October seventeenth.
Yes.
Right.
All right. Thank you, Göran. Now it's time to say goodbye to our viewers online. Thank you so much for watching. We're hoping to see you again soon. To you here in Sandviken, stay on for a while. I have some practical information for you. Until then, bye and thank you.
Before I leave the stage, thank you, and to you in the room, thank you so much.