Good afternoon and welcome to Alleima's Capital Markets Day 2025 special. Thank you to all of you joining us here today at the historic Vasa Museum. Of course, also welcome to you watching online. My name is Andreas Ericsson, Investor Relations Officer at Alleima and I'll be your moderator today. We've just seen a short film showing how Alleima's materials and innovations advance industries around the world, making them safer, stronger and more sustainable. That story is all about progress, about looking ahead, shaping the future through advanced materials. Value creation could also mean taking care ofe what you already have. That is why we're here today at the Vasa Museum. Alleima is the main partner of the museum's ambitious restoration project. Support Vasa and the pins you see on me and all the other speakers today represent just this important initiative.
Before we kick off s afety is always a top priority at Alleima. There is an emergency exit located at the back of the room, and there are several emergency exits throughout the building, all marked with the green exit sign. The assembly point is located on the large lawn outside towards Univakium. For you watching online, I trust that you are aware of the safety procedures of where you are located. A few other housekeeping notes. We are broadcasting live today, meaning everyone in the room will be filmed, but only from behind. There is also a photographer taking photos, but he will focus on the speakers and the general atmosphere in the room and not focus on individual guests. If you have any concerns, please do not hesitate to let us know. We are here today to take a closer look at Alleima, our current position, our view on several end markets, strategic priorities, and much more.
You'll hear from Göran Björkman , President and CEO, who will share an update on our strategy for profitable growth. Johan Eriksson, CFO, will then give you our view on how Alleima's strong financial position supports that strategy. Finally, our three divisional presidents, Carl von Schantz, President for Tube, Robert Stål, President for Kanthal, and Per Eklund, President for Strip, will dive deeper into their respective areas. We will finish off with a joint Q and A session. For you watching online, you can submit your questions at any time during the program in the interface on your screen. With that, let's get started. Welcome up on stage, President and CEO Göran Björkman.
Thank you, Andreas. Also from my side, a very warm welcome also to you online. My name is Göran Björkman , I'm the CEO of Alleima. It's been a little more than three years since the listing of Alleima and about two years since the last capital markets day. Despite the turbulent market we see right now, I'm really pleased with the performance of the company and I would say the main messages today are that we really have improved the financial foundation of the company. We are more profitable and less volatile than we were just a few years ago. This has been achieved through focused, sharp strategy execution. The last thing, I think we have the right prerequisites to continue this development.
We'll dig deeper into the details of that including small part where we will look at how we view our different businesses from a shareholder value creation point of view. We'll also dig deeper into the respective divisions, both their performance and their strategic direction. I think I'm missing a clicker. There it is. Thanks. Let's start looking at who we are today. I mean we are a very niche company. We're high value added products, advanced stainless steel, other special alloys, ultra-fine medical wire for medical applications including components and as well as the products for industrial heating. We have a strong market position across a wide range of niche end markets serving 10 different customer segments. Our fully integrated value chain from strong own in-house R&D to finishing operations and a global sales force.
Said it many times, our products are designed for very specific customer applications in the most demanding industries. Normally we have strong position. Normally we are number one or number two where we decide to compete. Just to share a few examples with you, starting with tube, in tube we're number one in umbilical tube for the oil and gas industry. We're number one in aerospace titanium and number one in steam generator tubes for the nuclear industry. All these industries of course really appreciate the high quality and the technology leadership. This is both from our customers but also especially also from our end users. If you look at Kanthal, we are number one in products within industrial heating with exciting examples like flow heaters, electric process gas heaters that Robert will talk more about later on. I'll say we're number two in medical wire.
There are some competitors with a broader market, broader portfolio than we have. In the areas where we compete we have a leading position and to me this is just potential for continued increase of our market shares. If we look at the development in medical wire, I would say this is one of the successes in Alleima model. If we look back a few years, in just five years we have quadrupled sales. We've gone from one single production unit in the U.S. to now we have one more in the U.S., several in Europe that has come through acquisitions. We're right now in the phase of establishing the first unit in the APAC region with the investment we do in Malaysia, in Penang. If we look into Strip, they are number one in compressor valve steel.
I'm really happy to see that our latest material already now is start to be designed into new compressors. Normally when we talk about medical, we focus on Kanthal wire. Also the other two divisions have good products in the medical industry. For instance, Strip has a leading position for bone saw applications. We're serving, as I said before, 10 different customer segments. I would say this is one of the strengths with Alleima, our broad exposure. Of course, some of these segments are partly cyclical, but in the total it reduces the volatility of the whole company. Since we are engineering for the most advanced industries, this not only helps the volatility, it also gives us good opportunities for future development. Of course, these segments are extremely large, but in the small niches where we decide to compete, we have really good market shares.
If we look at the share of the revenue, of course that will change over time. This is due to our mix shift towards increased growth in segments with higher market growth and more profitability and also better capital efficiency. I will come back to that later on, because that is an important part of today's agenda. First, let's start looking at the present market situation. Of course we see the turbulent market right now with the geopolitical issues, trade problems, and that is affecting many industries, including ours. We see that in segments like industrial, we see it in Chem Petrochem, we see it in the industrial heating, while other segments continue to be strong like oil and gas, nuclear, medical.
If I shall look at this from a regional perspective, I would say, of course the U.S. market is affected by the high, still high import taxes to us, still 50% tax on imported steel to the U.S. We have been successful in passing on these costs to our customers. With all the added value operations we have in the U.S. of course we do not need to add as much price increases in percentage as the taxes. Johan will show this more in detail later on. For sure our products have become more costly for our customers. Of course this has somewhat softening on the market in the U.S. I think Europe is, from a regional perspective, the weakest market right now. I think there is a series of things that has affected Europe. I mean the war. The war came with an energy crisis in Europe.
Germany really weak. European automakers really challenged by cheap and good EV cars from China. Now on top of that, Europe has been challenged from the U.S. on tariffs. Of course, this has an impact on the European industry. We see a lot of, I would say, industries hesitating to invest and that is affecting us. APEC still holds up stronger. This is also why we announced in the quarterly report we are taking some measures now to improve our operational efficiency. Actually, I received some questions last week. Do you view the market as going even worse or do you see it's improving? I think it's difficult to speculate and I will not speculate. I think what is important is that we cannot trust that it comes back soon. We need to work with what we can impact and that is our own costs. We take measures.
Now it's a number of initiatives to reduce our cost. With roughly $200 million on an annual run rate, roughly 75% of these cost improvements would be permanent. If volumes come up again, roughly 75% will continue as improved cost efficiency. We expect run rate savings at full $200 million around end of next year. I would say despite this, despite the challenges, I think we are showing resilience. I think we have improved both the margins and the volatility last year. Of course this has to do with working with cost flexibility and of course it has to do with improving some of the units. We say there are two main reasons for this development. The first one is operationally I think we're much more reluctant today to fill the mill in downturns to any price. We had a tendency to do that before.
We rather work with our cost flexibility and other measures instead of filling the mill with, I would say, poor prices and poor mixed products. Even though maybe some of those orders, we could always book more orders. Might be sort of positive from a contribution point of view, maybe also positive from a cash flow point of view. The main reason why we are reluctant to do this is because after downturn normally comes an upturn, and when the upturn comes, you do not want to sit with a long order backlog with poor prices and poor, poor products. When demand starts to come back, price environment improves, then it is good to have a short backlog and we are ready to take orders. That is the operational reason.
There's also strategic reason now that is we already, I would say, have good impact from targeted growth in certain segments, not everywhere. I mean, if we just look a few years back, we were much more dependent on the Tube oil and gas business. That is of course still very important. I would say it's even better today than it was some years ago, but we've grown in other parts. We made the company much more balanced than it was just a few years ago. For instance, the improvement we've seen in Kanthal, both in the industrial heating part and especially in the medical part, also in chemical and petrochemical. It's much better today than it was some years ago and especially due to the growth and the really profitable growth we see in the APEC region.
To continue this development is really the core of the element strategy. If you look at how we view that our addressable market is growing, it looks really good even, to be honest, does not feel like that right now. Mid to long term we view the addressable market growth as positive, around 6% CAGR. Of course, some of the segments even better than that. We have decided to target five segments as the priority when it comes to growth, or at least the priority when it comes to capital allocation for growth. With capital allocation, I mean larger CapEx and M&A. These segments are, I mean, you see them here: medical, nuclear, chem, petrochem, hydrogen, renewable energy, and industrial heating. How do we come up with that priority? It is a balanced view from certain perspectives.
Of course we look at how attractive the market is and with that, I mean size of the market and the growth of the market versus our own position. We look at profitability and profits. Also size matters and of course capital efficiency. These segments are then our priority when it comes to capital allocation. Someone might wonder why not tube oil and gas? Tube and oil and gas is really important for us. I mean we look at the long term projection and Carl will show it later on. I mean there is a positive growth, but not in the level of some of these other segments. This is not a binary thing. Of course if we see that we have bottlenecks in oil and gas restricting our sales, we are not stupid. Of course we're going to invest in reducing those bottlenecks.
I mean for me this is more about building new factories, doing acquisitions. Just to be clear, not all investment decisions are based on this. For instance, safety, cost, efficiency, maintenance, investments that is based on other kind of decisions. This shows how we sort of execute our strategy in what areas we have initiatives to drive the company in the direction I just explained. Of course we still focus on profitable growth. That is a word pretty often used. For us, profitable growth means growth that adds shareholder value and we define that as return above a cost of capital. I will show you a bit later on how different products in our portfolio act in that way. We also have a contribution business that is also important. It covers a lot of cost for the group.
In order to grow, that growth has to be creating value. The strategy also focuses on continuing to be the materials innovator and technology leader. This is of course about developing our long-term product portfolio, operation, and commercial excellence. This is about continuous improvement, automation, digitalization. It is about improving our way of how we understand customer value, price leadership, go-to-market models, sustainability. That is of course also linked to growth because also that should generate customer value. We have our common operating model, strong in-house R&D, our fully integrated value chain, and the decentralized organization setup. Let's look into some more details on profitable growth. When we look at it, we look at it from our three building blocks. Business development, of course, this is about our technology leadership. It is about our focus on R&D.
It is not only about making the next good material, next good product, which is of course important. It is also about our deep understanding of customer application. Serving the customer with the existing portfolio, making them create value based on what we already have. Growth investments is of course a continuation of business development. When we are successful in business development, maybe run out of capacity or understand there is a new capability that we need to invest. In some cases, because the main part of our growth is organic. In some cases, if we view that the organic route maybe is not fast enough or maybe not possible, M&A comes into play. That is normally focusing on certain product portfolio, some missing capabilities, or it could also be a geographical footprint. Let us dig a little bit deeper into business development.
Amro said this is the foundation of our growth strategy. This is about the technology leadership, the focus of R&D. I would say it's the DNA of the Alleima company, a really long-term customer relationship. It's built on collaboration, it's built on trust and of course as I said before, extensive know-how. Not only in our own methodology, also in customer applications. The integrated value chain I think is core for us. The combined, I would say hard to copy combined know-how along our internal value chain makes it possible for us to produce our, I would say, pretty complicated products with good efficiency and good yield. Our products are very often positioned early in the value chain. Still, it's very critical for customers and end users' applications. Let's look a little about some of the ongoing R&D projects.
Of course, when we do our prioritization, we look at customer needs, current needs and also of course future needs. If you look at the trends, my customers are asking for lighter and stronger materials, materials that withstand higher temperatures and even more corrosive environments. Tighter tolerances, better fatigue resistance and sometimes also coatings. To give you some of the examples we have, we are continuously widening our high nickel portfolio. This is for demanding industries in, for instance, chem, petrochem, in aerospace. Also renewable energy. Very often looking for properties, material properties like strength, temperature and corrosion resistance. Also developed a next generation super duplex that is targeting heat exchangers and heat exchangers with even more challenging corrosion environment. Also for customers that ask for longer time backs and even higher pressures. We are already today delivering tubes for SMR, that is water cooled SMRs, nuclear reactors.
It's a lot of development work ongoing for the next generation nuclear, what we call advanced reactors. That is cooling medias like helium, sodium, lead, molten salt. There's a lot of activities ongoing and we invest quite a lot of R&D into that. We think that is a really good future opportunity for us. If we look into medical, very often medical is about developing the next generation of an already existing feature or application. I think medical is really a good role model within Alleima. How to work very close with customers and to mention a few interesting areas: glucose measurement, we also have advanced heart monitoring, we also developed the next generation umbilical. Basically the same corrosion resistant as the current material but with higher strength. That makes it possible for our customers to design lighter umbilical cables.
That is of course always good, but it's especially important if you want to go to even deeper wells or even the weight of an umbilical could be an issue. Also developed, it's an innovation. First it was rather small powers, now it's larger powers. Flow heaters within the Kanthal division. I will soon show you a film. This is about a project where the customer asked for flow heaters above 850 degrees. It's not only that we managed to deliver that. We also delivered for the customer, helping them to improve their precision, efficiency and sustainability.
Our customers had a demand to heat up process gases above 800 degrees C. That is how we got started. The idea we came up with was t he that we forced a flow throug a small gap between our electric heating e lements and the channel tube. That results in a very controlled. Also very good heat transfer. We could increase the outlet temperature of t hese process gas heaters from 8900 to above 1100 and that was really a game changer and this is the core of the innovation. The Kanthal flow heater was really an e nabler for some technologies, renewable energy, power to fuel applications. It's an enabler for replacement of gas burners. It's about best in class outlet temperatures, robustness, compact design, and of course most i mportant, it's electric so it's fossil free.
At Alleima we truly believe in technology leadership and that's what the Kanthal flow heater is about. It's an excellent technology that opens doors for our customers to succeed in their business but also drives sustainability the same way.
Dr. Markus Mann is really a fantastic person I have to say. Moving on to CapEx and growth investments as I already said that of course a natural continuation if we are successful in business development. Most of the investments are not in the end of the value chain I would say. I think we should look at some of the ongoing examples on what we are doing. I would say that one of the most important differences being an independent company instead of being a small business area in a large group is that you are in control over your capital allocation.
To me that is fundamentally important if you want to execute on a strategy and I think we are. I will not go through all of this but let's look at some example, let's look at examples that we took decisions last year. We're adding a new vacuum remelting furnace. Some materials have to be remelted and this allows us for a continued growth of really advanced materials. We're also growing the Kanthal industrial heating business in Japan. I mean I've been around for some while and according to my experience, if you really want to be successful in Japan, it's good that you have footprint in Japan. Kanthal has had that for some time and now we have grown out of capacity. So we're adding capacity.
We also took the decision last year to reopen Tube in 68 that was closed roughly a decade ago due to the downturn in the nuclear industry. Now nuclear industry is really going up again and we decided to invest. Investing, we will start up that factory end next year and by that we are adding 60% capacity for steam generator tubes. We also, as I said before, took the decision to open our first production unit for medical wire in the APEC region where we now are investing in Malaysia in a town called Penang that is a medtech center. Already now we have already buying customers and potentially future customers at that place. I think all of these are examples that we are executing our strategy and that we grow in these selective segments that we have pointed out.
M&A, as I said, normally focusing a certain product portfolio, certain capabilities or geographical footprint, sometimes also if we could grow in the value chain, of course also M&A, we search for acquisition targets in the targeted segments. I could of course be wrong, which is okay. I do not think there are that many opportunities. For instance, in nuclear, maybe not in chem petrochem either. The organization could prove me wrong. That is okay. I think the main opportunities we right now see is in industrial heating and in Medical. That is how we are focusing our efforts right now, where Medical has the highest priority. If we look, the last three ones we did are all focusing Medical. Two of them in Medical Wire in Kanthal and one for Tube.
The Tube case where we add capability for small sized bars is also actually targeting aerospace. This slide illustrates, I would say, the overall strategic direction of Alleima, which is a mix shift strategy. I think we've already, as I mentioned before, been quite successful. We've already balanced the company more than we were some years ago. We want to continue this development to grow faster in the targeted segment and grow less in the industrial segment. It is in the industrial segment where we have most of our contribution business. The goal is to grow the targeted segments to 45%-50% and reduce industrial to somewhere between 10% and 15%. This picture illustrates how we view our businesses, some of the business from a return point of view and growth point of view.
I really understand that there might be some people in the room that would love to see some numbers on this. Not today, but I will walk you through because this has an impact on how we prioritize our different businesses. We start with group number one, very high return. Really a value creator. In our company, main focus is to grow. There is more value creation by growing this than to improve margins a little bit. The return is so good. We could even grow this with, I would say, leverage as low as current margins. If growth is really high, we could even go a little bit lower than current margins. Tube. Sorry, not Tube. That was your target, Carl. Kanthal Medical Wire is in that group.
If you look at go to group two, also good value creators, not as high as Medical Wire. Here both growth and margin improvements or return improvements generate additional value. We want to grow these businesses as well. Here growth comes with a very clear target. We have to grow that with a positive leverage. Growth has to generate more, a higher margin than we have today. Here we have some of the products or segments. Industrial heating is here, steam generator tubes for the nuclear industry is here. Most of the chemical and petrochemical as well. If we go to group four, take that before group three, here return is lower. The main priority here is to improve margins and then improve return. Here we have, for instance, Tube OCTG and Tube Aerospace. I think we've done really excellent in Tube OCTG.
I think just the latest year we have improved that from traditional actually contribution business now to margin contributor to the whole group. We want to continue that development. Tube Aerospace, I mean, I think we need to improve the return in that business. I think that is important because we see the market growth as very positive. Then go to group three. Here we view the growth possibilities as lower than the other businesses. That could be for reasons like the market is not growing so fast. Could also be that we already have really high market shares. Here the main target is to defend position and defend return. Here we have for example tube umbilicals and strip compressors. Just wanted to share with you. This is how we reason when we set targets and plans for our individual businesses.
Sorry, there were no numbers. Let's move over and see to other areas where we can improve margins. That is, we add on our operation and commercial excellence. We start with the graph to the left. That is our growth plans. We want to grow also in volume some. What you see is that revenue growth is much higher than volume growth. Of course, that comes with, I already described where we focus on some segments to grow faster. It is also about, say, mix improvements in the individual segments and also price increases. If you go to the left, we can see three bars improve in margins. The first one is what I just went through. Of course, this mix shift strategy will improve margins in the company. There are also strong commitments in the divisions to improve operationally and commercial excellence.
Of course many, many initiatives ongoing in this area because the nature of them is like continuous improvements. I'd like to mention some examples when I look at the priority list we have today. When we compare ourselves with competitors, we come out strong in areas like being global or as we say today, we're a local in many places. Our product portfolio, our quality, and our technology leadership. That brings us to a leading position as a technology that also gives us a price premium. That is exactly how it should be. We should not be a good enough low cost alternative. When we look at cost position, I think there is in some areas potential to improve. Of course technology leadership and premium comes with a cost, that's natural. We cannot afford not to be as good as the potential we have.
We have done some more detailed studies looking at some of our products compared to our competitors. Based on that, we have done some findings, things where we can improve. Of course, that is part of our priorities. We've had a tube unit, I would say, that has been underperforming. Now it's much better. The reason why it's now much better is that we have had a structured approach to how you work with improvements. This is not investments, it's about how you work in the day to day and strategically to drive continuous improvement, have a structured way to drive that that I know that Carl now is looking at. Maybe that is something we could replicate across the whole Tube division and make that way of working, as I would say, the operational framework within Tube.
If you look into Kanthal, the development of Kanthal has been fantastic. I know some of you have been to Kanthal factories. I mean there is an automation potential in Kanthal. We are right now developing a roadmap how to automate more and drive more efficiency in the Kanthal units. Especially targeting our heating operations in Strip. Not a small part, an important part from a volume point of view. In Strip we do not have the position where our price premium compensates for the cost we have. We have set up a program how we should drive efficiency improvement that can come with some investments where that part of Strip has to be profitable or even better profitable than today on current market prices. That is one of our priorities. I think Per will show that later on. Also in commercial excellence we have a number of initiatives.
All divisions are focusing on improving value sell. I mean to be honest, we are a product company, we should not leave that. I think there is a potential of being even more sort of understanding customer values by understanding customer values. Understanding the customer's next best alternative I think gives us good sort of data on how we can optimize our prices. This is about sales framework, about sales playbook, etc. It is about how you structure, how you prepare, how you execute, how you follow up a sales process including training. I know that is ongoing. All divisions, there are also some initiatives about changing go to market models that I would like to mention. Two in Tube Americas, this is the Tube American regional business. We are right now investing in improving the salesforce.
The reason is that we want to have an even more close relationship with end users. Today we are too much dependent on the distributors. That is an action ongoing in the Tube Division. Strip, in a way, it's the other way around. Strip's normal sales process is sort of key account sales and by that we are limited on how many resources we have and we have difficulty to reach really smaller customers where there potentially are a lot of. No Per will show that later on. What we are doing now is to increase the number of channel partners to, with that, meet more smaller customers. It is not only about especially targeting the knife steel business. All three divisions are also increasing, I would say, the focus on product management.
Many reasons for that, but one obvious one is we want to have an even more close relationship between sales and R&D. So many activities to drive improvement. Many activities to drive margin improvements in the company. I know we have a Q&A later on, but I think there is one question that I should answer already now and first then I need to ask myself that question. So with all the improvements you've done in the company and with all the potential you have, why don't you change your financial targets regarding margins? I think all the analysts are laughing here. That's a relevant and very rational question. I think not yet, not right now. The reason for that is I think there are too many market uncertainties right now and we don't know where the dollar versus the krona development will take us.
I think the timing is not right. Of course what you see is that we have a lot of initiatives with a lot of potential to drive the margin of the company. Let's move over to sustainability and I will start with what is most important. Safety. I mean we have improved. I'm not sure I'm pleased with the level, but I'm really pleased with the improvements. We have done really good progress. We are at the lowest ever, excellent frequency in the company. I think history is 160 years old, but at least numbers that I have seen, which of course is really good and of course it's the result of a really dedicated work throughout the organization.
A lot of the focus we have is how we act in hazardous environments, focusing, having the right PPEs, how we have safety instructions, how we work with behaviors, trainings, etc. Of course that is important. We should continue to do that. I think we need to focus more on not only how to act in hazardous environments, also making some of the workplaces less hazardous. I think we need to spend some more resources on, for instance, automation. That way we can separate the operator with the machine. Let's look at our sustainability targets and you can read them here. Essentially, as I said before, sustainability is the business enabler and there are so many perspectives on sustainability. Number one, that is to be a responsible employer. That is about safety. As I just touched upon, it's about how we treat our people. It's about DEI.
Right now there's a lot of political discussions around DEI, but let me be clear for Alleima, this is not politics. At Alleima, we are sure that diversified teams perform better. We also show that if we treat our people with respect, give them the chance to develop according to their potential, performance will improve. Of course, including leadership I think is crucial for driving improvements and performance. If you look at the climate side of sustainability, our target has now been validated by SBTi. I think we are already world class when it comes to at least scope one and two from a CO_2 efficiency point of view. We could do more. The target is to reduce it by 54% starting year 2019 until 2030. We are right now roughly on 40%, so we reduced it by 40% but we could do more.
Scope three is a little bit more new to us there. The target is to reduce by 28% a lacquer approach towards this. The approach is that we do not talk that much about it. We pick the technology we need at a certain moment and keep a flexible approach. For sure to meet these targets I guess we need to electrify some of our heat treatment processes. For me it is absolutely important that when we do that it has to create additional customer value. I know companies have both invested a lot, also increased their energy costs to claim a fossil free steel with some problems today because there is no one who wants to pay that premium and we should not end up in a situation like that. For sure we are the scope three of our customers so that should be additional customer value.
Now the part is, I mean by reducing our CO_2 emissions, there's a potential to reduce future cost of CO_2 taxes. What I'm saying concluding is that there has to be a decent and realistic payback when we invest in reducing our own CO_2 emissions to stay above 80% circularity. We are there right now. It's a continued challenge. If you see this mix shift journey with much more advanced alloy and less, I want to say more standardized stainless steel, it's a really tough target to stay above 80%, which is our target. I said it so many times. Our largest, there's a possibility to drive sustainability, that is through our products and offers. That is why we have a target where the products which we define as supporting sustainability should grow faster than average. Alleima, last year they were on 24%.
This is products for green transition. It could be renewable, it could be hydrogen, it could be nuclear electrification through industrial heating, also energy efficiency through the compressor steel in strip and also medical. Not only climate also makes people live longer and have a better life. As I said, these products should grow faster than average Alleima. I'll show you a film with some interesting examples.
In a world where everything is measured w eighed and accounted for. W e ask how do we make ourselves accountable? How much more advanced and efficient can we make our steels and alloys to create a greater and lasting impact? Help our world breathe easier. When we advance materials, industries benefit. When industries advance, products benefit. Our advanced materials are the hidden heroes found in the heart of machines. In the pulse of industry tirelessly working to make products and processes more sustainable. We help enable the energy transition by. Improving efficiency and reducing the carbon footprint o f thousands of products fo or our climate and shared future.
To summarize, I think we clearly have improved the financials of the company. We are less volatile and we're a more profitable company today than we were just a few years ago. We've done so through sharp strategy execution and with the solid financial performance, we have the right prerequisites to continue to do so. That ends my part. Now I'd like to introduce the next speaker on stage, which is our new CFO, Johan Eriksson. He might be new in the role, he might be new to you, but he's not new to me. I mean, he's been heading the business control function in Alleima for many years. Johan and I have worked close for, I don't know, what is it, six, seven years. Welcome up on stage, Johan.
Thank you very much, Göran. Actually, it is eight years, but I am the finance guy and you are the engineer, so. Again, very welcome everyone to this CMD, both here in the room. Very nice to see you. And online of course. I think it is very obvious, and listening to you, Göran, also, that we have the financial prerequisites for executing our strategy. I will walk through and comment on where we are financially, touching on areas like EBITDA, capital allocation, CapEx, cash flow, and capital employed. Before we get into that, I want to touch on two current topics that have been in focus the last couple of quarters, and that is currency and tariffs, U.S. tariffs. I will not talk about global tariffs everywhere. I will talk about the U.S. one, starting off with currency.
When you look at our cost base, it's a fair proxy to use the personnel numbers, the FTEs, to see where our cost base is located and how it's split between different countries and then different currencies. That you will find on the graph on the bottom left hand side. As you know, we have a strong footprint in Sweden, but we also have significant capacity in other countries which then partly offsets the currency exposure in those countries. There are of course two countries that stick out as the main exporting countries in our supply chain and that's Sweden and the Czech Republic where we in both cases produce for other markets. In the second graph you can see also that the main sales currency is the U.S. dollar, where we have the biggest net exposure, and the Euro is the second largest.
Overall, the production and thereby our currency footprint, that's who we are and that's something we continuously handle. To some extent you could say that local for local, and by that meaning that we have value add activities in the U.S. for the U.S. market and in China for the Chinese market as two examples, that allows us to mitigate some of the exposure. We also have, you could say, natural U.S. dollar hedge from our exposure to raw material where several are priced and traded in U.S. dollars. Then we have hedging, of course, and that's something we actively work with here. Time to delivery on orders that are exposed then in other currencies than what we produce in or produce the product in plays an important factor. The time lag.
In general, you could say that we hedge our projects, so the project orders, and that is in order to safeguard the margin on that project. Not only then do we hedge the currency, but if needed and if possible, we also do it on raw materials for that order. Over time, of course, currency fluctuations are handled through price and productivity in our business. Given that our biggest net exposure is the U.S. dollar, it could be interesting to learn what that means from a U.S. tariffs point of view and what we have seen so far. First of all, I have taken the revenues 2024 as a reference point just so we can have something to start off with. First of all, there is, of course, a big part of our business that goes to other countries than the U.S.
That's a good fact to start with. When talking about the U.S. in general, it's worth noting that the products we make and sell to the U.S. have no or very limited local competition and no fully integrated local competition in the U.S., meaning that the competition that is there also has to import material. That's an important fact. If we take two of the products that Göran highlighted in Tube, for example, the steam generator tubing in nuclear and the umbilicals in oil and gas, there is no local competition. All the competitors are based outside of the U.S. If we add that to last year's sales, you could say that the finished product is sold to the customer without any tariffs.
I mean the customer takes care of the importing in that sense and that's independent then of which supplier they choose. We have the value add activities that I talked about earlier, the local for local, you could say. There we can take again Tube as an example, if we import bar from the back end system in Sweden and then we do the extrusion and the cold working on that product and have a finished tubular product to sell in the U.S., that's quite a lot of the value add that's actually happening locally. That means the relative part of the final price, the impact from the tariffs will be, you could say, modest at least. That's the key that the value add takes place in the U.S. so internally sourced but with high local value add.
Then we have the final category, which is when we do less value, we still import the material. We could take the bar example again, but we only do the extrusion as an example and then we sell it. Of course, the relative part of the tariff on the final price will be higher. It is mathematical. What have we learned so far then? I mean tariffs have been going on for a couple of months at least. What we have seen so far is we have the ability to pass on the tariffs to our customers and we have not seen any significant changes in customer behaviors, apart of course from what Göran alluded to, the hesitation and general uncertainty that the overall sort of tariffs and geopolitical situation has created. That is our finding so far in this area. Let us move on then to our financial development.
Also, as Göran touched upon, I think we have become a much more solid and less volatile company. When we look at our profitability, we can take the average 15-20 and compare it to the average 21-25, and we can see 140 basis points higher average for the adjusted EBIT margin. Despite that, we have seen some challenges, a challenging business climate in parts of our business for the last 12 to 18 months. With that said, we are sure that we can continue to improve, especially through the focus we have on the prioritized segments as we talked about and through the capital allocation possibilities that we have. Let us move into that then. I mean, it is not shying away from that. We do have a strong balance sheet. That is a really good starting point.
We are cash generative, so we are generating operational cash flows and roughly SEK 400 million, you could say annually, is needed for maintenance CapEx to keep the machine running, if you will. What can we do then with the excess cash that we create? We could always sort of increase our cash balance. I do not know if that could be nice, but obviously we also distribute dividend to our shareholders and then we have the possibility of growing organically through CapEx or acquisitions and that in strategically prioritized areas. Could mention also that in addition to this we do have an undrawn committed revolving credit facility with our six core banks of SEK 3 billion as well. You might think so, but we are not afraid to take on that. It just needs to be for the right reason.
Keep that in mind. Moving back to the capex stance, what have we seen and what is happening in that area? It is very obvious that we have increased the pace the last couple of years to what probably is a normal level for us now, I would say, especially when we have these growth capex initiatives. While we in 2020 and 2021 cut back on capex to protect cash flows in the pandemic downturn, we have now spent more and increased in different types of capex. Especially in the growth capex and through these growth investments, we want to position ourselves to capture future growth and to improve our competitive position looking forward. Where are we then allocating that capex, you might ask yourself. Göran alluded to this picture as well, which I think is a good one.
Even if it does not have numbers, it at least illustrates something in our strategy, which includes a portfolio strategy and capital allocation strategy tied to that. We aim to drive value creation by increasing the returns and the revenue growth, and we build it on market attractiveness, like Göran said. That includes the growth projections for the market and the market size, and also our position on that market and our profitability. We want to have a strong market position. We want to have higher profitability on that market than our average in the group, and we want it to have lower volatility, and we want it also to contribute within higher than average return on capital. From this, we identify what we believe to be the most attractive parts of our business and where CapEx can help us grow and improve.
Looking at this then, our growth capex currently is mainly being spent in group one and two, obviously, but it can have an impact on other parts of our portfolio as well. It is not in isolation, but focus on one and two. How has that impacted our cash flow? Looking at the dark red bars, this is the free operating cash flow, and that includes working capital changes, it includes capex spend, and it includes lease amortizations, to name a few things. These graphs clearly show that we continue to be cash generative while executing on the strategic agenda, and as I just showed you, increased our capex spend. What can have an impact on us is when metal price changes, and that will then impact our net working capital and in turn cash flows.
This was especially notable in 2022 when we had quite a drastic increase in, for example, nickel prices. You can clearly see that reflected then in the cash flow in 2022. Talking about net working capital then, because that has an impact on us and it has an impact not only from the metals, but the metals are an important factor and this is something we work continuously with. It's an important asset for us. As I showed you in the last page, it's not eating our cash. It has the potential to do if the metal prices run away, it could then temporarily impact our cash flows quite drastically. Some of the other challenges that we are working with are, for example, geographical shift.
If you see that arrow on the far right-hand side, the geographical shift, especially with growth in Asia, of course, when we're sourcing from Sweden, material needs to flow to Asia and what we experienced when the war in Ukraine started was that shipping by or sending by railway all of a sudden wasn't a possibility any longer.
So. hat together with other geopolitical conflicts has meant that we need then to send material by boat all the way around Africa, etc. That of course at the same time as we're having growth in that region, so that sort of impacts net working capital and lead times from that aspect. Another aspect is also the metal mix. If we go towards more high value alloys, which we in parts want to do, that can also have an impact on the total value of our net working capital, even if the product itself will become more profitable and the overall price changes in metals also in relative terms, will have an impact on the relative net working capital. If the metal prices rise, the relative net working capital values will, in percentage, increase. What do we do to mitigate this?
We continuously work with this in the divisions. We work towards improved planning, supply chain efficiency, and lead time improvements. The mix shift, we're talking about the mix shift, and one of the criteria, as I just said, is that it's less capital intense to a large extent in many of these products. The mix shift itself should have a positive impact also on an area like net working capital. Taking that, taking the net working capital development, the CapEx spend that we just looked at, and just put in relation that we roughly depreciate SEK 900 million annually, put that together into capital employed. There are of course a few more pieces to capital employed, but the entire sort of fixed asset base is in there.
What you can see is slightly increasing capital employed and that is mainly then driven by the growth investments that we are doing and the return on capital employed that you can see on the far right hand graph where we measure reported EBIT in relation to capital employed, in this case excluding cash, is at the moment lower than a couple of years ago. That primarily comes with the negative metal price effects that we have seen the last two years, which in my experience evens out over time. I mean, metal prices will fluctuate and we have had a negative trend the last two years basically. Again, the journey we are on aims at improving the mix and over time improving the returns on our capital. Where does this take us then? We have a strong balance sheet and we are very happy about that.
It's a great starting point. It's a strong balance sheet that gives us room to execute also in downturns. We are well below our financial target of net debt to equity. Yet we've paid out a total of SEK 1.4 billion since listing to our shareholders through dividends. All in all, we're a cash generative, less volatile company with a strong balance sheet. This allows us to do targeted investments and execute on our strategy. With that I thank you all.
Thank you. Thank you, Johan. On the minute, I think. Perfect. We'll now have a break. Coffee and refreshments are served just outside. We'll meet here in 30 minutes at 3:10 P.M. We'll start again, thank you.
All right, welcome back. I hope that you're again energized and ready for the second half of the program where we will dive deeper into the divisions, starting with the biggest one. Please welcome Tube President Carl von Schantz.
Thank you so much, Andreas. Hello everybody. My name is Carl von Schantz. I'm the President of the Tube Division. I joined Alleima into this position two years ago, and most recently before that I was one out of about 20 divisional presidents within the Atlas Copco Group globally. When looking at the Tube Division, this is how we look. You know, when you're coming in from the outside, there are a couple of things that have been standing out to me when looking at the Tube business. First of all, we have strong market positions in many customer segments and markets across the world. Strong market positions signal sustained differentiation and customer loyalty, which is making it hard for rivals to erode our share or to copy our value proposition.
In this presentation today I will give you a couple of examples of our strong value, strong market positions. Another thing that a unique trait of the Tube division that stands out is our integrated value chain. This is really differentiating us from our competition. There are many customer benefits from our integrated value chain. In this presentation, where I will now mention two, one of them is quality control. We are producing products for the most demanding environments. It could be for nuclear power plants, it could be for aircraft and spacecraft. It could be for environments of 800 degrees Celsius or more with high pressures, our tubes cannot fail. The quality requirements of our customers are set at the highest standards.
You know, as we control every step of the manufacturing process and that we do not need to work across different companies in the value chain makes us being able to control quality in a better way than most of our competitors. This is a real advantage because our niche in the steel industry is based on a commitment to quality. This is very important for us. Another customer benefit of our integrated value chain is our ability to innovate with and for our customers. Our customers are often faced with new technical challenges that they come to us for support for. Our integrated value chain enables faster iteration, deeper technical insight, and tighter coordination between production and R&D. These are customer benefits that are difficult to copy in non-integrated setups with fragmented capabilities and slower feedback.
A third and final thing that when I look at this that kind of stands out is that we're looking a bit too European centric. 49% of our share of business is in Europe and Europe accounts for about 20% of global GDP. It's not the fastest growing market, but if we only adjust for our oil and gas business that is invoiced in Europe and ends up in this 49%, but our end customers are in the Americas, in Middle East, in Africa, or in Asia, this 49% is more 40% ish. I would say that we have an attractive global footprint and we have a good momentum of growing faster in high growth region. For the last three years we have delivered an adjusted EBIT margin of 10% and we have had a currency and alloy adjusted revenue CAGR of about 2%.
In addition to having done a great job with pricing in general, this steady incremental improvement is based on three factors. We have increased our profitability in our oil and gas segment by improving productivity. We've seen excellent profitable growth in our Asia and Pacific region, and we've had a general good mix shift into more attractive business. Of course, my job and our ambition is to perform better than this and drive both growth and EBIT targets for the Tube Division. To do that, we have outlined a few strategic priorities. The strategic priorities that we have outlined are this. We want to grow in nuclear and the chemical and petrochemical segments. We want to maintain our strong position in oil and gas.
We want to further strengthen position in other growth segments and those segments can include aerospace, space, hydrogen, renewables, semicon, medical, and we want to strengthen our performance culture and improve our ability to leverage on our strong market positions. Today I will focus on these three segments: nuclear, chemical and petrochemical, and oil and gas. Together they represent 2/3 of our business. It is a significant share of our business. I will not be speaking about our other growth segments, but I can tell you we have really interesting developments in those areas as well. For example, in aerospace and space, which represent about 6% of our business and is reported under transportation, and I will also talk about this last point.
If we dive into this and start with nuclear, which is a segment that we want to grow, in this segment we sold products in 2024 of a bit more than SEK 1 billion. It is a segment that we see excellent growth opportunities for us in. We sell products into three categories here. We have the steam generator tubing that goes into the steam generator and that is used both for conventional reactors, SMR reactors, advanced reactors for the future. This represents 65% of our sales and is our most important area. On the nuclear side, we sell nuclear fuel types, tubes, also called cladding tubes, and they house the fuel in the reactor. We also sell nuclear tube and pipes and those are nuclear certified products that go around different parts of the nuclear power plant.
If I focus on the steam generator tubing, which is where we see the best growth opportunities and which is the biggest share of our business today, there are only a handful of suppliers around the world supplying products into this segment. It's us, it's a French company, it's two Chinese companies, it's two Chinese and one Japanese company. What sets us apart here is that we are an independent supplier. We're not tied to any specific reactor designer, we're not tied to any state authority. Our loyalty lies solely with our customers and we will be less impacted by external factors. This is a real advantage. We see a highly positive outlook for the nuclear industry. According to the World Nuclear Association, global nuclear capacity could double by 2040. If you look at this graph, the line here represents conventional nuclear.
The shaded area represents the uptake of SMRs, small modular reactors that can be in different ways. And we can at Tube, we can really feel that this is happening and there's lots of things to be written about nuclear. But if I will just tell you what are we seeing what is happening to us in the Tube division? We see big tech companies entering the industry. The rapid expansion of data centers, AI infrastructure, electrification of industry is taking electricity needs to new heights. You know, SMRs, Mars and nuclear offers a stable high output, low or no carbon supply of energy for this. Based on this we see a new wave of interest of new companies that did not visit us five years ago or 10 years ago.
The list of world leading companies that are coming and visiting and wanting to do business with us, that list is just amazing. We see the development on the nuclear side on multiple fronts. We see that, we see new builds of conventional reactors, we see refurbishments of conventional reactors, we see conventional reactors and small modular reactors and we have already sold and fulfilled orders to the small modular reactor industry, which is pretty rare and a good sign of us being there from the beginning. It feels so encouraging. We also see customers from across the world. We are interacting with mostly customers in North America and in Europe, but we're also present in Asia and having lots of discussions both with customers and industry partners there.
It is so encouraging that the Tube D ivision is a natural speaking partner to leading companies from across the world in this segment. Based on this development, we are now investing to capitalize on the opportunities that we see in the market. A year ago we announced the expansion of our steam generator tubing capacity with 60% and work is now progressing to have the first deliveries from this new capacity in the end of next year, 2026. For this new capacity that we are building right now, our order backlog is very strong up until 2029. Already for that capacity, as soon as we have it up, you know, as fast as we can get it up to full capacity, it will run on full capacity.
I think one of the reasons why we have this position and why we have, you know, a full, you know, a solid order book for capacity that has not built yet is that we have been in the nuclear industry since the inception of nuclear in the 1960s. Over the decades we have built a unique and highly specialized competence in this area and a competence that is difficult to replicate and especially valuable today when we see this enormous growth on the nuclear side. The competence we have now and developed, we are continuing to develop that. That is important because we see the next generation of nuclear reactors developing. We have, I mean the products that we have sold so far are based on water as a cooling media. We see very promising development.
With. he generation four nuclear reactors and small modular reactors based on other cooling media than water. It could be molten salt, lead, helium. For several years we have invested significantly in this area and we are today talking with many of the leading players in this industry globally and we are well positioned to also develop our business in this next generation. To finish off the nuclear section, I would say that we have a strong market position in this area. That is nuclear. If I go into chemical and petrochemical now, chemical and petrochemical is a segment where we also see excellent growth opportunities. This segment represents about a quarter of our turnover in the tube division. In 2024 we sold products for SEK 3.4 billion into this industry.
The products that we supply into here are heat exchanger tubing, hydraulics and instrumentation tubing, high temperature tubing, and other types of products. This is such a wide segment. Just to give some examples of, you know, what are the sub segments in, you know, what are some of the sub segments in this broad segment, I will show you a couple. We see also very promising growth prospects here. For example, ethylene is the most produced organic chemical globally and is considered a basic chemical because it serves as a fundamental building block in the petrochemical industry. It is primarily used to produce plastics and chemicals. Intermediates are derived from basic chemicals and used to produce more specialized compounds or material. PTA is primarily used to manufacture polyester fibers for textiles, PET plastics, packaging materials, and industrial coatings.
Urea is the most widely used nitrogen fertilizer globally. It boosts crop yields and ensures stable global food supply and is applied directly to soil or as part of fertilizer plants and biofuels like sustainable aviation fuel, aligns closely with chemical and petrochemical infrastructure using compatible processes and renewable feedstock. These are just four examples, but these four examples to give you an idea, this sub-segments represent around 20%-35% of our sales into the chemical and petrochemical industry. It is interesting to see our indirect exposure to industries that you may not directly think about if it is food or fuel or textiles, but there we are. For these industries and you see the, you know, the different products that our tubes are used inside here on some small slides.
Stainless steel tubes are absolutely essential for these four sub segments and for many other sub segments as well because our products are used in highly corrosive environments and high temperature applications where the need for advanced material is absolutely necessary. We see a trend to temperatures getting even higher and the environments becoming even more corrosive here. This is a perfect match for us because this is where we come in with our advanced material. Also, what you can see here on this slide, you can see when you're looking at the growth, you can see that the growth is very high in China. On the ethylene side it's big, in China and India. On the PTA side, it's big on the urea side. The chemical and petrochemical segment is an important segment for all our regional businesses around the world.
The growth in Asia is much more dynamic and aggressive than in other parts of the world. If you look at within Asia, China leads in volume and infrastructure, but India is catching up and is investing to become the next chemical powerhouse of the world. On the back of this development, we have expanded our facilities in Mehsana, India and Shenyang in China to support growing regional demand for advanced tubing, especially for the chemical and petrochemical segment. I think these investments that we have announced and that are well known is a sign of the commitment that we have for being a local premium producer into the local markets in Asia. I think one of the things that we can be really proud of is the growth that we have generated in the chemical and petrochemical segment in the APAC region.
Our CAGR over the last seven years is over 20%. Of course this is something that we hope to develop. With our strong team and strong footprint in the APAC region, we've been able to pick up a large part of this growth in the APAC region that we saw before. We've been able to create a solid value proposition for our customers based on local production. That was the chemical and petrochemical segment where we see good opportunities. If we then move into the third and final segment that I will dive into, oil and gas. We have two primary product offerings in this area. It's the umbilicals and it's the OCTG oil country tubular goods.
Starting with the umbilicals, the umbilical tubes are used in offshore exploration where they supply chemical and hydraulics from the offshore platform down to the bottom of the ocean. This is of course often very corrosive and high pressure environments. They are also supplying the tubes that you see on the seabed that goes from the production side to different wells. It is both tubes that goes down from the offshore platform down to the seabed and then across the seabed. That is the umbilical tubes. In offshore oil and gas exploration, the deep water 300 m and more and ultra deep water 1,500 m and more, investments in those fields as well are higher than in more shallow fields.
Also in existing fields, when these fields are extended, the tie-back distances, which is called from, like how do you get from the well to the center? Those distances are increasing. Both that the umbilicals need to be longer from the offshore platform to the, you know, production unit, and then the connections on the seabed are getting longer. That is a good development for the demand for our tubes because the need for high strength umbilical tubing is increasing. We can go to the OCTG area. The OCTG tubes are used inside oil wells to safely transport oil and gases from the well up from deep underground. In this area we are targeting the corrosion resistant alloy part of the OCTG market, not the carbon steel or low alloyed part of the market.
Exploration and development is higher in more corrosive materials areas where our material needs to be used. Also in this area we have a higher growth than the general OCTG market. For our OCTG tubing, we have a long-term strategic partnership with Tenaris. It is a $12.5 billion U.S. company that is a leader in the carbon steel OCTG production and they act as our sales partner. Tenaris secures contracts and engages us when their carbon steel solutions are not sufficient. For umbilicals we are number one in the world. For OCTG we are number two in the world. The market outlooks for this industry, including those from the International Energy Agency, indicate that global demand for oil and gas will be relatively stable or decline only gradually until 2040 or 2050.
While electrification is reshaping select industries, overall energy demand remains high. Hydrocarbons like oil and gas will be a cornerstone of the future energy mix, at least up until 2040 and 2050. You can see, you can look at, have different angles on this and it is linked of course to different political measures. What is for us the most important part here is kind of the red area that goes down. We see a rapid depletion of existing wealth. Even if we are going to continue having the same output from the oil and gas industry or even slightly lower, there needs to be upstream investments, it needs to be investments in existing fields, or it needs to be investments in new fields and our products come in when you invest in new or existing fields.
From our point of view, we think that the outlook is positive on this side. Those were the three segments and we have now looked at these three segments that together represent two thirds of our business. It is a major part of the tube division. Across all these three segments we have established strong market positions. A key reason for why we have been able to create these strong market positions is our commitment to research and development. Our strategy is to be the technology leader in the market. Our approach to R&D begins with a deep understanding of customer trends and in our prioritized segments. If we understand the customer trends and in our prioritized segments, we have a better chance of allocating our R&D money to where it makes the best difference for us.
We take these trends, we align them to actionable customer needs, and then we develop products based on that and the alignment from the customer trends to the customer needs. We look at what are the critical materials demands that are needed in different areas. Which applications will our products be used in? We work in close collaboration with our customer with R&D and our technical marketing. Based on that we develop value solutions for different new products or new processes. I will give you a couple of examples of how this is working kind of in practice for some of the products that we have recently launched on the market or products that we have in the R&D pipeline. These examples kind of illustrate our customer trend driven approach and how that is creating customer value.
If we start the nuclear, the trends that we see in nuclear, there's a trend towards wanting to have higher safety in nuclear operations and data centers. AI and overall electrification, increased needs for smaller scale modular reactors. For this, we are now developing products for the next generation nuclear technology including small modular reactors and generation four nuclear reactors. We are developing across different technologies a new tubular material for reactor use, including high temperature resistant FeCrAl alloys. Alloys based on ferrum, chrome, and aluminum. It's interesting to solve the high temperature problems that we have in certain part of that development. In the chemical and petrochemical segments, we see higher pressures and temperatures for increased process efficiency. We see a high demanding mixed service conditions that needs advanced material with larger operational window.
You can think about this as different types of raw material coming in into the chemical and petrochemical processing plants. For this we have created the Secure 35 product that's a multi-purpose grade with a performance that can match even higher alloyed and more costly grades in many critical services, thus making this grade a very cost-efficient alternative for our customers. On the oil and gas side we see the customer trend of deeper wells and longer subsea tieback system. For this we have developed SAF 3007. It's the next generation super duplex stainless steel umbilical tubing having higher strength and similar corrosion resistance as the current product 2507 that are the industry standard, and by the way, the product that is used as the skeleton for the Vasa ship here.
I think this is some examples of why we have taken the strong market positions that we have and how we're working to maintain and develop these positions going forward across different segments. As we've seen, the opportunities in our market are significant and we are well positioned to create value for our customers and other stakeholders. To fully capture these opportunities and deliver even better results, we must also look inward and strengthen the way we operate. We want performance and we have two kind of areas that we try to put focus on in this area: to strengthen the performance culture and to improve our ability to leverage our strong market positions. As part of the strengthened performance culture, we are developing an enhanced financial steering model.
We want performance to be transparent, enabling better decision and sharper execution across the organization. Very soon as we're working on this, we will be able to track performance on a lot more nodes throughout our organization. We will further decentralize accountability, and by pushing decisions closer to the customers, we will increase speed, agility, customer orientation, and I think this. We will also make ourselves and even more people in the company more accountable for the areas that they are accountable for. Because if you're accountable for an area but you're not financially measured on it, it's not the same. We're trying to combine the accountability with the financial tracking. We will agree on a common business principles that will guide us in our daily work.
These principles will guide us in our daily work, speed up decision making, increase engagement, and improve the understanding of what is required from us working in the Tube division. When these common business principles are integrated into our culture and processes, these principles will be very powerful. On the improvability to leverage our strong market positions, we are clarifying our commercial excellence methodology. We can do a better job in planning for growth, selling the value of our products and offerings, and tracking performance. We will enhance our product development process. It might sound a bit contradictory, but because it is our excellent R&D work that has taken us to where we are with a strong market position.
We are now putting a lot of effort into improving our product development process so that we will have even better, you know, get better bang for every R&D dollar that we spend. All together, these actions aim to convert our strong market position into sustained improvements in both gross and net margins. I will leave you with three key takeaways of what I talked about. Today we have really strong market positions in a diverse set of customer segments. Globally, we see attractive market developments in our most important customer segments. We saw nuclear, we saw chemical and petrochemical, we saw oil and gas. We are delivering well. Yet significant opportunities remain to enhance our operations and drive stronger margins and growth. Thank you for listening. Thank you. With that, I'd like to welcome up Robert Stål, President of the Kanthal Division. Welcome.
Welcome everyone here in the room and also those of you calling in online. My name is Robert Stål and as of February next year, I have had the position as President of the Kanthal Division for around three years. Years before that, I have a long experience within the Alleima Group and now we have the opportunity to spend around half an hour or so talking about and deep diving into the Kanthal Division. I will elaborate a bit on where we have taken the company from a historical perspective, significantly improving our earnings and becoming a more resilient business as of today. How we have also strategically shifted our product portfolio within the business we operate in and also how we intend to build on that going forward.
If we look at the Kanthal business and start looking at our customers and our customer segments, we are active in four different customer segments. While industrial, heating and medical are our prioritized growth areas. That has to do with our ability to earn money in there. We see higher margins and higher growth and that is where we put our focus. In that sense. If you look on the map on your left hand side, you can see our global footprint. Looking at the size of the company, I would say that we are well represented in all three major economical hubs of the world, meaning North America, Europe and Asia.
That has been important and is important to us to stay close to our customers, both from a proximity perspective, but also in order to understand what kind of challenges and trends they have, but also allow us to leverage on building competence and capabilities in our organization in different parts of the world. If we look at our sales distribution as well, you can see that on an aggregated level we're fairly evenly distributed between the three regions, making us exposed also to the different geographical trends that we can take opportunities in as we act in our business. If we look at the financial development over time, there's a few things I would like to highlight to start with. As you can see, we have been able to be a much more profitable company today than what we have been historically.
Both by increasing our top line and at the same time expanding our margin, then being able to yield higher earnings. From that perspective, if you look at the last few years, you can see that we have somewhat a declining top line and we have been focusing on, sort of say, showing resilience to our business. I would say that there are two main reasons for that. One is that we early on acted on cost where we saw volumes going down. The other one is that we have been successful in continuing to growing our targeted segments and more specifically, specifically our medical business during this time period. This is also an area where we have faced quite significant currency headwinds from that perspective as well. One thing that's been very important when it comes to achieving this growth is our organic development.
We have made acquisitions along the way, but the majority of the growth we have seen historically has come from organic initiatives. That is also a very important part of our business development going forward. Despite the fact that we have addressed our cost situation to lower volumes, we have continued to have a strong focus on R&D and our product development. During this time period as well, we have actually significantly increased our focus and spend here because we believe that this is a key enabler for being sustainable in driving profitable growth long term. In practice, we have almost doubled our spend into R&D both in relative and absolute numbers during the last two years.
I've now ramped up on a different level when it comes to trying to bring innovations and new products in the hands of our customers. The other part I talked about was the sort of strategic shift of our product portfolio, and on the left hand side you can see the share of our customer segments actually as presented on the last capital market day two years ago. On the right hand side you can see where we are today. If we start looking on, say, the combined level, we were at two-thirds in 2023. We can now acknowledge that the share of our prioritized target segments within our total share of revenue is up to 74%, though, so almost three quarters.
What is also worth mentioning is the fantastic development of our medical business going from 70% to 27%, which is I think quite an achievement in that sense. What is also worth noticing, if you look at the industrial heating part, you can see that from a numbers perspective it's a lower share today, but the reduction compared to 2023 for industrial heating is significantly lower than what you would observe in consumer and industrial segments. Looking at what we want to do is in essence to continue this journey. That is the key message that we're saying today. We want to continue a high pace growth within our medical side and also scale up that business. We have quadrupled the sales within the five years of this.
Of course this also comes with the need of scaling organizational capabilities and putting business processes in place as you grow from being more of a regional player to a global business that we want to leverage further. The other part is to use our strong position within industrial heating and continue to grow that into attractive subsegments that we are present in today. I think the picture here illustrates a good opportunity. It's a high temperature diffusion furnace in a semi-conductor fabrication setup where our technology goes into the wafer processing that are then later being turned into semiconductor products. I alluded to earlier the importance of being innovative and investing in product development. That is also a very important area for us going forward.
All of these trees are areas that I will come back to later in the presentation. While the fourth part is as needed as the rest of them, making sure that we are as efficient as we can in our operation but also improving our business through productivity and efficiency gains. What I can say here, if we look back in the last few years, we have directed a larger amount of our CapEx into growth initiatives, taking positions both in medical and industrial heat. If we take, for example, in our industrial heating segments, I foresee rather a redirection of CapEx going forward. There will be certain needs of capacity expansions in selective areas most likely, but we will also see higher focus and ambition of investing in our existing footprint, improving efficiency and productivity there.
We will start by looking at how and talking about our medical offering. To put this into context, you can try to describe this from three components. I mean we are a producer of ultra-fine medical wire as thin as a hair and these wires are metal based but can then be coated with certain polymeric or insulative covers but can also be configured in multiples of one or two or three, in essence producing very, very small cables that are very beneficial for certain therapies within the medical segment. The other part is that we can also configure these wires into different configurations as you can see on the picture here, in order to achieve certain mechanical properties or meet the needs of our customers when it comes to creating the best value for our customers' devices.
The third one would be moving into wire based components and here you can see an example of that with a braided nitinol filter in that sense used in different therapies. Before I talk a little bit more about the market, we will show a short movie explaining how we at Alleima every day support the quality of people's lives through our medical products.
When Amanda Rosengren was four years old. It was detected that she had Type 1 diabetes and a never ending dance b etween eating and pairing with insulin to k eep her blood sugar at a steady and normal level. High blood sugar levels can be fatal. If not monitored carefully. A few years ago Amanda got a c ontinuous glucose monitor CGM. In this device is a tiny, tiny w ire that works as a sensor that reads and sends the information in real-t ime to an app on her smartphone n ow her parents can have peace of m ind when she is away. Amanda can get the freedom to l ive like any other teenage girl.
Fantastic, right? Being able to go to work and knowing that you're producing products that actually improve people's lives. Every day we talk a little bit more about the market. I mean, some of you heard me say before, medical is by definition almost a good market to be in because over time it has shown to outgrow global GDP from that perspective. That is of course fueled by both an increased need of health care due to an aging population, but as well as welfare increase, the spending going into health care is also increased over time. Over time. What is also interesting for us is to look at sort of say niches or sort of say trends within this that we can play an important role. One of them is the growth in remote patient monitoring.
I will come back to that as well as the increased use of minimal invasive surgery. In essence, there is a commonality here. These products allow for a higher level of self care. It minimizes the patient's need of being in a hospital and it improves both, sort of say, the precision in care given by a care provider as well as it also reduces the cost of providing that care. Usually, it is also supported by insurance companies. In many parts of the world, healthcare is supplied through insurance and not just the system we are perhaps used to in Sweden. If you look a little bit about these trends and we start talking about remote patient monitoring, that is driven by the shift, so to say, out of hospital treatments.
But it's also an opportunity to generate data where a doctor in that sense could gather a much, much higher level of data than before and apply, for example, algorithms in order to provide a more precision-driven care in that sense and being more selective in sort of say what treatment is needed. Also, on an aggregated level, a larger set of data allows for both medical research as well as product development in Alleima. Better trying to understand and work with this, with these challenges. You saw the examples of CGM, the continuous glucose monitoring. I thought I will try to explain another area where we are active, which is within heart failure monitoring. In essence, here we're developing a sort of say a sensor consisting of a wire configuration in that sense.
That sensor in essence measures the health and status of your cardiovascular system in that sense. What it does then is by that our partners then are able to kind of conclude and see what health status your cardiovascular system has and are able to translate that more specifically to your heart health, and in this case that identifying or finding early warnings for heart failure in that sense. It both allows the patients to, you do not need to go to a hospital to be connected to a device to measure this, but it also allows for a doctor to be more productive and have better control of patients with this situation. That is a super interesting area that we see a lot of interest from our customers going into them.
On a similar note, minimal invasive surgery is becoming more and more asked for in that sense. It's the same thing here, minimal invasive surgery compared to sort of say open surgery, which would be the alternative. It both sort of say reduces the trauma to tissue in a way. I mean you harm the patient less and that means you have a more speedy recovery, which means you also spend fewer hours in a hospital bed. Not only does the patient being allowed to get home earlier after the surgery, but also there is a less need of the care provider to offer hours in a hospital bed, which drives cost in that sense. It's also very cost effective. We can also see that insurance companies are also promoting these kind of therapies done to ignore because it's a cost effective and good way.
Here, for example, we are developing products within the area of nitinol, which is a material we got access to through one of our acquisitions. In that sense, it is a super elastic and biocompatible material which is very, very suitable for this. Another example here is connected to the most recent acquisitions that we made within NDOCs. What they are really good at is a product called a guide wire. And a guide wire does pretty much what it says. It is something you use in an early phase of a minimal invasive surgery, locating the affected part of your body through a guiding wire that needs to be very, very flexible and very, very thin in order to, sort of say, navigate anatomically very, very narrow pathways in that sense.
After that the surgeon can then apply different kind of surgical tools such as, for example, catheters or other things needed to perform the procedure in the right location. That gives us an opportunity and further strengthens our product offering into this area, complementing our current business. What we're also able to do with this is to kind of package these wires in both a sensing and stimulating aspect, meaning we are allowed or we're allowing for different therapies to perform certain things in close dialogues with our partners through combining different configurations of ultra-fine wire that sense. Last but not least, we see an increased request of, sort of say, speed and focus when it comes to product development. Our customers and our partners ask for prototypes of medical device IDs that they have.
There it's very important for us to also be swift so we can respond in a fast way with, sort of say, relevant and good proposals of how we can, sort of say, help them further innovate and drive their product development part. Here we are also investing in R&D both in North America and Europe for the time being in order to strengthen this part of our business. If you look a little bit at where we are, where we come from, and where we're heading in that sense, this business originated from the United States, from our key site in Florida. This is still where we have our strongest customer base in that sense and also a very important area when it comes to innovation, both product and technology development. We have taken the step into Europe.
We have had three bolt-on acquisitions within Europe, establishing our footprint there, getting access to that business, but also now being able to and capable of setting up R&D and technology structures also in Europe. Last but not least, we are now establishing ourselves for the first time organically in Asia with a factory in Penang, Malaysia, which will be operational during next year. This is a market where we today have a low direct penetration. Indirectly our customers sell here as well. There is also an opportunity going further for further growth through geographical expansion then. This is absolutely an area where we are actively looking and interested in acquisitions. Of course, not only in Asia. I would say that goes for the whole world in that sense.
Naturally as well, we do not mind growing with our U.S. customer base either. It a little bit gives you a flavor of where we come from, where we are, and how we intend to continue this sort of say journey. Of course, with a strong customer base, follow them closely, continue to invest in R&D, in being sort of say putting new products, products on the market as well as taking the opportunity, so to say, of the geographical expansion that we also have. Moving along then and shifting focus now. Now we go from the world of medical to the world of electrical industrial heating. Here we have a product offering that started once with resistance material that has developed through heating elements, further on to heating modules.
Our latest addition is addition of process gas heating both in terms of larger scale as well as higher temperatures. What we can see has happened during the evolution of Kanthal is that we have added more value into our products, supporting our customers and providing them with better solution, solving their true challenge which is to ineffective way generate heat in the right way in the processes. If we look a little bit in the same way of the market here and try to explain a little bit about the sub segments and how we view that within industrial heating and if we start on the top banner of these segments, looking at electronics and semiconductor for example, this is an area mainly driven by Asia. I would say now that we have seen a good demand during this year.
It is also fueled by the increased, sort of, level of automation and digitalization that we see around it. Everything from semiconductor, but also from other electronic components and power electronics as well. Going into the electrification of car fleets is driving the demand here and our technology plays a role in producing these products. The same goes for glass, which is in one way connected to the electronics, electronic and semiconductor side. For example, display glass that you have on your phone, you have on your tablets, even in your cars today, that is also being generated, that need from the digitalization, but also supporting, also requiring industrial electric heating technology in order to be produced. We also have solar, currently a quite aubrey invested area, frankly. However, long term, solar PV, solar is one of the highest, fastest growing energy sources being invested in now.
Also going forward we believe this is an important area and a segment we're active in. If we look on the lower part and give you some few examples when it comes to transportation, we have one exposure which is to lithium ion battery. Also a segment that has been a little bit weaker the last year. Long term the trend is there that the car fleets around the world is electrifying. Also looking at other areas such as underground mine harbors, ports, airports, there's a lot of vehicle out there pursuing the way of being electrified. Also looking at the need of this. The other part is that we have also seen activity and have discussions now on the other side of it, meaning recycling of lithium ion batteries. Because there's a lot of batteries being out there in the lifecycle perspective.
There we see an opportunity also in that end of providing our technology in the recycling part of that. Last but not least, of course we are also very eager to help our customers to electrify even more in their industries. That is an area that we're also investing a lot of R&D in. Also, time of course talking to customers and trying to help them take the step of increasing their share of electrical heating in their operations. If you look, sort of say, where do we create value from our products, and maybe it sounds a bit like a cliché, but it's actually true. If you would ask employees in Kanthal what they would do, they would say that they generate heat. Then we have a lot of products to do that in a sense.
I think that tells a lot about the culture and I think it also tells why Kanthal has become such a strong brand within this area. Heat in this picture is illustrated where we say end user. That is where our products are then used in order to do that in that process. That is really where we make a difference. The transactional way there could be through a furnace build, but could also be direct, but understanding, so to say, what products the customer needs for this heating process, understanding what operational conditions they have, but also understanding how they should run their furnace operations in order to get the best bang for it, so to say, to be as productive as possible, as efficient as possible, and as sustainable as possible.
That is where we can really help our customers and that is what we do. Their end applications could be different. I mean, you will not find Kanthal products in an electrical vehicle, you will not find it in electronics components, and you will not find it in solar cells on your roof. In order to produce those products with high productivity, efficiency, and in a sustainable way, we can enable that through electrical heating. The other part connected to that is of course how we work with our sales approach and the value selling perspective that we have heard talking about before. I mean, this is a very good opportunity to be in this position in order to be able to explain how we can create that value and then of course capture that through the products we supply.
We put a lot of effort into really understanding our customers' applications, what are the values that we provide, and also, of course, how we should price our products in relation to that. That is also a very good way of, sort of say, keeping competition out of the door, being the best in trying to convey and understand the value you can provide for your customers, not only supplying a product in that sense. If we look at electrification, then industrial specifically in this case, I mean, there's no doubt that there's been a policy divergence lately. There's been a market uncertainty, and this has, of course, resulted in, sort of say, delay and hesitant when it comes to investments that we see as well.
If we look at the underlying trend for this and the demand for electrifying industry, we still believe that that remains in that sense. We do see the rising cost of carbon permits, which is incentivized, having a more cleaner and more sustainable heat source in your operations. Also, if we look on, sort of, say, the share of operating hours in a year of natural gas, which is the largest energy competitor to electrical heating compared to electricity specifically in Europe, we can see that the percentage of those hours have in the recent years increased. In certain Nordic countries, it is even significantly higher than this. If we would look here today, 2025, making electrical heating also a more viable and cost viable option compared to natural gas, which historically has been cheaper in that perspective, all other things aside.
If we look at sort of say transferring this into customer trends in the same way. What we see if we look at the industrial electrification part, one enabler there is the ability to electrically heat gases. Different kind of compositions of gases, but the common denominator is usually higher volumes and higher temperatures. There we are developing and have developed products under the collective name of Prothal which is our electric process gas heater lines. The flow heater that you saw earlier in the movie was an example of that. Another example is the demonstration heater that we will now put in at Emsteel together with our partnership with Danieli, so outside of Abu Dhabi during the first half of next year, we will have the first electrical process gas heater installation at the real DRI plant.
In that case, the DRI plant is natural gas based. It's already existing today and running as we speak, in a sense. When we have looked at this together with our partner in that sense, if you can take a natural gas DRI plant, combine that with electricity process gas heating instead of fossil heating of that process gas, and combine that with an existing electric arc furnace, so to say steel producing system, you can reach a CO_2 saving of 60%-70% compared to a blast furnace. Even in, sort of say, favorable conditions, that could go even higher. We also believe that for many actors around the world, that will be sufficient in order to produce in that sense. It's a significantly, sort of say, easier and less capex intense way of drastically reducing, sort of say, emission connected to steel production.
The other one I talked about, energy flexibility, we both see it from a supply constraint perspective. Many companies learn that especially connected to the energy crisis in Europe a few years ago. It also has to do with the increased, to say, competitiveness of electricity. If you look on the sort of the level of operating hours over a year. What we have now developed products from and we have installations of is hybrid heating solutions where you in essence can combine natural gas and electricity.
You can either choose it from a perspective where you during different heating cycles of your process can, for example, initially use gas in order to get a lot of energy in to start with, and then you can maintain your heat treatment parameters running with the electricity, or you can actually, depending on what available prices you have on electricity and gas, choose between your main resources, optimizing your cost of running your operations then. These are also two examples of where we put focus and R&D development now into helping our customers. I would just like to share this last slide on industrial heating. We have announced capacity expansions. We're currently expanding our silicon carbide manufacturing in Per.
We're also putting those capabilities partly in the U.S. We have announced an expansion in Sakura in Japan to capture the growth that we see in the Asian region. We've just inaugurated wire capacity and capabilities in Hissar, India and also investing in our German facility in Waldkrich. Looking at the current trade, political or geopolitical situation, we are well represented now. With the investments we're doing, we're also moving capabilities even further to those regions. We're building an even more resilient footprint connected to current trade challenges, if you will, not only investing in capacity. With that said, summarizing where we are, we have a proven financial profile where we have also seen a strong profit growth. Growth.
We are keen on continuing that within our prioritized segments and that is very much aligned to the growth and the trends we see on our customer sides. Last but not least, we have a global business and we will be leveraging those capabilities as well, but ensuring that we also have a very strong regional presence both when it comes to capabilities and footprint to serving our customers' needs. With that I would like to thank you all for listening in to the update on Kanthal. I'll take the opportunity to welcome Per Eklund for the Strip Division up on stage.
Okay, good afternoon everybody. Very nice to meet you. My name is Per Eklund. I'm the head of the Strip Division. I took this position in March this year. I'm quite new to this role, but I have a very long background in the Alleima and Sandvik groups and most recently from Sandvik Coromant We will talk about the Strip Division. The Strip Division consists of two units. One is the precision strip unit, which is roughly actually more than 90% of our revenues. Another unit is ServTech, and the priority today will be on the precision strip part. The main topic of the day is around margin improvement. If I take an overview of the strip business, we have our main operations in Sandviken. Roughly 90% of our cost base is in Sweden. Our footprint, so to speak, is also a number of smaller service centers.
One in the U.S., one in Japan, and our main service center, I would say, in China. I'll come back to why is the main center in China? If we look at our customer base, it's quite different from the rest of the divisions. We are heavily exposed, so to speak, to the consumer industry and a significant part as well in industrial applications, which is primarily around food processing, I would say, but also to some extent in the printing industry. We have a, I would say, kind of a shrinking part, which is transportation, primarily automotive, which has historically been a big area for the Strip Division. It's getting smaller.
If we look at our geographical exposure, Asia is our dominant area and China is by far the biggest part of our Chinese exposure, or Asian exposure, I should say, whilst North America is very small. One of the reasons is that in the U.S. today, as an example, compressors are no longer made in the U.S. There is virtually no compressor manufacturing in the U.S. Most of that is done in Asia today and tied to that as well. Johan talked earlier around currency exposure and our biggest currency, single biggest currency is the Chinese Yuan. And combined today, roughly 50% of our invoicing comes from U.S. dollar and Yuan. Even though the U.S. dollar or the U.S. market is fairly small, we have a lot of contracts with larger customers that are in the U.S. dollar .
To put it in a little context in terms of where we're coming from, if we look at going back to the COVID years, you see a peak here which is quite different from the rest of Alleima. There are good reasons for that. We have very, very limited exposure to capex intense industries. The majority of our customer base is, as I said, in the consumer segment. During the COVID years, with the distorted supply chain, availability of material was a critical thing for our customers. There was an inflated demand during those years in terms of ensuring that our customers could service their supply chains with products that in turn of course led to, or should I put it, less price sensitive at the time. Combined with that, we were able to keep a very low cost base at the time.
After COVID, destocking happened and the market shrunk and price competitiveness became higher, inflation went up and we were not fully able to compensate the cost increases we had with price at the time. If we look at where we are now in 2025, we've had a number of operational issues that we're addressing right now. Also, we've taken quite a bit of cost in our inventories, both one-offs, but also generally devalued our stock levels a bit, and at the same time as many other parts of Alleima, a significant currency headwind as well. The currency headwind, that's the new normal, so to speak. That's what we're working on as we speak, so to speak.
Looking forward though, the ambition for the Strip division is that during this strategy period up until 2029, clearly become above average profitability in the Alleima group. A lot of the focus now will be talking about how are we going to do that if we take a quick look at our product portfolio. Göran mentioned a couple of those products where we today have a very, very strong position where we are a clear number one. One is in the compressor segment and I'll do a little bit of a deep dive in that. Also in the medical sector and this primarily what is bone saw steel.
If you're unfortunate to do hip replacement as an example, the second picture to the left there, that's a bone saw that your surgeon will use, but at least you can feel confident that it will be a very, very good bone saw. The third picture here is knives and that's handheld knives. Knife steel is a big product for us from a volume process perspective, but it's quite a variety of products. Part of it is handheld knives for high end chef knives as an example, but also high end hunting knives, which is one part of the market. There's also a big market for knife steel for food processing. We'll come back a little bit around knife steel and how we intend to sell that.
We have not been successful in selling our prime knife steel so far, which is a Dahmax grade, a very unique product. Last but not least, our biggest product from a pure volume perspective is razor blade steel or shaving products. This shows what we refer to as wet shaving. If you have a regular razor, typically at least if you buy it in Europe, it is very frequently our material in it. In addition to that as well, one of our key products is for electrical shaving where we have a very, very strong position with premium electrical shavers. Our priorities going forward now is one is around maintaining our technology leadership and market leadership.
In our core products, being flapper valve steel or compressor valve steel and bone saws, we have a number of commercial excellence initiatives that we intend to drive or have actually started to execute on already, but then also work on our cost base to improve our cost base, but also to improve our capital efficiency overall.
If we take a little bit of a deep dive in the compressor valve business. A compressor is used typically in refrigerators, freezers, air conditioning units, heat pumps, and it's the main component that consumes energy in those appliances. Energy efficiency is a key driver when it comes to compressors. Looking at what it is right now, roughly 20% of the electricity consumption in buildings comes from cooling. That cooling is primarily air conditioning and refrigerators and freezers. If you look at what is happening right now, the number of air conditioning units in India and China is tripling during this decade. If you look at India, that trend is definitely going to continue. They have just started on an individual level to buy air conditioners, I would say.
If we look at how we work with this to safeguard, our position is that we work across the whole value chain, not only with our direct customers, which is the so-called stamper. Basically, what our direct customers are doing is that they buy a piece of strip from us and then they punch out the valve. That valve goes into a compressor. How that compressor is operating has a very, very tight link to the actual valve. The valve sets the performance of the compressor. Sometimes some of the end users or OEMs, I should say the white goods manufacturers, some of them have in-house development or compressors themselves. The vast majority source their compressors from a designated compressor manufacturer. More than 80% of all those compressors are made in China today.
That is why we have over the last 15, 20 years developed a service center in China that has safeguarded that we have this position. What we do together with the compressor manufacturer is to safeguard that our material goes into all new designs of compressors. If we have our product specification in that compressor, that means that material will be used for that whole series. Those series could be in the tens of millions of compressors. Working very closely with the compressor manufacturers is the key thing to make sure that we are present in the future compressors of this industry. Consequently, that is also where we spend our R&D resources.
Primarily, one of the things that we are developing right now is to work jointly with the compressor manufacturers in working with them on the valve design and through that also do the testing of that valve design. We have specially designed testing equipment that we have developed with our customers or compressor manufacturers so we can shorten the lead time of bringing a new compressor to the industry or to the market. If we move on to commercial excellence initiatives, sustainability is a very critical part for us. We have a very solid base in terms of belonging to Alleima and the Alleima integrated supply chain with metallurgy, which is very cost and energy efficient and has very low emissions. That in itself gives us.
A l eading position, you could say. One of the things of course is that a lot of our customers are also signed up to science based targets, which means that we are scope three in that sense and circularity becomes a critical part. One of the things that we've accelerated during the years, what we refer to as a buyback program because if you remember that picture where our customers stamp out or punch out material, there's a lot of scrap. When we can buy that scrap back, we can put it straight into our integrated supply chain. This is a good financial benefit both for us and our customers because we can typically pay better for that scrap than the local scrap dealer. At the same time, it's well sorted scrap which is very cost efficient for us.
It is a very good financial aspect of this as well. Yaran talked also about value based selling. That is very critical for us as well. Of course, to be successful at value based selling you need something what we refer to as technical marketing. Technical marketing. Marketing competence is what translates product properties into an understandable customer value. How do those product properties add value for the customer? That is an area where we have not been strong enough recently. That is one area that we are investing in now in those type of capabilities and competencies. Also, as we all experience, I think we have expectations in the digital environment where all of us I think are accustomed to very good response rates when we buy something online, for example.
One of the things that we are striving for is to safeguard that we move towards quality business to consumer experience for our customers as well, versus a business to business experience. That for sure will also increase the customer or improve the customer experience overall. Last but not least, Göran mentioned as well in his starting tone, we are good at key account management. If we look at our top 100 customers, they contribute with a big share of our sales and we manage them very well. There is a weakness with that as well, that we become too dependent on how they grow. What we need to do is to find better ways of servicing smaller customers. The answer to doing that is to work with Channel Partners. Channel Partners is a very cost efficient go to market model.
There's no associated fixed cost and they sell on something else. They sell on availability, which means that they can sell to different price points. Where we have started to work with Channel Partners versus direct sales is primarily in the knife industry to get access to smaller knife makers. They are typically clustered in different countries. There's one region outside Lyon in France, there's one in Solingen in Germany, there's one area in Japan, there's one area in China. That's where we have located Channel Partners to work with us. We stock material at their place and they have very short lead times to their customers, which is beneficial for all, I would say.
We kicked off this initiative end of last year and today we have signed up 10 partners where we have formalized agreements where we support them with marketing, we support them how they promote themselves on their website, we train their salespeople. On top of that, we have identified nine targeted Channel Partners that we're talking to right now to establish during the next few years. We start to get the very solid global network of Channel Partners. The first target has been high end knife steel. We've already seen that there's a lot of opportunities to work with these Channel Partners around other products as well, which will give us a completely different reach. As far as what we've seen so far, the business that we do with these distributors has a positive margin effect as well.
Well. If we look at the cost side, especially for the products which has large volumes, I see a lot of opportunities to improve our cost base. If we look at our maturity when it comes to automation, that's still on a quite low level. We have initiated now a project to upgrade our finishing operations. Our finishing operations is our most labor intense part and we see a lot of opportunities there going forward. Another factor which has hurt us during the year especially is poor yield. I think we've underestimated the effect of poor yield on our financial result. Earlier this year we also launched a program to improve our yield and we've started to see effects of that already.
Now I would say then on top of that overall also workforce flexibility as such, and last but not least the inventory issues that we've had. I think we have started to get the really good control of our inventories in a different way. Now we really start to see effects of that as well. Inventory management will be a critical part going forward as well. When summarizing, I think we have a lot of good activities ongoing already in execution to improve the margin, because that is our priority. As I said during the strategy period, the Strip Division should be abov e. Alleima average when it comes to profitability.
Make sure we manage our leading positions which are strong today, very strong, expand our reach, strengthen our market presence, invest in digital capabilities to give a better customer experience and last but not least, safeguard that we have a much better cost base and inventory management. Thank you for your attention both here and online. With that I hand over to you, Andreas.
Yes, thank you, Per. We'll now move over to the Q& A session and while we get sorted on stage, just a few reminders to you online. Don't forget you can submit your questions directly through the designated field on your screen, and to you in the room, if you have a question, please raise your hand. We will hand you a microphone then. Please state your name, organization, and to whom you wish to ask the question. Please try to limit it to two questions to begin with.
And with. Y eah, I think we can maybe welcome our speakers back on stage. All right, questions from the room. Yeah, maybe we start with Anders.
Thank you, Andreas. Anders Ek blom from Nordea. Firstly I would like to ask a bit on your expectations of through cycle growth in your targeted segments. You stated this is 6% relative to the previous capital markets day. You stated at 7% roughly. A slight downgrade, although it is coming from a separate base, I recognize. Is there any market in particular, apart from perhaps hydrogen and renewable, that is driving that slight downgrade?
Maybe I should try to answer. First of all, it's not perfect science to do these things. We do them annually, always as a start of the strategy period. Normally we do this once a year, roughly this time of the year, sometimes a little bit. Apples and peers. I think we have for instance in some of the segments more targeted towards applications where we are in. There's nothing in particular apart from what you mentioned. Hydrogen, especially hydrogen is lower.
Thank you. Second question, if I may utilize both so previously as well. Sorry for the bean counting, but you stated that industrial, the target was for it to account for approximately 15% of the sales mix in 2030, at least at the midpoint. You're downgrading this to 10%-15% in 2030 now. Is that in any way related to the recent cost out measures that you've announced?
No, no. I think in our plans of course we have a number, but then we need to have some sort of margins on that. I think one reason why we're somewhat unsure, remember what we're doing, we targeted sort of the growth in certain segments and if we need sort of capacity, we reduce in industrial, and I have to remember that is so much more volume. They take some time. Of course, the one in the part I think what will impact that number when we come to 2030 is, I would guess, what is the business cycle in oil and gas at that moment. There is no specific reason, and I think it takes time to reduce the industrial because it's still quite a lot of volume.
I received one question when we took the decision to reopen the Tube in 1968 for the nuclear and the question was then you can reduce a lot with industrial. That's not true because the volume part for nuclear is so small that is high revenue.
Makes sense.
Thank you.
We can go straight to Adrian maybe.
Thank you. Adrian Gilani here at ABG. My first question is actually for each of the divisional heads. I hope that still counts as one.
I guess how much of your. Current portfolio would you say is currently being priced as a value-based approach and how much is sort of a pure price per kilogram or price per meter approach?
Thanks. Good question.
The question is what are we value selling and where are we selling a contribution type of product? That is hard to say. I think that it's hard to give a direct answer, but I think in the segments that I showed, the three segments, of course we are value selling in those areas. We have a big share of the industrial sector within our business, and that is very much supply and demand related. I'm not in a really good position to give a percentage number there, but I think if you look at the industrial share of our business, part of the industrial share of our business is things we can value sell in. I would say it's a smaller part. The bigger part is maybe more of a contribution nature, then it's important.
There's a shift also going on in that area because we are investing in the additional ring melting capacity and the products that we sell out of that in the industrial sector we can value sell those.
Okay, any answers from the other divisional heads?
I can quickly comment on that as well. No, I think if you look at our targeted segment medical and industrial heating, that is clearly our ambition and our sort of, say, operating model when it comes to, say, pricing prefer, and then we can arm less how good we are at it, of course, and I think you can always improve your ways of working. When it comes to more consumer and industrial related products, it's more difficult to claim value there by having such an approach, which is more related to, say, we should refer to it as a market price or similar. In that sense then.
Okay, thank you, Adrian. Am I okay to answer that question as well? Because then I can take the opportunity to put some pressure on my dear colleagues here. I would say roughly 80/20, I would say 20% is our contribution business. That does not necessarily mean that 80% is done perfectly from a value sale point of view. I think the traditionary company with a high focus on our products and technology, we should continue to have that. I think we can improve the way we understand, discuss and sell the customer value. That is more from a commercial improvement point of view.
Yes, maybe we continue with Caleb next to Adrian.
Thank you. Kaleb Solomon from SEB. Kind of related to Anders' point on growth and what you said earlier, you want to on recent CapEx sort of being more representative than historical levels. I mean, given that you're growing from a higher base, isn't it reasonable to assume CapEx should keep growing in absolute figures for the next few years?
Do you wanna?
I don't think so. It would maybe be great because that would be good ideas. I think it is. I mean if you look at the graph or the slide I showed with a lot of initiatives ongoing, I think we are fully occupied of finishing those. I think it will stabilize. That is my view. Okay, and you've talked about this before but you've kind of been able to raise prices to sort of offset tariff costs and maybe this is very hard to answer but do you think you'll be able to compensate in the same way if currencies keep developing in the wrong direct. Wrong direction, you mean? I mean I think that is more difficult. I think it's easier to have a discussion with the customer saying I'm not prepared to pay the tax that your country is putting on my products.
FX I think is more difficult. I think over time it has to be solved through prices. Could also be some footprint. An American customer who paid $100 per kg does not understand why he should pay $110 per kg just because the dollar went down. I think it is more difficult.
Okay, thank you. But I can also just add to that, I mean we are in very specific niches and of course we have really tough competition in the different areas, but it's not that many competitors and it's also interesting to look at where our competitors are located because it's not only us that are challenged with currency situations and that may impact the pricing to the end customer. So it could give us some more chances of also adjusting for currency, but it depends on how the competitive situation looked like and how competitors are impacted by the currency.
Just a comment from my side. Typically we do not involve currency in price negotiations if you will because when it goes the other way around, our customers know that as well. You end up in a never ending discussion about price level. It does not make sense always to, even though it is something we need to be mindful of, of course. To Carl's point, what position do our competitors have? Sometimes we need to act and adjust based on that.
Super Viktor maybe.
Thank you very much Viktor at Danske. Also on CapEx first and I guess when you speak about stabilizing CapEx it sounds like it a lot relates to, you know, the mix change or, you know, growth CapEx but a lot, a lot of the other, you know, opportunities, efficiency. Taking down CO_2 will probably also cost money. You know, could you sort of quantify how much CapEx you're willing to take on, you know, to take down CO_2? Also, you know, in terms of the efficiency part, you know, how much could that add to annual CapEx?
That's first, it's impossible to give a number of that. I think it depends on so many things. First of all, with the CapEx, we still should be cash generative. I think looking at the balance sheet is an important part. I think it has to be good paybacks. If there is a good payback on an investment and we have the resources to do it, normally we would do it, but difficult to start to share a number with you.
I'm sorry for pushing on this, but at stable CapEx, would you take down CO_2 by the levels that you sort of indicate to 2030, or would that require additional investments potentially?
As I said, we have different. We have gone from where we were in 2019 to where we are today. We have reduced it by 40%, 41% without taking on any investments. To some extent, we have increased the cost of energy because we have partly some biogas, and biogas, even though it is the same molecule as natural gas, is a little bit more expensive. Different ways. We also have hydrogen on pipe. We are not going to build a hydrogen plant. We have hydrogen on pipe. Sorry, we are not going to build a hydrogen plant. Potentially yes. What I try to describe in the sustainability part is we are not going to invest a lot of money, claim a little bit less fossil energy products.
If there is not a customer value or if there is not a saving on the other side, then we will not do that. That and not.
Okay, fair. Secondly, I appreciate the sort of scatter plot that you showed on return on capital employed and also, you know, growth, but it seemed to be the fifth group that you did not, you know, mention with low returns and basically no growth.
I think I mentioned those. I mean industrial is such an area. They exist in a portfolio and they are not small. I mean there is a reason why they are not prioritized and that is because they are lower. On the other hand, if I just would remove them that will have a negative impact on all the other products. It goes together, but what I was clear on is that the contribution business, which a lot of industrial, that is important as we are, but if you want to grow that business, that growth has to generate value. There might be some opportunities. There are also some nice businesses within industrial, so this is of course a simplification, but it's not okay to grow that if we don't create value.
Maybe we can just hand it. Yeah. Pass it along to you.
Thank you. Igor Tubic, DNB Carnegie. I have a question related to the OpEx and CapEx business that you have. Looking at all the growth initiatives that you have, is it fair to assume that everything is CapEx business related, or is it, because what I'm trying to understand is if your CapEx related business will grow the total share of your, and make it more cyclical.
To say I don't think I have a number we could reason together on stage here. I mean what we do in medical, that is not CapEx heavy. What we do in nuclear, that is a CapEx decision. I think most of the chem petrochemics also CapEx related. Industrial heating, 50/50 maybe.
That's a fair assumption.
The second question is I wonder around the nuclear. You said before, if I remember it correctly, that you have orders until 2029. Are those based on fixed prices already or will you be able to increase prices if the market moves in the right direction going forward?
I think we have a good order backlog for our new capacity up until 2029. We have our existing operation as well, our existing capacity, and there we do not have as long order backlog, but still a good one. Everything that we have in our backlog is priced. I think a comment was made before that some of the business that we now are coming out of was priced after the Fukushima incident when the demand was very low. I do not think it is a big problem.
I would say that we have, you know, what we have in our backlog Is priced, .
But metals and currencies are hedged.
Okay, but can you share and give us some sort of ballpark around how much prices has increased? Is it like double digit or single digit or just to give a, to understand in the new report?
I cannot say that. Maybe you can, but we have. When I come back to S and T end of 2017, the 2M68 was closed. Actually, the new mill was also closed. People were working elsewhere and then suddenly started to come back and we were really happy to book some orders and that was not very good prices. It is also in China that is starting to be flushed out of the system. To give a percentage, I cannot say.
I think it's difficult to say but I think it's, yeah, hopefully we will be able to show that, you know, show how things are developing in our quarterly results moving forward. I think it's difficult for us to comment because it depends on the mix of customers. We're selling to different types of customers in different parts of the world and it's that mix of customers within the nuclear segment is also having an impact and it's not just pricing for individual customers, how that is developing. I would probably say too much if I started to comment on our backlog because.
I think one thing we could estimate, sometimes we have had Chinese orders. I guess if we compare a Chinese order with the North American order, I mean it's more than 10% difference in price.
Yeah, thank you.
Right, more questions. Anders again?
Yeah, sure. He's like the analyst of the most active people in the room right now.
I waited for a moment. Robert, a question to you on your expectation of demand for industrial heating solutions in Europe. If we would see a potential postponement of the ETS or at least free allotted phase out in Europe, how would that impact demand for industrial heating solutions in your view?
Specifically? That's a difficult question to answer, but I think what's important here, and I think your question is related to that. If we look today, so to say, the electrification of industries is a smaller part of our current business. In that sense, it's rather an opportunity going forward in that sense. Of course, all sorts of, say, regulatory measures like ETS, the emission rights, the cost of CO_2 emissions in Europe—if that goes up, it will help us. If that's delayed, that might postpone, sort of, decisions of investments going forward.
Right now what we're seeing, so to say, I would sort of say to start with, I would rather see a pickup in general business climate and investment levels in general in the U.S. I think that would be more important to us if we look a bit shorter term than specifically that question. Of course, less regulations that, you know, helps customers to take that step is of course not positive in a sense, makes sense.
That is we're part of that. We have gas fueled furnaces. Not all of ours are control fueled yet. And we reason the same way. If we cannot make a payback calculation that will take longer time. It's sort of rational decision making. Yeah.
Yeah. We have another question from Viktor. I just want to make sure if there's any other people in the room who wants to ask questions besides our hand, this is. Viktor, please go ahead.
Yeah, thank you very much. Perhaps for you, Carl, just on the Tube division and specifically in the U.S., how much would you say is, you know, energy related in the U.S., specifically that is nuclear and oil and gas of that sales? Yeah, I think when we talk about, you know, tougher demand in the U.S., it is in our regional business, it is in our chemical and petrochemical business where we see uncertainty that is holding back CapEx. On the energy side, it is a different story. Demand is good. On the aerospace side, demand is good even though many of the aerospace customers are on fairly high stock levels. The underlying demand in aerospace is very good. The question is how much. Sorry, the question was what share in the U.S.? Yeah, exactly.
Is it like, you know, 50% of U.S. sales?
Is it different here from here?
Yeah, that is related to nuclear and oil and gas specifically just how much of, you know, U.S. business. Yeah, I could, I can't give. Could you help me with an answer if I don't give the wrong answer?
Because I don't think we have enough and it differs a lot from year to year to year. I mean, could be a nuclear project. If it's in the U.S. it's good. If it's in Europe then it's slower. The project business makes this difficult to answer the question.
I mean I can easily say that kind of the energy part and the kind of aerospace part is more than 50% of what we sell in the U.S.,
And between oil and gas is it like 50/50 split or. Basically yeah. That I can't answer specifically for the U.S. because it depends on that information. I don't know. In general in oil and gas it's that split about super.
Sorry if I just made one more but on and that's for. This one is for you, Yaron, but in the indicative a little bit margin bridge that you showed. We have spoken about the mix shift historically. We sort of understand that it feels like you have added a bit of components. Secondly, talked about efficiency and volume leverage. Volume leverage feels like are you sure that you won't grow volume so much? It should be mostly efficiency, I guess.
Depends on how you quote of. I mean if you run more complicated products through a finishing operation, even if it's not much volume on our total numbers, it's still more volume in those machines and that gives absorption and gives leverage. Okay, I think you're right. I think the overall strategy is the mix shift journey. I think in certain areas either because we see more potential or I mean everything in a company does not always work in a perfect way. I think we are deciding to drive more of the performance related initiatives as well both in operation. I think you, Carl, came in here and said what a fantastic technology you have and what a product focus and maybe we could add a little bit more focus on customer value.
I think that's a very, very valid comment that you came in with and some of you asked the question what's the percentage in contribution and value sell? I think we could do much more value sell but it's sales training and it takes some time.
Thank you. I'm sorry, Igor, but we're over time actually and just why do you. I just wanted to finish up with a question to you, Göran, as well. If you were to give our listeners a final takeaway of the day, what will that mean?
First of all, I think we are developing the company in the right direction. I think clearly we have improved the financials of the company. We are more profitable, we are less volatile than before and it's not coming by sort of accident. I think we have a strategy, we're executing on a strategy and I think there's a lot of opportunities to continue this, and I think what the division president has shown in the different parts of the organization, a lot of opportunities to both generate growth, but also to drive performance improvements. That would be my summary.
Great. Thank you. Thank you all for your questions. Thank you, Göran , Johan, Carl, Robert and Per. The full program has been recorded and will be available on our website around lunchtime tomorrow. For those of you here in the room, we invite you to stay for some refreshments. Please follow our hostesses. They will guide you up to floor six, where we can continue the discussion with management while also enjoying a pretty cool view over the Vasa ship. This concludes our stage program. Thank you all for joining us.