Hello, everyone, and welcome to Epirox Capital Markets Day 2019. My name is Matias Olsen. I'm heading up the topic occasions here at Epiroc. And it's great to have so many of you here. We are about 100 participants here in Stockholm, and much more on the webcast.
It's great to be here at the Technical Museum. It's a venue fit for purpose. There is a mine here And we also have an exhibition of robots here. So that fits very well. We have a number of a pair of people here as well.
The whole management team is here, and we have a lot of colleagues helping out with the event. Before we kick up with the program, some issues about safety, always safety first, we have a number of emergency exits marked with Green Science, as you are aware of. The gathering point is outside this venue in front of the entrance, towards the next museum on the other side of the yard. A few practicalities as well, mobile phones, I assume you have most of you, please put them on mute or turn them off. And then we have, on the purpose of a Capital Markets Day, why do we have it?
I mean, it gives us an opportunity to present a little bit more in-depth our strategies, our strength, what we are trying to do as a company. It also gives an opportunity to meet management and bring a bit more insight into our business Today's presenters, after me, Palin, where we'll kick off, He will describe our key strengths, our business model, give some insights about drivers and so on and how we create value for our stakeholders. Helen and I headlong will then talk about the aftermarket. In more details Martin Yarpa, our Vice President, Senior Vice President of M And A And Business Development. We'll comment a few words on M And A.
Then we will have focused presentations on underground and surface equipment. And on the latest development when it comes to automation, digitalization, electrification and so on. So here, we have 2 division presidents joining. First, we had Samanedaen, President of the Underground Rock Expiration Division, and he will focus on the Underground Solutions. And Jose Sanchez is also with us from drilling solutions divisions in the U.
S. And as we are in the forefront of technology, He will be with us, digitally from Texas and present the solutions from, surface applications. Also a few words, we have we will have this event sent over webcast, as you understand, the presentation material is available in the webcast, So you can download it there. We will also have an on demand version after the event available and presentation material will also be available on our website. We have a photographer here as well.
Ulla Kinander, So he will be photographing here as well. And he will also take care of the journalists. We have a journalist interviewing power in the break. So we'll like you to stand up. Here he is.
So the journalists welcome to all of you after the when we have the break, please join Ola. So, very good. After the break, Anders, our CFO, will present our business model and connect it to the financials. And at the end, we will have some time for Q And A.
Yep. Right. I like that intro, actually. It didn't show that well on the screen, but, I think it's very good. Powerful.
It's, really signifies seperock, yeah, hard rock and, tough. So, this is actually the 2nd Capital Markets Day that we have as company. Last year, we won early bill this year in Stockholm. Last year, we had fantastic weather, this year, well, we have what you already know. And so it's different, but also it's a slightly different company.
We were not listed last year at the Capital Markets Day. We made a promise that we were ready to go public at the time. And I think after that, we actually demonstrated that was true. I think we've had good progress since the listing, which was 18th June last year, certainly not without its challenges, but overall I'm quite happy. But we're not going to dwell on history today.
We will look at where we are right now. And certainly look at what we expect going forward in terms of Technologies And Markets. Now question to you guys, how many were at the Capital Markets Day last year? Oh, I would say between 30% 40%. Okay.
So if you were at the Capital Markets Day, I hope you remember this. These are the key strengths. Of the company. And that's still the case. We talked about that last year, and we're going to talk about it this year.
For those of you that are new, remember this because this is essentially trying to capture exactly what the EPRAQ is all about. So we'll talk about this and we'll, we'll try to assess actually convey the message that, yes, we are a leading productivity partner in Attractive niches. And we do have a strong and proven operating model. We'll talk about that. That we have high and resilient aftermarket exposure.
And Helena will specifically talk about that. We'll also convey the message that we are driving the few and intelligent mining and infrastructure. Now this is certainly a hot topic. And based on that, we also hope to convey the is that yes, we will continue to deliver value. We've done that over the history for quite some time to our customers and many other stakeholders to the capital market, while we're relative new.
So far, so good, I would say. But we certainly have a long future ahead of us and the intention is to continue. To deliver value. So some basic information about tepirocctan. So I'm sure you know this, but nevertheless for the record, What do we do actually?
Well, we provide equipment and tools, service and solutions. And we want to be innovative, and we are very close to our customers. And we are a, essentially, one hundred and forty six year old startup with a little more than 14,000 employees. We have about 1500 temporary workers as well. So all in all, almost 16,000.
But nevertheless, we're in 150 countries. And the thing with being a one hundred and forty six year old startup is actually fantastic because we have the history from Atlas Copco and we have the opportunity to do things our way. And that's what essentially what we're doing. And it's not a revolution. There's no reason for us to create a a very distinct break with our history.
No. We're not going to do that because there's so many great things that we but that we bring from the history is rather an evolution. And I think that's also signifies what we've done over the last year and a half, and that's what we'll continue to do. We've had revenues slightly above 1,000,000,000 over the last 12 months, reported margin, including everything, of 20.1% and returning capital employed a little less than 30%. I'm sure you know these numbers, but nevertheless.
Now we talked about the track niches. And yes, we believe we are in attractive niches. 1st of all in mining, about three quarters of our business is towards mining. And then the other quarter is in infrastructure. And actually, in now in Q3, we had less than that the infrastructure only 21%, but roughly that this is the distribution between these, customer segments.
Mining, underground surface very specialized underground. We have a relatively comprehensive offering in terms of machines. On surface, we offer, drill rigs different sizes, different applications, but that's what we do very specific. And mining customers, very different from infrastructure. Mining, of course, large customer high CapEx, they are, they are where they are.
Mine is where it is. It doesn't move. So So and that creates some specific type of opportunity for us when it comes to delivering both machines, but also service and aftermarket revenue. Infrastructure are different typically smaller customers. They move from site site more difficult for us to follow with service.
So we have to apply such a different business model when we sell, but also when we do aftermarket business with our customers. Infrastructure typically underground civil engineering tunneling surface civil engineering where we basically use our machines, well, not we don't use them, but our customers use them. For drilling for various building sites, for example, and then we have a business hydraulic attachment tools that is applied essentially for deconstruction and recycling. We have a strong and proven operating model, and this is very much in the DNA from Atlas Copco, but now this is Epirocke. We have a focus on decentralized business for quick and efficient decision making.
And I think that's true. My own experience, from my previous career and industry as was a slightly different model, and I have to say that this is true. This decentralized business as quick is a very efficient It's not perfect by any means, but it's a very solid and good model and works really well for us. We have high degree of direct sales, about 85% of sales is direct. And this is something that we definitely will continue to nurture.
This direct contact with our customers, gives the benefits, gives a presence and also, various of entry actually for our competitors. These two dimensions, the centralization, the direct sales, I think, is vital for our Agility, I. E. Being in contact with customers and also having, decentralized the business means that we can be agile and quick. It's not the only things, but it's vital.
Strong service business, 65% of revenues and very flexible filtering philosophy. We add 25 percent of product costs. We buy 75. These two things are crucial for resilience. I.
E. That we're stable over cycled because as we all know, mining and infrastructure are relatively cyclical in demand. These two dimensions create resilience over time. Pushing growth is our focus on innovation go forward. And I think that's something that you will hear a lot about today, and that's the purpose.
We have a focused and decentralized business as mentioned and some details. Well, we have 7 divisions, 2 segments. And is Drilling Solutions. This is based out of Garland in Texas. Service And Exploration Drilling also smaller crawlers for, surface applications, underground rock excavation.
Sami is here to represent that. We have Rocktech, which is our technical technology division, supplying internally with R&D and various, technical services. And we have the mining and rock excavation service. Which is big and very successful. And then we have the other segment tools and attachments, rock drilling tools, and hydraulic attachment tools.
This is, this is essentially how the business structures. And I think it's a very good team that we have in place. We have, and, drilling solutions in Garland, we have Jose Sanchez. He's going to be via cable here today. He's Spanish and surface and exploration drilling is Brian Doffing.
He used to live in Sweden, he's American citizen now back in the U. S. Underground rock excavation is Sami Niranen here, from Finland, now lives out in Sweden. Rocktech, you know, as Albatron, Swedish lives out in Sweden, Mining rock excavation service is just Kindler, is an American citizen, living in Sweden now. Rock reading tools is Arun Kumar, Govindarayan, he's Indian.
And it lives here. And the hydraulic tapering tools is called Ampoposki, is Macedonia. And so we have a very diverse team. And it's a good team. And, really, controlling all of this and doing a great job, basically, and I have Bloom.
Also Swedish. And you will see more of her later on. We're close to our customers, and you can see, we have, yellow dots and blue dots and the yellow dots are equipment and service, production facilities. And the blue ones are twos and attachments. And service equipment and service facilities have been relatively stable over the last period.
And I to continue to be stable, whereas tools and attachment, not that stable. The reason is, pretty straightforward. We do M and A. We've acquired businesses and production, and we've also, discontinued, sold over closing some other facilities and that's more of a constant pruning when it comes to tools and attachment production. But we're as you can see, we're well spread out.
We're relatively close to our customers when it comes to production. And this is a network that we will continue to leverage going forward. And production strategy terms to be closer to customers and also to adapt our products to local needs. Bottom left hand side, you see our top markets. I'm not going to go through that, the typical, markets and revenues by region also to the right.
That's just basically a compilation of the different markets. So we're close to our customers, and that's the key point here. High proportional recurrent business aftermarket is essentially recurrent. 65% of our business is a recurring business, 39% in service. In Q3, it was 41%.
And this is a growing part of the business, again, vital for resilience because it's very stable over time. And the backdrop is, of course, what it says on the right hand picture there, it's a harsh environment. Mining is tough. So it's tough on equipment. And it's stuff from components, and we need service, we need spare parts and lots of consumables.
And I think this boils downturn, it gives us an attractive mix of revenues. The yellow part here is aftermarket revenues. You can see that there's a steady growth and actually also the grayish Greenrage part on top is equipment revenues, also demonstrating quite healthy growth over the last years. But as I'm sure you're aware, that equipment is a little less predictable than aftermarket. The aftermarket has been more or less around 65%, 70% as proportional of the business, and we expect it to be there at as a minimum going forward as well.
But this is again something that we essentially strive to maintain or increase the portion of aftermarket because of its stability. Now here's a topic that has been very much on on the agenda of, investors like you guys and many others as well. And that's, what's going on in automation. And there's a big discussion and who's in the lead. Various numbers have been generated and produced in terms of demonstrate a leading position or not a leading position.
And I can tell you, we're quite comfortable in terms of our position when it comes to automation. We know that we have solutions that solve our customer's problems, and that's what it's all about. We'll give you some numbers as well. We'll give you a flavor of what we do, but essentially that's our position for the time being. So we feel that we yes, we do have market leading offerings when it comes to automation.
So, but again, just to give you some flavor, yes, we do have very strong interest for our $0.06, which is essentially a packaging or compilation of different services for information management around mining or digital mining. 60% of our equipment is, is equipped with a rig control system. This is absolutely a necessary feature. For future automation. 3400 machines delivered with connectivity.
We actually gave a number after Q2, which was 2500. So here, things are improving quite significantly. We have 43 projects for automation underground. We have 600 drill rigs, quick for complete automation. 30% increase of the utilization rates typical.
And again, you'll see more of this in the later press but that's a typical number that we see in efficiency improvement. We have autonomous and tele remote surface drilling in 16 countries on 5 components, Jose will talk about that as well. And we are definitely the leader in battery electric, underground equipment. Now to the right, you see essentially a picture that, depicts the different levels of automation I'm not going to go through that, but very often we get a question asking. So where are you on automation?
Well, then the answer is really a question. What do you mean with automation? So I heard a little bit to be a little bit more specific, various levels of automation. So it's not that easy to answer that question in one go. So just as a kind of a food for thought going forward.
When it comes to value creation, we've seen a 9% annual growth since 2015 12% improvement or increase in profits. Profitability has gone from 18.1% to 20 0.1%, actually 20.7% if we also back out the LTIP or the long term incentive programs, as well as the split costs and also some of the provisions made for structured changes we made in Q3 here. So things are improving. And we expect, of course, to continue to improve. Sustainability.
Well, we essentially had a discussion internally whether we should have a specific picture on sustainability. Does that really make sense? Well, essentially sustainability is an integral part of our business. So why would we have a specific picture on sustainability? Well, we said, well, let's have that because we just want to say that we know that this is important.
And this is the framework that we essentially use for following and tracking our sustainability. So I'm not going to go in much detail around this, but that's essentially the purpose of this. So sustainability is vital. It's close to our hearts and it's, integral part of the business. So all in all, we are, with that background, we are reconfirming the financial targets and goals that we set last year.
In conjunction with the split. And what is that growth? 8% of the business cycle, we've achieved the last 12 months, 14% 8% organically. Profitability in industry best. We are industry best at 20 point 1 percent non adjusted.
Capital efficiency, should should improve over time. And, this is more of a struggle for us. I think we are at a good level, but here's an area where we can improve. Return on capital employed has increased or improved, over the last 4 months over the last 3 years. And we're at 29.5%.
But here's something where we definitely need to continue to focus capital structure. We want to have an efficient capital structure with investment grade rating and we're at BBB plus. Stable outlook and dividend policy 50 percent last year with dividend at 47% or actually this year. So I think we're fulfilling our targets. So that's Epiroc today.
And this is what we have so far and built so far end, of course, together, this company, will you nicely grow it? And the question of course is, how are we going to grow this? And to put the elephant right on the table, here's because this is a question what happened what's going on short term? Well, this is essentially trying to describe what's going on demand wise short term. And essentially, we do have very much uncertainty because then that's really what's weighing in terms of, the orders and the demand from our customers.
That's our perception. We have robust production as you can see on the graph to the left, so production continues well, very well displayed by aftermarket revenues. We have metal mineral prices still at a good level. So that continues to look good. And this is an index for our exposure, the metals that we are exposed to.
We still have, which is a plus to the right, which is the strong customer focus and demand for productivity solutions and automation, but we do have the uncertainty. And which weighs on orders, especially when it comes to equipment. So what are we doing? Well, essentially, what we're doing is that we're adapting the this is where the agility comes in. So we're adapting the organization.
We are trimming costs and bringing it down to defend bottom line. That's what we're doing. But also we are looking of course at what's going on from a market perspective, how much should we actually adapt? And this is just a breakdown of the 3 different component that we actually, of course, disclosed to the market. To the left, orders received equipment, you can see the high variability and equipment.
And more specifically, you see the 2 fantastic quarters Q1, Q2 and 2018. And then we took a step down to around 3500 for the coming four quarters and now we're Q3 this year, again, a step down. Now where this is going to go, not easy to predict. But we do not expect it to necessarily bounce back up to last four quarters, but be at slightly lower level. That's our expectation.
Not easy to predict. Aftermarket in the or service in the middle, easy to predict. As you can see, a very good trend there. And orders received for tools and attachments, you can see it's a relatively stable trend. The slightly higher revenues or, or orders received that we saw the last three quarters of functional acquisitions made.
Essentially. So based on that, we say that, well, in near term, we expect demand to remain largely at the level seen in the third quarter. But that being said, the economic environment continues to be uncertain. And I'm sure you understand that. Medium term, always a discussion point, what about replacement?
Well, Fred, we can't give you all that specific Of course, we have a lot of good data, but we can't be all that specific for different reasons, but just to give you a flavor. 24% of the equipment is older than 10 years. Average age is about 7 years. The typical guidance that we give is that the average lifetime for an underground machine is 6, 7 years. Surface machine between 10 15 years.
Utilization, running hours, maintenance, etcetera, will have an impact on the lifetime beyond the actual calendar days. That's obvious. So here's an uncertainty exactly when replacement's going to happen. But this is some data at least. And it's also, I can say that if you when we look at the our fleet in the field, we can see that underground machines typically have more more hours and longer calendar time versus expectancy than surface machines.
So if there's going to be a replacement, perhaps and most likely, it's going to be in, in, more in underground than in surface medium term. Long term, we very much believe in this market for sure and very many good trends are pointing in our direction. Growing world, challenges to meet the demand by and through the growing world and and all of this means that we are adapting our solutions to fulfill this demand. And what are we talking about more specifically here? Growing well, you know these numbers, the, I think it's the OECD that predicts that the economy will grow at 3% per annum up to 2050, well, if that's going to be the case or not, but certainly that's going to be a big drive for a commodity consumption.
Population growth as well. And not the least urbanization and because of construction and all the metals needed for that and the electrification of the world. All of this is a big driver, certainly not only for us, but for most industries. More specifically, this has an impact on construction market, this is data from McKinsey and also for the mining market. And The Bliss now is global construction will grow at roughly 4% going forward globally.
And mining CapEx drill to mill will be roughly 6% going forward. For those of you that have a really good and clear memory, we said last year, 7% for mining. This is now being reduced to 6%. So, slightly more cautious, but still fantastic numbers. So of course, any individual year may deviate this, but on the average, this is what we expect going forward.
We also believe that we have a favorable exposure in terms of minerals and metals. Gold, 21%, copper, 17% nickel, and led 9% and platinum as well as infrastructure, we believe are favorable given what we just talked about. More atypical commodities that we have exposure to iron, coal, zinc and also some other the Metals, we think a little bit more question, but at least 2 thirds of our exposure today, we believe has a favorable and I think that's a good position to be in. Just as an example, this is a data from the International Energy Agency and they have 2 different scenarios in terms of electric vehicles one saying that if you just apply the policies that have been adopted politically throughout the world, This is going to lead to 23,000,000, electric vehicles being sold in 2030. If we apply another scenario, which is 30% of vehicles sold in 30, 30, which is in line with sustainable development goals, it would mean 43,000,000 and who knows what it's going to be.
But the and if you look in the middle, the metals used per electric per car, huge difference between battery electric hybrid and combustion. And, just make the assumption that 30% if we now go as a unified population in the world goes for sustainable growth. 30% of all cars in 2030 are electric. Demand for copper would increase with 10% and nickel with 40% and that's just for the cars. The charging network and everything else not included.
So that would drive certainly a lot more especially copper need going forward. Looking at the challenges that the industry faces, the equipment effectiveness or efficiency mining is lagging most other industries. As you can see by the yellow bars, this is the, the equipment efficiency and underground mining as well as in open pit mining 30% 40% respectively more or less. And you compare that to pretty much any other industry. Very much lagging.
And of course, this is something that all miners are talking about trying to target And that's this is also what we are targeting when it comes to our solutions. And productivity has dropped from 2004 to 2017, which 27% in mining increased from 2010, yes, because there's been cleaning up of various assets. But still a drop and there's a gap of 27% just to go back to the productivity we had in 15 years ago. And looking at the further challenges where and the reason why the drive for efficiency and productivity and mining is so important is the depletion of ore rates. And this is copper, surface on the top and no, Underground at the top and surface at the bottom, the black and yellow graph.
The dotted line is the projection going forward. As you can see, there's a there's a huge drop in the grade quality. 40% for underground and 30% for surface copper grades. And the expectancy when it comes to how much will be excavated underground is going from 23% this year to 36% in 2040. So this again is pointing out direction.
Safety and sustainability, again, something that we as close to our harshness to the left is a list of things and areas that our customers are focusing when it comes to safety and sustainability is a comprehensive list where we can make a difference is essentially health and safety, a number of fatalities as well as injuries. We can do a lot there because of the safety of our equipment and solutions to improve safety. We can also work with quality of life in terms of vibration and noise, And also when it comes to air emissions and those are the areas that we target. We can make a difference in most of these, but specifically that's where we what we target. And to the right, you see one of the reasons why we safety is so important, the this is a dangerous industry.
It is a lot better now than it used to be, but still it is a dangerous industry. So whatever we can do to help our customers to become more safe highly welcome and highly valuable. So we believe we have the solutions to meet tomorrow's challenges. And service, maintenance, productivity and automation and digitalization and electrification. And now I believe there is a movie.
Am I right?
All
right. So we'll take a little flavor of our safe and smart and seamless technologies.
Automation is not just about the technology. It's about the
people far. So what we're seeing is the workforce, and especially the younger workforce, is very excited about working around new technologies that they can relate to P2.
I don't believe that a mining company does enter bracing automation is going to be in business in the next 10 years.
And really the goal of the industry to become more and more autonomous so that the new mines in the future can be more productive, can be safer, and achieve better quality.
An improvement in precision.
Labruxion is masalta. Reducing our operational costs. We're able to put the operators in a situation where they're in a control room instead of in an area that with higher risks.
Alright. So, my time is up, but I actually do have a final slide here. I mean, the the foundation and and strategy for for, EperOC, I think we have a sort of a mixture and, and, starting point for continued success. Do focus on attractive niches. These niches, we believe, will be attractive for us going forward because of the underlying trends.
We have strategy to outperform our competitors. Innovation And expertise. You will hear more of that. Safe to sustainability as mentioned ingrained in our business. Presence and penetration, we are where the customers are.
Operational and service excellence. Again, you'll hear more about that, but clearly, that's part of the business and people in leadership we should could not and will not and we do not forget about that. So that's the foundation. That's the strategy. And speaking of Fantastic leaders, Heliana.
Here's one great leader. Heliana is Senior Executive Vice President of Mining And Infrastructure. It's one of the more complicated, titles in the company. But the task is very straightforward to take care of business, right?
Thank you, Pal. And thank you all for joining us here today. So I will take the opportunity to talk about our aftermarket And as you know, this is a big portion of our company and it's also a focus area for us to grow Eloft market, both organic and inorganic. If we look on, as Pat said, it's twothree of our revenue in 2019. And of course, it comes because the equipment are mission critical for our customers.
Our equipment also work on really harsh conditions and this drives the need for service as well as spare parts. And harsh conditions could be extreme corrosive environments could be high temperature, lower temperature. So the equipment is really under high pressure. We have had a solid growth in the aftermarket. If we look at this in a 10 year perspective, The last most of this growth is organic.
The last year, we added the acquisition in Tools and Attachment, the Fortia and new Concept Mining, but Edna added SEK 750,000,000 in additional revenue. 2015, you see the addition of the hydraulic attachment tools division. But as you can see, a solid growth And this is, of course, the results of our very focused efforts to grow step by step the aftermarket business. And just to play with the numbers, if we look at the April revenue 2016 and we compare it with the revenue we have in the aftermarket now, Today, we have an aftermarket with the same size as the full company of April 2016. So that's quite impressive.
And we will continue on this journey. Also during Q3, we landed the largest service contract so far $68,000,000 to Codelco in Chile. It will be booked during the 7 years that this contract will run So it's not part of the numbers for Q3, but still it tells the size of this type of contracts, a really good, nice contract. Yeah. I will go through the key success factors for a successful aftermarket The first one is presence and this is workshops, it's warehouses.
And this is an investment that we do upfront and it takes time before this starts to generate business. An efficient supply chain is the must The worst thing that can happen is that the equipment is down and we don't have spares or consumables available. Technical know how is extremely important, and we are step by step certifying our chance to make sure that they have the highest possible technical know how so that they can do the service in a safe and an efficient manner. I would also say that the fact that we have focused organizations, we have 3 divisions working in our off market, that's also key to success. But in the end, it's the people that makes the difference, passionate people, really working hard in harsh environments out at the mining site.
There are a number of trends in the aftermarket. The first one is safety and sustainability. Here, we are working hard now with a live work elimination as well as standard of breaking procedures to make sure that the service of the equipment can be done in a safe and an efficient manner. For all large customers, productivity efficiency and total cost of ownership is extremely important. And here we are, every year, bringing better and better solutions to our customers.
And connectivity, I will come back to connectivity, but connectivity is really an enabler now for us to perform service in a much more proactive way than we have done before. So as you know, we have a very broad aftermarket offering Today, I will drill down more into the service part and share with you how we have productified our service. But I will also touch base on tools and attachment. So we start then with service. So here you see the growth of our service business during the last over the last 5 years.
Majority of this growth is organic, small piece from acquisitions. There's, of course, some currency effect in this. But healthy growth. This year, year to date, it's 9% growth. And what is also interesting to see here is, of course, if you compare 2015, 2016 when the market was still quite difficult for the mining houses where with a lot of equipment parked and reduced activities you still see that the aftermarket keeps up in a good way.
So this really gives us resilience. I said that presence is vital, and this is the footprint that we have today. So in total, we have 6 1000 more than 6000 service technicians working on sites. We have more than 280 sites with service contracts where we have labor on-site and many more contracts when it comes to sending technicians and do specific work could be around rock trees, for example. We have more than 100 service workshop globally, with our own paper, where we do overhauls and repairs, we have 3 remanufacturing centers, 2 in North America and 1 in Indonesia, and we have 3 regional distribution centers for an efficient supply chain.
During the life of an equipment, there are different ways for us to sell the source and to help our customers. Of course, in the beginning, when machine is new, it's very much around connectivity, could be training, training of operators, custom engineer solutions for productivity and for safety. But then as the machine starts to be used, It starts to consume parts as well as different types of service agreements. And here we have many different types of service agreements depending on what the customers want. And then when the equipment comes to its midlife or to the later part of the life, We're also offering different type of Rima solutions as well as midlife rebuild.
And here, we can actually prolong the life of the equipment quite a lot. And this is very well received by many of our customers. This is some examples of our broad service offering. Of course, majority of what we sell is parts it's different kind of kits as well as service agreements, as I said, 280 service agreements with people on-site. But the last they will say the during the last years, we have also productified several of our offerings with real solutions, midlife services, custom engineered solutions, training products as well as connectivity.
And I will share some insights to see how we have been able to grow our service business based on these new products. So when it comes to service agreements, this is now an index in relative term, the revenue growth in service agreements, Of course, we want to become a productivity partner. We don't want to sell only parts. When we are a partner, that's when we really can add value. And we, as I said, have different levels than our service agreements, and we customize this depending on what the customer wants.
But here, you see nice growth, 27% growth over the last 2 years. Reman Solutions, that is where we take an old component and we remanufacture it back to the regional spec. This we have set up, as I said, we have 3 remanufacturing centers in the world, 1 in Canada, 1 in U. S, and 1 in Indonesia. And so far, very good progress, 80% growth.
Of the rebound solutions. So here I see a great potential to continue to grow, especially, of course, in all other markets. Then we have Midlife Services. So this is where we bring in a machine, which is coming to the later part of its life We strip it down as the picture shows here. We replaced the worn components.
We put in new components and we bring the machine back to the same productivity as it had originally. And as you see here, very nice growth, 56% growth the last 2 years. Then we have custom engineered solution. This is where we do specific upgrades, the configuration of a specific machine. And here we can incorporate the latest version of a component It could be an upgrade of the software, etcetera.
But so it could also be where a customer want an existing machine to be upgraded to do something more from a safety standpoint or from a productivity standpoint. Also, this is a smaller part of a small product for us so far. But as you can see, we have doubled the revenue in 2 years time. And then training product, a lot of technology shifts is happening with equipment, now in parallel, we have electrification, we have automation, of course, this gives us a great opportunity also to sell training and that is what we're doing. We're helping our customers to make sure that they will get the best out from our equipment.
So we have classroom trainings. We have full cabin simulators that we put on sites on the different sites for our customers. And also here you see quite good, good growth, 64% over the last 2 years. Connectivity is an enabler, as I see each, for us to be proactive when it comes to service. As Per said, we are putting connectivity devices with a high pace now on all equipment leaving our factories as well as retrofitting existing fleet out there.
We have built up regional centers to analyze the data and to be close to the different customers in the different markets to drive data driven services. This is the future when it comes to service to become proactive. And I do believe that in the future, it will be a seamless interaction with the equipment and the aftermarket. So the connected machines will tell us in advance what services is needed, what parts is needed, what consumables is needed. And this gives us, of course, great opportunity to develop the supply chain, to plan in a better way, as well plan our service contracts.
If we then move over into tools and attachment, I will spend a little bit less time on tools and attachment. Also here, you see good growth over the last 5 years. But here we have, as I said, then an acquisition effect, this year was 1,000,000. Also worth mentioning is that we have exited nonprofitable businesses within tools and that, of course, has an impact on the total number. Some words about rock drilling tools then.
So It is, let's say, a key part of the TCO for drilling could be up to 20% of the total cost of ownership for drilling drilling machine. And it is really the product that do the job. It's actually the ones that are actually crushing the rock. Also here, presence is key as well as the supply chain. If there's no consumables available, then the machine is down, and that's not okay in any way.
We are developing our consumers together with equipment. So we see this as a system. So machines, rock drills as well as consumables, and then optimizing that system. We have several unique systems like the corporate system where we have built a full complete offering for our customer. This is also a very resilient business over a cycle, typically can vary plus-5%.
So also very much related to the production level in mining. We have 70% of the sales through some type of agreement could be cost per meter agreement as well as some type of consignment agreement with the major customers. And as a division, this is where we produce. We start with raw material and we actually manufacture as it differs compared to the cap divisions. As I said, we have redefined our offering and rough drilling tools during this year.
We have diverse oil and gas and your technical consumables, we were not the leader in these segments, and we decided to exit. We have also done a selective exit of handheld. Handheld is the shrinking market. Of course, with the mechanization, Handheld volume in total in the world is going down. And so we're keeping the profitable part of this business and then we have announced a number of both divesting manufacturing units as well as closing down some manufacturing units now during Q3.
The handheld exit will happen now during Q4 But at the same time during this year, we have also focused on growing the core, which is on top camera, auto race pouring and down the hole. And we have strengthened our position with acquisition of Fordia, which was the leader in exploration, as well as new concept mining, which was a leading player in deep mines with seismic activities from a ground support perspective. So we have a strong foundation to build on from this product size now. And also here, we work in the same systematic way that we do within parts and service. So we map the fleet.
We know how much consumables is being used. And then step by step, we grow our customer share of consumers. Also, accounts of consumers did translation plays a vital role. And we are right now connecting the consumables with the machines to have real time understanding of the performance of the consumables. We are implementing smart consignment management as well as tracking our cost per meter contracts in a digital way.
And here, of course, we are using the capital equipment performance of the consumables in a closed loop so that the machine can optimize the performance of the consumable. But we also do other type of innovations within consumables. We have just large complete new range of underground drill bits. We launched the surface, assortment last year which has been successful. And now we have launched a new assortment for underground.
It's much faster penetration rate than any other bit in the market and 37% longer service life. This has this has a huge impact of the TCO for our mining customers. We have also launched the new Hammer platform, which with a new unique piston set up will give us gives much higher frequency rate And that gives higher penetration as well as lower fuel consumption. So we continue to drive innovation in consumers on the core product lines. Then some words on hydraulic attachment.
So we are a big player So it's a little bit different compared to the rest of the divisions. And here, we also play a vital role when it comes to customer productivity. It's a little bit different as well because here we go in direct. So we have a big set of distributors that are taking this product to the market. But of course, we use the synergies with our footprint.
You could also say that the sale so far for hydroxychloroquine is mainly coming from Europe as well as North America. So there's still quite a lot of growth opportunities in hydraulic attachment. We have over the years developed organically a broad portfolio, also adding silent demolition tools. Into our offering. We have also we also did an acquisition of Erica 2017 that acquisition added drum cutters for trenching.
So far that acquisition has added close to SEK 100,000,000 in revenue. To our attachment division. So the broadening of the portfolio is with the reasoning to try to the grasp of market share in final demolition tools. And this is the progress so far. So So we have been growing with 31% in silent demolition tools over the last 2 years, good to see, but still much more possibilities here in the coming years.
There's also potential when it comes to aftermarket of hydraulic touch and that relates to the consumable that is actually doing the work. This is an opportunity that's an untapped potential that we have not been really focusing on historically. And you can see now with the focus we have managed to grow this business with 21% the last 2 years. So still opportunities as well with within silent demolition tools as well as aftermarket for hydro curtailment. And also I would say the value segment of hydraulic breakers.
So to sum it up then, a very strong healthy growth in the aftermarket. We are very focused on continuing to grow this, this part of the business, both organic and the acquisition There are a number of key success factors, presence is vital. We do upfront investments. It's competent It's an efficient supply chain, but in the end, it's our service technicians that do the job. So by that, I would like to say thank you, and I will leave the word to Martin Yarpa to talk about M and A.
Indeed. Thank you very much, Elena. So my name is Martin Yarpa. I had I lead the group function for M And A And Strategy. And I'll spend just a few minutes to talk about how we look at acquisitions as a part of our strategy.
So first of all, as you all know, I think we have done a lot of acquisitions over the years. M and A continues to be, has been and continues to be a very important part of our growth journey. In the past 2, 3 years, we've done 12 different acquisitions, expanding the area of technology, service and tools and attachments. And together, these 12 companies have added between SEK1.52 billion and SEK2 billion in annualized revenues right now. So it's an important part of our growth story.
But more important, even more important than just the growth is the strategic sort of footprint that this gives us. And many of these acquisitions are important to create opportunities for us for future profitable growth. So what is then our sort of philosophy around the M and A and how do we think about it? Well, Per mentioned the foundations for our success as Epiroc. We focus on attractive niches, niches where we can make a difference our customers, where the customer's products are mission critical and where what we sell and provide to them actually helps them improve their productivity and improve their profitability.
To be the leader in those niches. We don't want to be number 5 or 6 in a highly competitive niche. That's difficult for us then to help our customers to actually improve. So that means in terms of M and A that we look for additional niches where we either might not have a strong position we wish to have today or where the niche provides an opportunity for us to help our customers to improve. That's where we will target those niches we will target through M and A.
Unless we do it organically in those cases where that is more beneficial. So when we do acquisitions, what do we look for? And this is something that we have integrated in our M and A process. We look first to make sure that the segment and the target has a standalone attractiveness. Is it performing well?
Is it attractive in itself does it have a value creation potential even if we were not the owner? 2nd, does it offer a strategic fit and good synergies with us? Is it something that we can grow? Can we become a better owner? Can the sum of the parts be bigger than the individual parts?
And thirdly, do we have a plan to either remain or become number 1 in that particular niche that particular market. And as I mentioned, we do integrate this in all of our analytical work for the different targets that we look at. And unless you sort of pass this hurdle, we're not going to approve or go forward with an acquisition. So where do we then look? What are the kind of areas that we sort of seek acquisitions within?
Well, If you look at where we are today our core markets, we obviously keep looking for acquisitions that strengthens and solidifies our core. This is consolidation, gaining scale, creating synergies out of this. And several of the old acquisitions that we've done has been in this space, RDSA might be a good example. Of course, we also look outside this core. Adjacent to core where we can broaden our offering to our existing customers with new products and services.
I think ASI mining, new concept mining, is also sort of good examples of acquisitions we've done in this area. And finally, we, of course, also look outside core which will be take us into completely new areas, but we are also very much more cautious there. As I mentioned, we need to make sure that we have good strategic fit and synergies, not only that the segment is attractive in itself. Therefore, you can expect that the frequent acquisition will be within the core and adjacent to core. That's also in the core where we have dedicated resources in the different divisions that continue to look for opportunities and evaluate opportunities and adjacent to core to expand our niches within our current sort of customer space.
We will keep a door open for the outside core acquisitions as well, but they will be a bit more infrequent than the core and adjacent to core. So with that, to sum it up, M and A continues to be a very important focus for us. Not just to add a top line, but important, more importantly, to add strategic niches for further profitable growth. And with that, of the mines.
Thank you, Martin. Good afternoon, everybody. My name is Samiranen. I'm a president of our Underground Rock excavation Division. I'm forty seven years old, Finnish citizen, a mining engineer from Helsinki University of Technology in Finland.
I have over 20 years experience in the global mining industry, and I've been working for Epiroc since 2004. I've been living in 5 different countries, Finland, Sweden, Ghana, Australia, as well as Ireland. And health positions, I would say operational positions such as marketing manager for our underground equipment. As well as, general manager positions in our customer centers in Finland as well as in Ghana. So my current position a president I started in December last year exactly actually 1 year ago.
And I must say that I've been enjoying every single moment to work work in this fantastic company at Bjork. And I'm passionate about leadership. We mentioned people and leadership. I'm passionate about leadership as well as developing people. Today, I'm not maybe developing people that much, but the, but I'm going to talk about our leadership in new technology.
Automation, digitalization and electrification. So here was my CV. So automatic solutions, they have been around for around 25 years in Underground. And it all started with a single machine automation. And the first automatic boomer was in operation already in 1993.
Our RCS based our RCS rig console system was launched in 1998. And that is the chosen platform for all of our machines, enabling a common platform and surface for automation and interoperability. Since 2010, we have witnessed a quick development as well as increased demand for automation. Connectivity with telematics solutions, called CERTIC, a multi machine automation that was introduced in 2012, battery electric vehicles, really taking off during this decade. And then partnerships and collaborations driving the speed.
And but from now on, from today onwards 2020, we will see automation to continue as a trend. We will see more multi machine installations, more interoperability, meaning basically that machines are communicating with each other. And the development of new business models because the business models, they will change as there will be more software and more solutions. How will they change? They will probably change more towards recurring revenues as well as paying for performance.
We see increased levels of automation continuously. As of today, we have more than 600 Undercrown rock drilling equipment equipped with ABC Total enabling a fully autonomous drilling. Multimaxine automation and fleet automation is coming on stream as we speak. And we have a number of these solutions already in operations. Mixed lead automation is also something that we will, that we foresee.
And because many of our customers, they have a mixed lead and they want to reap the benefits out of their total operation and the total fleet. And here, we are working with open and OEM agnostic solutions. So we have a good position here. As of today, we have 43 underground automation projects. And since this morning, actually, we announced a very important strategic partnership together with Orika, to automate explosives charging as well, basically completing the whole drill and blast cycle.
So it's going to be a very interesting project to follow. As Pam mentioned, in Epiroc, we have a that is our automation and digit that is combining our automation and digitalization solutions, and under the 610's umbrella and the looking at optimizing the, of the combination of technology processes and people. Here, we have an example of 610s production solution, And this is from Russia, where we are automating the production drilling. In APACIT 2018, epiroc installed our we installed our 3 tele remote solutions on Simba Production Rolex. As well as ABC Total And CERTIC Telematics Solutions systems for remote control and monitoring of the fleet.
And as of today, our customer are patented, they are able to operate, automatic or operate automatic drilling without any operator intervention, reaching and improved safety as well as a 20% decrease in products productivity. So let's watch a movie about, apatit.
Was a past linear, partly at the studio in the social series and Khrisul Tata, our relationship beyond, Stobani, the email is precision and technique, each English can have a solution. Then it's still a possibility. I'm obviously president's brother work seen by the same say, the world was 3% of. Also known in Pakistan, the question that he is for his person, the brother was Sonofka Plamos. So let's see in the 16% of the no sales of the decision.
I'm just making construction at Machrania. Kitchen border, we've only stopped committee 0 process Nashlombrini, Nadougherli, Kakiroskomrini,
Okay. And then the second example, that is about $0.06 transport solution. It's about lower automation. And we have a state of the art solution to automate multiple loaders. Where we increase safety and operational awareness by removing the operator harms way.
We also reached Machine utilization when operating during breaks and ship changes. And with our customer case, we have been able to prove 4 to 6 hours added operational time per working day. And then we have a third example. This is about 610ths And Information Management. Where we are digitalizing our customer, Pughober's mining operation in Chile.
And this new solution is already visible at their Tuco Cobre's newly established control tower and the implementation of the $0.06 solution is expected to continue to improve safety and increase productivity. And it can be connected to the customer's existing machine fleet regardless of make or model. A PROC fleet at PUGOBRA includes Simba, production drill rigs, boomer face drilling rigs as well as Cooltrum and mind truck, mind truck loading and holding equipment. We also provide PUK Obra with the consumables and service. So let's watch a video about our collaboration at PUK Obra.
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And then my last part will be about battery electric vehicles. Electrification. An important point to mention is that electrification is already present to a large extent in underground When it comes to drilling equipment, world drilling is performed basically Massey is connected to electricity already as of today. So here electrification is already a standard. 1st battery loader was introduced already in 1985.
During that time, the technology was not ready for that. The real development began 2010 And in the 3 years after 2013, we started, we started testing our battery Scoopram ST7. Which was introduced 3 years later. And the development of the new generation equipment, that started in 2017 and which was launched 1 year after in November 2018. And there is a large interest, huge interest for the battery electric vehicles all around the globe.
And so far, as of today, we have sold them to 4 different countries at the same time as we are rolling them out selectively. You can see here on the slide that the benefits, they include improved health and safety. Reduced emissions, lower total cost of operation and higher productivity. We have 100,000 operating hours accumulated to date. And we have seen a more than 70% reduction on energy consumption, mainly related to reduced ventilation demand.
And also, we have seen a 10% increase in productivity for mine truck, MT42 because of faster ramp cycle times. With battery electric vehicles, we also open up for new revenue streams. Generated by batteries. So we are looking to sell a battery as a service. For the customer, there's a lot of benefits we can provide a state of the art solution and the availability of the latest batteries all the time.
We will also take full responsibility for the batteries, maintenance, technology upgrade as well as recycling. We have the ambition to go green all the way. To produce the world's cleanest machines by using the world's cleanest battery cells. Producing the world's cleanest metals, doing our best for our planet. The future is electric.
To summarize it, Future looks bright underground. We are a leader in automation digitalization and electrification. Our customers are moving this way, and we have a large number of collaborations ongoing with our customers and to support our customers, to be leaders in this field. Going forward, we see this trend to continue. This will be beneficial for our customers as well as for us.
Okay. And the next Jose, yes, I will hand over to Jose via video link.
Good afternoon. First of all, my apologies for not being there. Some customer commitments kept me in this part of the OSEAN. As an introduction of myself, I started my career in the group in, in 1988, in Spain, as our sales representative, just after graduation from the Madrid School of Mines where I obtained my master's degree in mining engineering. Since then, I have had white range of assignments within the company, 7 countries in 3 continents.
My foreign adventure started in China Then Sweden, France, back to Sweden, Mexico Chile, finally USA. That allowed me to work both at the product company as well as a customer center in areas such as sales, marketing, production and B And Management. Very exciting for a mining engineer to have lift on work in several strong mining countries. And since late 2014, I hope the position president of the Drilling Solutions Division based in Garland, Texas, USA. And Since my studies and talking to professors, consultants or money professionals, when people talk and dream about the future mind, they ask to envision opportunities such as fully autonomous missions.
Those intelligent rigs running seamlessly together, making decisions on the ground to optimize performance without direct human intervention, but also global control rooms. Having our operators safe in a remote control room on-site or several 1000 kilometers away where they can manage the flips and not the individual units. But besides that, the ambition, information on demand, having the data at your fingertips, no matter where you are. But let me share something with you. This is not a dream, it's not a future.
This is the world that we have been building for our customers and are continuing at a very rapid pace. Let's, for instance, start with the information on demand. And perhaps we could just have a live look at one of our autonomous sites. 3rd, would you help me with the with this? How are they performing?
Yeah. Just a second. I have an app on my phone, and, it's right here. And I can see. What can I see?
Well, I don't have my glasses right here. Drill usage, top delays, production, And, we have bottom right hand corner. We have, numbers in green. Looks like we're hitting, for me to target, right?
Right. It's awesome. And, yes, the customer has been running those autonomous drills for 6 months. And now they are consistently hitting their targets as we predicted. And they can take decisions based on the, on the dashboard with information that you have in front.
So we have supported that learning, and now they are accelerating. So perhaps it's time for them to adjust to new targets, those were too easy.
Well, it kinda looks like it. I mean, there's more information here. Is there anything else we can help them to improve to make their production even more efficient?
For, yeah. I mean, it's, in the, in the early days, they didn't hit the targets, but now they are kicking, but, with the with the information we have, we can also suggest new improvements. And this is how we use the fixed spends that you were mentioning before. After we hit the KPIs on our controller step, then we move to the optimizer step. So if we look, for instance, in the bar the middle, in the lower, bottom side, I mean, you see rather low utilization, total utilization.
So perhaps, I mean, I can ask my data engineers to help them to improve the data, the utilization, to drill more meters. So they will be more productive, and in fact, this is the name of the game, having the information on your fingertips. You have information in real time, and then you can make decisions to, influence the operations, at 1. Thank you, Per. Sure.
And then, of course, the second main topic was the fully autonomous missions. And, with that, what, what we mean is that, we have many autonomous drills running all over the globe. With new installs coming frequently. They are not trials. The customers relying on our drills and on us I mean, for the normal production.
So we are primary contributors to the production goals and, have been increasing the reliance on epiroc, fully autonomous systems for the past 5 years. And instead of me talking about it, let them talk for themselves. Recently our partners at Bolivian in Sweden challenged us to run the first electric drill autonomously in Arctic conditions. Let's see what came
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Yes. First, Johan Sari, Ferra Mejern, we are moving to our Renaissance Citrusco Bore McQueen, University of Institute, and Eurobank's, or secretary for that trust Okay. Symphonio Machizmaki Beto, Nystrom Degrove,
And, in fact, automation is not only for the big drills, autonomous are also growing in our smaller range of surface drill rigs. Our trusted partner, Newmont Goldcorp, following their open pit mine in Canada, are reaching their goals through an autonomous Smartrock D65 surface drill rig. Let's see a short clip from this milestone.
Being able to use autonomous rigs helps me with my asthma, particularly being in and out with the hot and cold, it affects me a lot. I'm able to breathe better being upstairs is a lot safer for me. I always wanted to keep drilling, but I was wondering if I can. I'm able to stay doing what I love and being in, safe and clean environment.
Forksifying gold mines and Epiroc have entered into this project for the same reasons. Both companies strive to be at the forefront of innovation and development in the rock drilling industry. 5 autonomous drills running in the Holland Drilpi pit. And to date, I'd yet to see any downside to this project.
To make this work, we use smart functionalities on the drill that were already there. And since we developed them over many years, we knew how to incorporate them into autonomous mode in the best way.
And
there is another project I will allow you to showcase. A project also in partnership with Newmont Goldcorp, this time at the Penasquito mine in Mexico, and how they reach their autonomous goals through our, production units, the pit vipers 351, the largest model we have, our
La Proxion Esma Salta, reducing our operational costs, productivity, the autonomous
gives us the opportunity to be for we taking people away from, areas where it's unsafe to put them, but we can put an autonomous drill in there.
We're able to put the operators in a situation where they're in a control room instead of in an area that with higher risks.
Visas,
you can see the lines and the patterns their phone and they're so precise and so straight, that I don't believe we can operate a similar position and with human operators.
And we're seeing that. So this unit will run for longer pairs because it's not having to stop for any breaks.
Then there is, the 3rd big topic that it was a global control rooms. And, we are continuously implementing control rooms all over the world. For example, besides the control rooms in Canada, U. S, Chile or Australia, well non big mining markets, we have also opened in Morocco, Papaniya, or Chile or Peru, just to name a few. The control rooms not only keep operators safe from the high risk environment, but also allow mines to have new cross functional strategies in their operation, bringing the manufacturing mindset into mining.
This is the future that we are providing for customers like Los Bronces in Chile. Let's have a look.
Billington.
So, but, how did this start? I mean, briefly, our history has built us to become the automation leader in open pit mining. So everything has started with our vision. We wanted to automate drilling in open pit mine. And obviously, a simple attack has also as complicated as such.
So we made our strategic decisions to set ourselves and also our customers for success. Everything started in year 2000 when we launched the first Speed Biker, during Instagram run time, then just after the acquisition by Atlas Capco in 2004, we decided to take all the PVs or the PIP wipers ready to become robots by installing the RCS system, the recontrolled system that Fair mentioned just a few minutes ago, privilegedly used in our underground drilling rigs. By the year 2007, we had already built 100 units. And from the clear strategy, set early on to the continuous execution of it today, automation is a new norm. It's quickly been adopted by our customers, and you see the rapid sales session of many first, as shown in the largest circles on the map.
What they started with an early bench remote, a teller remote or autonomous side In Canada and Australia, we moved rapidly to multiple sites and full fleet, running this way across 16 countries in 5 continents. And there are many more projects coming up. Our customers achieve record breaking productivity numbers, and we are very proud to be part of their success. And to keep our customers in the forefront of safety and sustainable productivity through those technological advancements we had to revolutionize our way of working. We in Epiroc switched to agile methodology for faster time to market.
This agile methodology was used in software development, commonly And, the development time is broken down in a small period. A small focused team working in, conditionally with each other and what is more important and accurately with our customers in continuous interactions managed to reduce drastically the time of implementing upgrades in delivered technology. And to ensure successful project deployment, we built a specialized team, Epirox, field automation service team, fast for short, who lead and assist with installation, testing and commissioning the rig into operation. The FAST Group not only trains our local teams to become experts in servicing, but most critically assist the customers
with
proper and safe change management to ensure achievements as promised. Automation requires a mind shift to evolve the current processes to the new standards in the operation. And last but not least, the global competence, and the mastermind behind transformation lies on our surface automation center based here in Garland, Texas, an integral part of our division where our drilling experts and design engineers provide direct and focused automation solutions for all type of drilling challenges. For example, several times a year, we provide a nontraditional training session called boot camps, to grow our internal experts and customer team members into specialized automation roles, utilizing a specially equipped classroom with a full scale automated drill. All these three ingredients play adding a critical role in our recipe for To conclude, let me make a strong statement by focusing and selling in the 3 critical areas of our foundation of the 6 Sense, Machine Automation, Process Automation And Systems Integration We will continue to complete new great projects together with our partners and maintain our leadership position in the automation in open pit mining.
Thank you very much
Thank you, Jose. For joining us from, Garland, Texas. And, this concludes, let's say, the first part of the presentation sessions, a lot of information, 1 a half hours. So I think we all need a break. It is we kick off again with breakout sessions where you find out a little bit more about this very interesting parts of automation, digitalization and so on.
We will do that around 14 50 1455, you will find your guides outside. You have your group numbers on your badges. The coffee will be served where we had the lunch. Earlier. So please join us out there, for the break and, and then the breakout sessions.
And we will meet back here after the breakout sessions, the guys will bring you back here. So welcome back everyone to the auditorium. Welcome back everyone on the webcast. And without further ado, I introduce our CFO
I'm listening to Jan. Thank you, Matias. So I hope you enjoyed the breakout sessions. I have the pleasure, the owner of, sort of concluding the presentations. And I will talk about the strong and proven operating model.
Some of this will be a repetition feel I will probably just rub in a little bit of what my colleagues have so well presented to you. We have a strong and proven operating model. It's a key success factor for Epiroc. The 5 cornerstones that you've seen this slide earlier today, the focus on decentralized business, the high degree of direct sales, the strong service business, flexible manufacturing philosophy, and a sharp focus on innovation. I hope you in particular enjoyed the innovation part now that what you've seen walking around I will guide you a little bit deeper into this, this year's goals were seen before today.
We run our business in 7 divisions, and this is our way of governing the company. And we follow the divisions in each of them with a P and L and the balance sheet. Of course, cash flow. We report them back to you externally in two segments. And, without deep diving into that more, we I want to mention also one of the other factors that makes us strong, and that is obviously the decentralized way of running the business.
Decentralization is in our DNA and it's been so for many years. It has many advantages. It has some challenges. You need to know what you're doing. If you do it well, you get a very strong organization with an entrepreneurial focus a quick decision making and strong ownership and commitment, but obviously you also need to have a strong governance model in place which I believe we have, and you need to clear communication and so on.
But this is something that I think we do well. Of course, with a decentralized organization, you will always have to watch your efficiency and we talked about this a couple of weeks ago during the Q3 presentation that we have now program, we still have some inefficiencies from the split, which we're still working on. And we have started another program, which we expect that should give us some annual savings of around 1,000,000 with some restructuring cost to it. And that we should see benefit us during the first half of next year. We have, as the, let's say, 2nd, you can say, Cornerstone, the flexible manufacturing philosophy, it takes us well up and down in the different swings of the demand For example, we have around 1300 of suppliers, which helps us to build up 75% of the protocols to the equipment that we have, the purchase.
We focus on the core we produce the core and then obviously we purchase and assemble. And it means, for example, on a drill rig that like this, that the rock drill is something that is core to us and that we spend a lot of effort on The drill bit, the other sorry, red circle is another of the core components, which we, let's say, manufacture Well, it's sometimes there is a misunderstanding what we mean with manufacturing or production. But if we say we manufacture And the 3rd red circle here represents the brain behind all this, and that's also our our core activity. There are many tangible benefits of manufacturing a flexible manufacturing philosophy, of course, we, have, let's say, a capital efficient way of running the business So which is represented by high return on capital employed, even though this particular year, we have been, let's say, had an impact of the newly introduced IFRS 16, and I'm not going to dwell into that. So you know that.
When it comes to investments in property, in plant and equipment, fairly limited. As you can see, the development here, and we should say we don't have any let's say mega investments plan that would take this into a different direction. But this is what we're doing. This is what we mean with another benefit of this flexible manufacturing philosophy. When it comes to our manufacturing footprint, It's a little bit different, similar but different slide that Tere showed.
We have our main manufacturing plants, in Sweden, in Oebre and Fagersta. Another one is in Garland, where we connected earlier in Dallas, in Texas. Where we do surface to big, surface, blast hole drill rigs. We have another one in Nanjing in China and yet another one in NASHIC in India. And obviously, some other ones, smaller ones that you can see from the map Is this good or better?
Are we happy? Well, yes and no, we are always constantly looking into ways to improve and and how we can do this even better, you know, to be more efficient, which is what you can see here represented by a press release that we distributed in August, where we talked about how we will actually expand our production facility in Odeborough to add another 10,000 square meters of production facility for the surface and exploration drilling division. Mind you, we have in Erbrough as a footprint around 2000 people or over 14,000 people working. So it's an important site for us. Of course, manufacturing footprint is important, but presence is even more important, which Elena, I think, well presented how important it is to interact with our we see each other.
So each our customers every day need to prove our excellence every day. Which is actually a good segue into the 3rd cornerstone, where we talk about direct sales. 80 5 percent of the business is direct sales. I'm sure you recognize the numbers. This is something that gives us the opportunity to get immediate feedback from the customers to develop products for the customers to instead of anticipate orders actually basically produce, on orders rather than forecast.
But it also gives us a possibility to differentiate our products to the customer needs and to respond to the customer demands. Direk Sales has some challenges. It is, typically drives higher working capital. And this is an area where we acknowledge that we We have not been, let's say, industry best. We have, we know our weaknesses and pros and cons of our operating model.
And for that reason, last year, we launched our supply chain program that we have talked about for a while and we should see gradual improvements for the next year, year and a half to 2 years all the way into 2021. But already, we see improvements in utilization sorry, availability that four percentage points in selected and typical targeted parts of the business. This is, I should say, definitely parts and consumables, this program, We also see lower transportation costs and with that also reduced transport emissions and very, very tangible such So this is something that we will constantly work on, networking capital in general and our, let's say, inventories in particular. Just a few words about the CO2 emission. We've discussed sustainability we have despite the growth that we have seen with combined efforts and making our operations more efficient we have actually been able to reduce CO2 emissions and how is that with the growth?
Of course, we have put a significantly higher share of our transportations on sea and reduce the air freight. And that makes a big difference in terms of absolute to CO2 emissions with, represented by some of the facts that you can see on this slide. And we will continue obviously to work on that. It actually, in my opinion, also fits well into the battery strategy that you've seen during the breakout sessions and also heard Sami talk about. Direct sales also means long lasting customer relationships.
And this is obviously a good thing for us interacting with the customers. It means that we're always close to the customers. We aim to solve the challenges, we can do that. We do that on responding to the customer needs. We do innovate and the productivity solutions that we have also shown and demonstrated today.
And we produce rather on order than on forecast. Which is also something that the interaction with the customer gives us a better possibility to do. Last but not least, on this one, we have a small but professional team that work with financing. Where we see there is a need that we can add value to the customer. And that has actually helped the business more many times.
So to nurture the customer relationship with direct sales is obviously a key success factor for us. And so the 4th, we talked about Heliana has also mentioned about the strong aftermarket business to service. This is, for us, a very important 65% is the aftermarket business. And the we continue to develop this we have more initiatives ongoing to work and to improve the revenue streams and profitability. And this is something that you have heard and you have seen and also in the growth that we have been able to innovation, the 5th cornerstone that we have talked about, and this is what we have tried to demonstrate today I think some of you may have been on the Morgan Stanley event earlier this this fall, when I was interviewed and I said on some questions that we will show you what we're doing on the Capital Markets Day.
For those of you who remember, I hope we've been able to convince you that we are actually in a leading player when it comes and ethical way. If we look a little bit on the numbers, We talk about 2.6% in R&D. That doesn't sound like a lot of money, right? But if we think about 2.6%, it turns out to more than SEK 1,000,000,000. Remember now that we have a 65% in off the market, And obviously, most of the R and D efforts go into equipment.
And If you think about it that way, it becomes a lot of money, probably more than any other similar company puts into or the peer puts into the R and D. In addition to, call it, internal R and D, We obviously work with suppliers. Again, remember that 75% of the equipment product cost is comes from suppliers. They also put in a lot of efforts making their products better and better. So that helps us.
We also work with associates, which we saw during the breakout session in terms of, mobile or risky ASI mining, So we have several associates and joint venture and not the least partnerships partnerships that, like Ericsson, quite interesting. I hope you found it interesting, at least. Another partnership that we talked about or released this morning is with Orica for automated charging machines, another very interesting partnership. But we also have other partners. I would like to show you a short movie.
In the northern part of Sweden, a thousand meters below the ground. A new chapter of mining history is being written. The digital sustainable mining revolution has arrived. In our test facility, smart technology and new ways of working are emerging. A digital ecosystem powering a human centric shift in how we mine.
Our society depends on mind materials to build and improve quality of life. As the need for deeper mining grows and to ensure minimum impact on the planet, Remis use collaborative and sustainable mining methods. Sweden's industry has stepped up to the challenge with some of the largest innovative companies joining their unique expertise. To co create a carbon dioxide side free, digitalized and autonomous underground line. Complex challenges need a pagmatic approach.
And our joint ambition is to lead the way in sharing this across the world. Together, we will set a new well standard for sustainable mining at great depths.
So, partnering with these companies helps us leverage for the future. The abbreviation for this, as you can imagine, is called some. So we have something called SIM, we have something called sum and the different types of partnerships. But this is, a very exciting, partnership for us, of course, if you see also the other companies involved, we're proud to be part of it. So I have, described sort of crash course or repetition of what you would say, I say, the strong operating model that we have in in EPOROC, which have been a success.
I would also like to talk about a little bit about resilience resilience for us is, of course, our ability to work during a successful way during the business cycles. And if we look a little bit on the numbers here, what we what we visualize is that we have been able to work for quite some time for the year over the years here without any major restructuring programs. And that makes us proud. I could say that we work with a daily grind to improve our efficiencies, every day On the chart, you can see there are a couple of peaks or valleys, maybe more than peaks. But the the one in 2014 was a divestment of power crushers.
And more recently, this fall, we we announced also that we are exiting part of the handheld business, handheld rock drills. So without any major programs and we don't have that planned either for the time being. That's what we call resilience. I want also to touch upon cash, a successful company should be able to generate cash and turn profit into cash, over a business cycle. It will obviously vary And as you can see from the graph, it's been up and down, even though historically not being an independent company, it's a little bit different.
But it's obviously something for that's very important for us to generate cash flow in a predictable way going forward. And I can I can guarantee you there is a strong cash flow focus in our company, even though we will see a little bit up and down as we go through a year and the cycle? So this strong financial performance and generating a lot of cash flow obviously puts us in a strong financial position. And currently, we are end of Q3 at 0.24 when it comes to net debt EBITDA, which is despite the IFRS 16 impact, which is, shown with a little bit of a lighter yellow, the impact of, on net debt here. We also as a financial target, we want to maintain an in grade.
We have 1 BBB plus with a stable outlook, which we obtained roughly a year ago, following the listing. And I think it's a solid, solid measurement for our financial position. And now you ask, so what are you going to do with the money, right? I get that question often when I meet investors and analysts I mean, 1st of all, we want to grow the company. And Pare talked about it.
We have a target of 8% growth over a business cycle. So a lot of cash will obviously be invested in our organic growth. We think that we can maintain a similar growth rate, and that is certainly our ambition. We will also acquire some growth Martin talked about it. There will be core businesses that we are looking at close to core or adjacent to core.
Exactly how quickly that will go that we can't say. It takes some time and obviously it's not sometimes are happening the way you want, but we're certainly looking at many, many targets. And finally, Part of our responsibility to the shareholders and the investors is to give dividend. And it's also part of our financial goals. That over a cycle 50 percent of the profit should be returned as dividend.
Exactly, how much or if there should be extra is in the end of the decision by the board and the shareholders. And with that, I think I have been able to confirm or show you that, the strengths that Pare started with. And I trust you, agree with me that we are leading productivity partner in attractive niches. We have a strong and proven operating model We have high and resilient aftermarket exposure or business. We drive the future in intelligent mining and infrastructure.
And not the least, we have a history of creation, creating value for all the stakeholders. With that, I would like to kick off the Q And A session, Latias? Yes.
Thank you, Anders. That is the case. We will now heard all the presentations We've had all the breakout sessions that we are going to have today. And we will give you all a chance of asking questions to the management team. So we're all here that have presented, even not physically here, Jose is also available, in Garland.
So, please, and we have some people running here showing mics and for reference, please state your name before you ask a question.
Yes. Hi, Klance from Citi. So, my first one is on the service growth and mainly for you, Helena. So one of the key reasons in the quarter was the self help I. E.
Climb into service ladder while you had this where you had this strong growth. I'm just trying to understand a little bit how much further we can climb. I, if
you can give a little
bit more numbers on terms of how much have you mapped the equipment fleet, the presence? Because when we speak to, your competitors, Sandvik, they're saying that the reason for the higher service margin has been the ability to price better, but it obviously follows the mapping that they've done since 2013. So our Are we still looking ahead, for better pricing or is that still, is that already in the P and L?
So if we look, as you say, we have also been busy during many years mapping the fleet and we have a very systematic approach to secure that we gain share on the fleet. And I think a year ago, we said that we were in our around 50% today, we are gradually more or less every month gaining more and more This is, of course, a strategic work. It's not one size fits all. We have a higher share, within some segments like the big mining houses, but then there are also segments where we don't really have the reach yet or the coverage where we're exploring other alternatives. Of course, it's there are we always strive to increase price but it must come with the value.
So it is of course through the service through the different products that I shared. That's how we can create value on also how we can, let's say, grow the margin in the service business.
Okay. That's good. My second one is on M and A. So this is for Martin and for for Anders, linked to your question, Anders, on the balance sheet and thinking about whether we will see an extra dividend. So before Ron De Lieton always told us that we will not leave the niche.
We will stay within upstream. If you look at the consolidation right now happening in mining, it's really in the midstream segments. And obviously, you have a strict requirements in terms of, if a company is going to belong to Epiroc, they're really going to you stand on its own feet and it's going to be profitable and add to the group sort of niche segments Is that to say that upstream is still the focus or that we shouldn't accept or expect any larger M and A Just want to have a comment on that. Thank you.
Maybe I can start a little bit. I mean, Coming back to what I presented earlier, right?
We really want to understand that there's a stand alone attractiveness. There's a synergistic fit and strategic fit with us and the path to leadership. Right? If those criterias are there and we can make the case that this particular target of this particular niche makes sense, then we look at it and we evaluate it. What does that mean in terms of, you know, how far because upstream, midstream, downstream is also a little bit of a gray line in the sand here, right?
Where does one start and when does the other one stop? So I don't want to sort of give any clear answer to that because it's going to depend. If we get the attractiveness, if we get the strategic fit and the synergies and we can make the case,
then we will evaluate it and
then we will see where that land. Thank you.
Can I just compliment the answer? I think it's think it's important to understand that when valuation are at the level that they are at the moment or have been for quite some time, the any major transaction relies heavily on synergies. And if we are looking outside core, which essentially would be midstream or downstream, it would be difficult to generate these synergies. So that's kind of a limiting factor. One has to realize because in that case, it really does make sense for us to participate in any downstream consolidation.
Maybe, or potentially that could change if valuations changed as well.
Okay. Can
you hear
me? Perfect. Olga from the markets, I have one question regarding a slide that you showed transition to underground and mining. And I think that you said that roughly 21% as of today's underground in that number is set to increase roughly a 26% 2025. And given that roughly 50% of your business is related to underground, that is quite a nice secular growth.
And could you please elaborate a bit on those numbers? Is it already announced mining projects that has taken the decision go from surface to underground and a bit on that, please.
Well, as far as I understand, these are projections based on the, expected demand, the current Minds, I. E, the current capacity, surface and underground, as well as the announced projects. So where are the projects going? Well, they're going underground. So, essentially just making projections out of these essentially 3 observations.
I think that's how you end up with these numbers. Correct me if I'm wrong.
Yes, absolutely. And also to add to that, many of these we also rely on some of the industry data providers like that would Mac and others to exactly who do this. And I think this particular case was copper, if I if I recall correctly. So it, of course, is different on the different commodities. But we do see it as a trend.
We do see that as something that provides tailwind to us.
And I also think, again, complementing the answer. I think there's a current, obviously, for sustainability reasons, I think it's going to be more and more go to open up surface mines, open pit mines. And we see that across different geographies. And so, and also interestingly enough also in China. So I think that's also going to push my, underground rather than the end service.
Okay. It's
Lars from Barclays. Okay.
I will Lars first. Yes, go ahead Lars.
All right.
Thank you. I have 3, if I
can squeeze them in one replacement demand, one on electrification and the aftermarket associated with that. And one on continuous mining, if we could, because we haven't heard about that today. But on replacement demand, Pierre, you had an interesting slide, which I don't think we've seen before age of the installed base or each of the fleet? Thanks for showing others. I guess the devil is in the detail here.
A third or a quarter of that is I think pre-two thousand and if I recall this slide correctly. Is that even operational? There's a huge difference between what you see overground versus underground I think the year you're taking is the year of commissioning and of course there's a lead time in the business. So that swings around particularly when we're talking about 6, 7 year at lifetime. So anyway, I think where I was left with looking at that slide and your comment was you think there's a big replacement cycle ahead of us.
Particularly in underground, load and haul and rigs. I just want to confirm that and how that squares with the numbers we saw on this slide.
Well, I I don't think I I re if I said it, I didn't really mean to say that there here's a big, replacement cycle or wave coming. I'm saying, here's a potential, potential for replacement because the fleet is aging. And if we look at the fleet, we see that a portion of the fleet is older than it should be from the calendar days as well as the the operational hours. So which means that, yeah, it should be replaced, in theory. And this is more true for underground than it is for surface.
But given that observation, it's not a prediction that all of a sudden, well, this is going to be replaced at soon. We don't know. We don't know. So, the the I gave you, you know, a subset of the data that we have, maybe at it's probably not enough to make all that much sense, I guess, but at least a flavor in terms of what we're looking at.
Maybe we can say also that from the slide I show that there is of course a clear trend as well that the customers try to prolong the life of the equipment. And that's where we then came in with midlife service rebuilds, for example. So that's, we're trying to capture it the older the machine has become, then we try to capture it. If it's not replacement, then it's more service.
Secondly, if I can, occasion aftermarket, I think I've been pestering Helena all through the breakout session to try and understand a little bit better what this business model and the economics look like for you in an electrified world as opposed to a diesel world. The numbers I think I've heard from you before is roughly speaking, the OE piece probably 2x the price, but the aftermarket probably caught by a third. If we look at the total aftermarket opportunity on a battery versus diesel, our new aftermarket revenue opportunities are emerging, particularly around the battery, but can you give us some sense of what does that total monetary value look like for a battery machine versus a diesel machine.
Is that you or me?
Or Sami?
I would put it out 2 theories. I wouldn't I wouldn't like to disclose any numbers at this stage. When it comes to, of the market of electrification. But for sure, we are working on them as presented in my presentation as well. We are working on battery as a service type of new business models.
So no numbers to be drawn right now.
Right. Okay. Fine. Finally, if I just can't continue, there was a big theme last year at your Capital Markets Day. We heard nothing today.
We've heard about this new trial, the rollout, I think, in Heckler Mine. Can you talk a little bit muted maybe around that? Sort of theme. Can you talk a little bit about the pipeline, the quotation activity, our mind is engaged? Are we going to see more
of that as we get into 2020? Thanks.
So we have talked many years on the mobile minor concept to have a constant continuous method. And we are developing this type of equipment together partnering up with customers. As I explained before, I do see compared to electrification and automation that they will say the mobile minor will take longer time before it really also starts to take off. There's still a lot of interest, I would say, in the world. We have a big, big focus on the machine we're delivering to Hecla.
So I think a lot of people in the mining industries are watching that order and watching that machine to actually deliver the performance. But there is a large interest and we just had a was it in August, we had an event with customers from all over the globe, fully focused on this methodology. Maybe you can comment Sami on the mobile.
No, I would say all over the world, there is a big interest in referring to the event that we had in a group and in August, we had close to 100 customers actually from all, I would say, organizational levels. So there is a big
It's Anders from ABG. Just a question on tools and attach So when can we expect to see growth coming back there? We've seen about the year basically of flattish numbers and I know you've been repositioning the portfolio, exiting some areas, etcetera, and infrastructure has been a little bit weak. But are we done there? You've talked previously about opportunities in recycling, etcetera.
When are you back in growth mode?
Yes, I would say that we have spent this year has been a lot of shuffling around the folium or divesting and also also focusing more on profitability. So we have exit also non profitable contracts, for example. As we have focused on the profitability. Of course, we, as I said, also, we have the same systematic approach when it comes to both tools and attachment, mapping the fleet, we know the consumption of consumables in each and every market on each and every type of machine So the systematic approach that we have been using within service, the person service for many years, we are doing exactly the same work within tools and attachment. So I expect it to come back to, let's say, a normal organic, you know, systematic approach and growth soon.
But this year has been a lot of cleaning up and refocus.
Yes, Karl on Citi. A follow-up on interoperability in you look at automation, and this has been hurdle for many years that the machines can't talk with each other between CAT, Komatsu, yourself in Sandvik and we heard Sandvik last year or early this year, more opening up their systems. You're already open are you seeing more and more of this that you can now sit from a controlled tower and monitor an existing fleet? Because that can be quite a game changer in sort of increase in the level automation?
I think there is, let's say, the only way forward is to open up because the customers around the globe, they have a mix fleet. And of course, they want also to have a mix fleet. They want to optimize and pick the equipment that has the best performance. So I really see that to go away, Magnostica and to have open, let's say, protocols to make sure that the APIs are there so that the machines can talk each other as well as all the other was the interoperability solutions that we provide. That is the way forward.
And that's we participate in a lot of forums as well to set these standards. The mining industry.
And a follow-up to that is retrofit versus new machines. Obviously, as you say, Helena, you're sort of you're retrofitting a lot right now. Equipment is weaker, but when you do the retrofit, is that also part of upgrading the automation kit, I. E. Or can we see a new ordering cycle with more automation?
Or will
it do you
see what I mean? Will it come mainly on retrofits?
So retrofitting for connectivity is a much simpler thing than retrofitting for, of course, to bring something to autonomous mode. So when we retrofit that, that could be done in just a couple of hours to deploy a new autonomous machine, even if we retro an existing machine, that's a couple of weeks. So it's a completely different type of competence also needed from our side to do that work.
Got it. Thank you.
Some more questions there?
Thank you. It's Robert from Morgan Stanley. Just a couple of questions first one was just on the current dynamics you're seeing on the mining original equipment order side. Maybe you could just give us a little bit more color on what your customers are saying. You've obviously seen not just you, but across the board, a number of mining equipment companies calling out, sort of delays, push outs on the original equipment orders.
What are the customers telling you in terms of is this 3 months, 6 months waiting to see how the macro plays out? Is it that they've got enough production capacity of their current mine sites that they can wait for a year before doing anything? What are customers saying to you?
Okay.
I think, I mean, they're saying, not necessarily giving a specific, you know, date in terms of we're going to make a decision not not in November, but in January, that's not really what happens. It says we're not ready to make a decision. So it's pushed out in time and, without the clear, clearly defined decision path. That's the way I perceive it. So it could be, it could be delayed several times.
I mean, if you look at some of the packages that we have been discussing this quarter or ending 43, we also talked about in quarter 2, and it's been constantly delayed and we have been expecting see it, but it doesn't happen. So it's that's the way it's been, more or less done.
But it's not that it's also off the radar for the customers. They still have it in their plan. It's more that there is more delays, the decision has been delayed or being pushed out in time.
Bannon. Can I add? I also think we see in the that, some of these which could have been placed a year or 2 ago as a big package are chopped into smaller pieces and placed as separate orders,
right? That's also true.
And then, I think maybe one follow-up just around the aftermarket side of things. You mentioned steel metal price is still favorable, but a number of them have obviously been coming down. Do you see any reluctance around the aftermarket side or is that actually sort of mopping up the activity and the people shifting CapEx spend into more OpEx for the aftermarket to mop up, a little bit of that OE push out and focus on what they've currently got maybe flesh out some of the dynamics you're seeing on the aftermarket side?
Well, I
think we're clear, we see, of course, the customers are sweating, sweating of the assets, which is good us because that's a big aftermarket. So we'll say the longer the decisions are being delayed when it comes to capital, expenditures, of course, that requires more, more off market business to keep the machines up running because production levels are still high. We have not seen any, let's say, reduction in fleet utilization or part machines or mine closures. So it's still, I would say, full speed ahead when it comes to production.
Any more questions?
Right? Should we then close? Yes. Yes. Good.
That's lovely. Can we do that? So we reached the end of the sort of the formal part of the Capital Markets Day. We will have a little bit less formal part following this, where we will invite you all to a bit of snacks outside, and we can continue discussions. So the ones that We did not dare to ask a question here in the auditorium.
It may come forward. Of course, Jose was join us from Garland, they will not be able to join for obvious reasons. I mean, when you leave now, I mean, some of you might also have questions when you come back home. And tomorrow, in coming weeks, feel free to reach out to us. Irrebroke.com.
Myself, Corin Lorshon, here as well. So if you have any further questions, we will also send out a SurveyMonkey following this event asking for your feedback, please respond to that. That will make us even better for the future. And, we hope to see you then the next time we have a Capital Markets Day.