Good morning. It's a great pleasure to have you all here today in the test mine in Tampere. This is actually my third Capital Market Day since I started. We have had, as you all know, the ambition to take you around to different places within Sandvik to give you a little bit insight of how we operate and what we can offer in the different places. The crew here in Tampere has done a tremendous job to prepare everything to make this feasible for the day, and I'm really pleased for that. We're going to have an exciting day, as I mentioned.
I will first do a little bit of a presentation telling where we are, a little bit about the future, where we're heading, and then we will have good presentations from each of our business areas, and a little bit in depth when it comes to automation in the mining world, which is the focus going forward. You look awful orange today, you look good. I like it. Safety, as you know, is very important for Sandvik. This morning we launched some of the new financial targets, but also this year we launched the sustainability target, where safety, which has been on the agenda for a long time, is extremely important. We see that it is important for every employee in Sandvik to be able to go to work, either if you're by a customer, by a sub-supplier, or within Sandvik, and come home safely in the evening.
That's the priority number 1. Let's take a little bit of a recap. As I mentioned, it was about three years ago, we put up the strategy for the journey that we have come to so far. As you might remember, I had an ambition that Sandvik would be a so-called 15% company, meaning that our EBIT level should be above 15%. From my perspective, that is a quality company. The journey has been exciting. We've had good demand, stronger demand than we anticipated when we put up the first targets, and we reached last year, 19%. Let's do a little bit of a recap what we have done during the three years. Starting up with the decentralization, with this, the foundation of the strategy that we presented three years ago.
It was moving the responsibility from central out to our operating entities, making sure that decisions were taken as close to the customers as possible. Today, we have 30 business units, and we have 19 divisions, where all of them are the highest operational level, meaning that all the important decisions are taken there. When you work in a decentralized structure, it is important that you have a strong governance, but also performance management, meaning that you need to follow every business you have and know exactly what the performance is. Our co-pilot, he and his team, they introduced the scorecards, and the scorecards were put in the market pretty quick. Today, we have approximately 15 of these scorecards helping us analyzing the business and making our businesses taking the right decisions at the right times.
The third part is we looked at the group unsentimentally and said we need to focus on the core businesses. We decided that the core of Sandvik was the three business areas where we have present today. Businesses that were non-core, we decided to divest. Some of these businesses were underperforming, but some of these businesses were doing quite well. We are with a strong belief within Sandvik that every business should have the right owner to be able to create value going forward. SMT has been on the agenda for many years. I think the first time the discussion came up, is SMT part of Sandvik or not? Was approximately 15 years ago. That's a long time. It's been going back and forth. Is this going to be or not?
There is, of course, a reason for that this has come up on the agenda so many times. The most important of these reasons is that we believe that the best for SMT is to be a separate company. Let me explain a little bit about this. When you look at the group, we have two business areas, which are so-called high performances. When I talk about high performances, they have a return on capital employed which is over 30%, close to 35%. We have SMT, which have a return on capital employed at 10%. That doesn't mean that SMT is a bad business, because if you compare the business with the peers, it's a star. It is performing better than many of its peers, and it has a good position in the market.
I will let Göran talk about this and convince you all that this is not a bad business. It doesn't matter how good SMT performs, it will never be good enough for Sandvik. That's why it come here. You as investors, when you are investing in Sandvik, a company with a market cap of around SEK 200 billion, you expect for every investment you are doing to get a good return. Which means that if we start taking this money and investing more to grow the SMT business, I think many of our investors would not be happy. This is the reason for that we have taken the decision. You can also see that SMT is not a big part of Sandvik today, so the effect on the group is quite limited. Today, it's approximately 16% of our sales, and the profit is around 7%.
It's a pretty capital intensive business if you compare to our other businesses. The CapEx is about 23% invested and the capital employed 22%. Comes the big question: why do we come out now? Not before and not in the future. We think that today is an excellent time. Why is this? Yes, number one, if you remember, two years ago, we had the objective that SMT should reach the 10% EBIT margin, which is good performance for that business. That is being fulfilled. Göran has promised me, he's proven it the first quarter, and he has promised me that for the full year we'll reach the 10%. I'm a strong believer in Göran and his team, so I think he will reach it. The second reason for why it's good, it's because. What's it?
Number one, the Sandvik financial position is very strong at the moment. We have today taken down the net debt ratio from over 100% down to, we are going probably in the end of this year, being debt free. This gives us an opportunity that if we take the decision to list the company, we can do it debt free, which means that it will be a very strong position in the market. The third part is that we have a strong management. The management is today the right management to run this business separate. We decided this is a good time to do this. Of course, it's a big job today to do the separation. We have a legal structure, which is complicated, which has to be aligned with the operational structure. This will take approximately one year.
We have to also make sure, we call it pressure-proof the business, to make sure that the business can stand on its own feet and generate the right profit and cash flow, which is necessary to be an independent company. We still have a little bit of a journey, and the final decision for a listing will not be taken by the management, but by the owners at an AGM. That's how the process works. If we look at Sandvik here, I said, we have improved the profitability. We have come up to 19%, which I think is a world-class performance. What maybe what I'm the most happy with is the strengthening of the financial situation. During the three years, we have had good operational cash flow from all our operations, but we have also managed to generate good cash from the sales of non-core assets.
Today, we are going closer to a non-debt environment, which gives us a lot of exciting opportunities going forward. That's moving in. We say in the strategy, stability and profitability, what comes after profitability? Growth. When we talk about growth, we talk about organic growth, which is always the most healthy way, but we also talk about acquisitions. When we talk about acquisitions, we have started the journey. During 2018 and 2019, we have managed both to present and complete eight acquisitions. Many of these acquisitions are very exciting. The good thing is that these acquisitions are actually part of all three of our business areas. Even SMT have made an acquisition, and that's been within the Kanthal division within the business area. Very exciting stuff. We'll talk much more about these acquisitions when we come into the business areas going forward. Our world.
Let's talk about something that we can't influence. That's the market. The market goes up, the market goes down, it's being influenced by a lot of factors, which we have not any chance at all to affect. If we look at the last two years, we've seen a very strong market. We've seen strong growth in all our segments, which have supported the good development that we've seen in our businesses. Just for instance, SMT has grown 10%. Some of the segments within SMRT, we actually doubled the volumes. It's been a strong market. Moving forward, of course, we don't know anything about that. There's a lot of speculations, looking to projection in the future, it looks like we're going down to more plateauing or less strong growth going forward.
From my perspective, I have no idea. It doesn't really matter, because our job is actually to adapt ourself to the present market situation. That's why we have good managers within Sandvik. We go forward, we will look for growth opportunities. I say growth opportunities, yes, we are looking for areas where we think we can grow even in a slower environment. One of these areas we'll be looking deeply into today. That's automation within mining. The whole mining market is going through a huge change. We have committed to take a lead in this change. We will look for opportunities in SMS, round tools where we have smaller market share than we have in the inserts, but also to technologies around the manufacturing process, giving exciting growth opportunities.
At the same time, yes, we have to make sure that we adapt ourself to these tougher market conditions. Sometimes we even say in Sandvik we even a little bit excited about going into tougher times because some of the companies that we would like to target are a little bit high value today. A little bit lower could give us some great opportunities. You all know the best time to make a good acquisition is actually in a downturn. I started here, I said I knew that Sandvik was a great company. I followed the company during many years. I've always been impressed with the performance. Sandvik has a very strong foundation. I think the strong foundation is basis for the success that has been created. Let me look into some of these areas, which I think is key to this success.
One of these areas is that Sandvik is always working close to our customers. We don't have any middle hands. We are working every day with our customers in the mines, in the construction sites, but also in the factories. You probably heard about the yellow coats and the green coats working every day, helping our customers to become more productive. That's the job. This also gives us an enormous opportunity. I sometimes say I put my ear on the track because you can always understand when changes in the environment by our customer is changing, we are the first to pick it up. Strong position close to our customer is one of the key areas of success.
The other part of the success story in Sandvik is that Sandvik is always focusing on product developing new products, new technologies, and being in the forefront when it comes to Industry 4.0. Yes, we are a traditional engineering company with traditional products. We are also investing in the latest technologies, combining Industry 4.0 with the traditional products that we have within Sandvik. Never have there been a bigger funnel of exciting projects, technologies that we are investing in the future. Just give me a small little example. SMS is today investing approximately SEK 300 million of the profit into additive manufacturing and digital manufacturing today. Which today is not giving any profit, but it will be the profit generators of tomorrow. The same is that Sandvik actually started with automated mining already in the end of the 1990s.
I remember I saw the first loader up in LKAB running without an operator, 1999. Today, during 20 years, we haven't been making any money on automation. The last three years, the market starts exploding, we finally start making good money on this is actually the future for the mining industry. When you look at Sandvik, yes, we are a traditional engineering company, we are working with the latest technology. Some of these competencies we can find inside the company, we are employing more and more people that can handle Industry 4.0, data processing, and so on. Just a little example. Here in Tampere today, we have 20 data scientists only working with crunching numbers from data that we are collecting from mines and equipment all around the world. This is a unique situation.
Combining our competencies with the future competencies of digital manufacturing, digital technology, we are doing that both by employing our own people, also working together with our companies. We have today agreement with IBM. When we work with artificial intelligence to be able to predict the maintenance of our products in the future, the IBM computer, Watson, I think all you know, are trying to crunch our numbers every day. The combination here is vital, we have also decided that we will buy companies within this area. Maybe you remember that the last month we bought Newtrax, which is one of these companies that are working with the digital part and will be presented here later, which is actually connecting us closer to the software in the mine.
Together here, we are creating the solutions for our customers, which will be the leading technologies for the future. We are committed to stay in the lead when it comes to this development. This is the foundation of Sandvik, always being on the frontline. Let me show you a couple movies proving this.
Analysis is the heartbeat of data. It turns data into actionable knowledge, the basis of all profitable decisions. This is why we at Sandvik developed a new foundation for OptiMine Analytics. Boosted with new capabilities, OptiMine can offer even more performance-enhancing features to improve uptime, availability, safety, and asset performance. Along with processing data gathered directly from your fleet and operations, OptiMine Analytics utilizes global Sandvik fleet data and engineering expertise to provide you with up-to-date suggestions on how to improve your productivity. Through the easy-to-use dashboards, you can access a comprehensive overview to identify areas of improvement. The tools enable you to plan your operations through data-driven simulations and then continuously optimize your production cycles with real-time data. This leads to an increased overall equipment efficiency, which you can continuously monitor.
The Sandvik proprietary predictive models, which are developed in collaboration with IBM, make process optimization easy, as the productivity-enhancing actions can be implemented using OptiMine digital tools, such as scheduling, task management, and location tracking. OptiMine Analytics also improves safety due to transparency of machine and operator actions. OptiMine Analytics integrates with all of your mining systems to provide a holistic situational awareness. OptiMine Analytics can be enhanced with 365 OptiMine services for mining process optimization. Together with mining experts, Sandvik analysts will help you find the critical points of your process and turn findings into action. OptiMine Analytics, exploring the invisible, implementing the analyzed.
Exciting stuff. We will show you much more of this further on today. I hope you're looking forward to that. If you summarize it, yes, Sandvik wants to be close to our customers. At the same time, we want to be able to help our customer to become more productive. For us, it's important to be number one and number two in all our businesses. By being number one or number two, being a market leader, we can get premium pricing for our products. It also helps us to invest more money than our competitors in R&D and product development, which is core. Better prepared. Yes, sooner or later, there will be tougher times. We know that. This never change. It goes up and down, and we are a cyclical company. What have we done to prepare ourself for tougher times? This is important.
We believe that we are less resilient today than the history. Let me give you some example. Yes. When it comes to our net working capital, strong focus on that, making sure that our net working capital for the group is under 25%. That's important. When we invest in CapEx, yes, we do invest in many exciting, but we do it carefully, and we've decided not to exceed the 4%, which is historically a very low number for Sandvik. I can assure you, we are not under-invested. In all our operation, I'm talking about our 30 operating entities are all focusing on productivity. That means that in every year, in good years as well as in bad years, you must at least reach 3% productivity. What do I mean with 3% productivity? I mean that the sales per employees need to improve with at least 3%.
That means if we don't have any growth, that means we need to reduce our personnel with 3%. In good times, yes, we have been running over 10% for the moment, but in the downturn, we have to make sure that we stay over 3%. This is incentivized in all our businesses. When it comes to the Mining and Rock Technology, and especially where you have equipment which is more sensitive in ups and down in the market, we have said three years ago, we build no more factories. We have doubled the volume since then, and we've done it through satellites. The satellites is helping us to assemble the products and to deliver them out. That means that we outsource all fabrication, but also final assembly. Today, we have approximately 40% of our equipment today is assembled by satellites.
This means when the market gets softer, we can take home the production and make sure that our production units do not run with under absorption, which is the normal thing that is killing industries in downturns. This is a proven technique, and it works. Not least, during the last three, four years, we have been closing 40 plants, the majority of them within SMS, meaning closing smaller, unprofitable plants and moving into our larger, more efficient plants, investing in automation and efficient production. These together have made us more resilient than we have been before. Adding to this is the decentralized organization where we very quickly adapt to the market situation. Yes, I mentioned we are decentralized, our managers, they focus on their strategies to drive their businesses. But there are certain areas where we all have a common focus on.
Number one is that we develop our core, and we divest non-core businesses and products. We focus on developing products and systems in a broader value chain, meaning the digital manufacturing that you have seen lately. We have to be on the forefront when it comes to Industry 4.0. The third important part, that is the capital and cost efficiency in all our operations. We need to have a strong focus within all of them. This is common among all our managers within the group. three years ago, we presented the financial targets for the group. These targets was based on where Sandvik was at that stage. The focus in the strategy we had was stability and profitability. That's what we needed to do. That's why we said that the targets need to be EBIT approved, and improvement of the return on capital employed.
Working efficient with the capital and the cost and making sure that we become a profitable company. Today, Sandvik is both profitable as well as stable. This means that our targets has to be reflecting the situation we are now in going forward. This year, we have also decided to take a broader view when it comes to targets in the group. We are, for the first time, combining sustainability targets with financial targets. Sustainability is an integrated part of the way Sandvik works today, and has been for a long time. We have also been well recognized about this in the market. And when we look at sustainability in the group, I mentioned this many times, we see it from two perspectives, how our products affects our customers and the market, and the other part, how we work in our operations.
Both of these are the common way how we work with the sustainability. We have had a lot of targets. Every year we've been setting the targets and we've been fulfilling the targets. We have also been recognized for good sustainability work, both by the Dow Jones Sustainability Index, where we're part of, but also be recognized as one of the most sustainable companies in the world. This is important, but you as investors, our employees, our customers want us to become even more tougher when it comes to setting targets, more ambitious going forward. We have decided that it is time for us now to set our long-term targets when it comes to sustainability. Our target time is 2030. This is a big thing for Sandvik because when we set targets, we mean we want to reach the targets.
We have to be able to do it, which meant it's been a long process for the group because we have to adopt all our 30 operating entity, making sure that they are committed to the targets that we are setting and are committed that we are going to reach these targets. Today, we have a full commitment in the group to be able to reach them. When we look now at the sustainable targets, we look over the whole value chain. We look from suppliers, our own operations, and also how our products are affecting our customers. Based on this, we have said we want to make the shift. We call it the shift, and within the shift, we have four target areas where we need to reach. The first one comes to recyclation and circularity, we say in English.
Actually making sure that 90% our product will be possible to recycle. Already today we are working with circularity by, in SMS for instance, we have our own plant and 50% of all wolfram powder in our cutting tools are actually coming from recirculated inserts and round tools. This we can take further, but we also see this within the mining area. Also in SMT today, we are using scrap in our smelters being recirculated. 90% of our product shall be recirculated or year 2030. That's one of our targets. The second target, it's related to climate change. I think we all are affected by this. We do have a strong belief that technology will help us take us to the next steps, and Sandvik is committed to participating in this.
We will also make sure that our operations around the world are using the right techniques, the right energy levels to be able to reach our targets. We have said that our footprint of CO2 should be halved within until 2030, which means that there is a lot of activities changing ways of working, but also making sure that our products that we launch into the market will be much more efficient and giving less CO2 emissions. That's the second one. The other one is focusing on people, and that's the safety which I started with. That's the core of Sandvik. We have a zero vision, meaning that we should not have any accidents within the group. The third area is the fair play. It's important that Sandvik is acting as a great company in the market.
No corruption, nothing like that, and we have to work in the right way, setting the standards for ourself and for the other companies in the market. These targets have been introduced today for the first time. Now during the next 10 years, we will be working hard, first setting up how we will measure all the different targets and then making sure that we will reach the targets year 2030. We are excited about it. I think the most Sandvik employees today feel very encouraged about us setting these targets, and I hope that you will support us during this journey. We move to the financial targets, which I think many of you have been focusing on. This morning we also presented them in a press release. I said it has to reflect the situation where we've been today. We are profitable, and we are stable.
Going forward means growth. We say that growth, we should have our business cycle grow with approximately 5% or exceed 5%. What do we mean by that? Approximately 50% of this comes from organic growth. That's the underlying growth that we have in the group, and 50% comes from acquisitions. Of course, we want to exceed this if the possibility to do. 5%, we feel, is an ambitious target that we think is correct for us. Last year, we made five acquisitions. We have made three acquisitions this year, and I think we can run with a pace at least five acquisitions every year. Most of these acquisitions are so-called bolt-ons. The second part is that you who have been listening to us during the years is saying that we are a more resilient company today than history has proven.
We want to also challenge ourselves and everybody else that Sandvik should not go under 16% in a downturn. That's our target. That means even in a soft market, Sandvik should not go under 16%. If we decide to list SMT, that will be a later decision. This number will go up approximately two percentage points, giving you just an indication of the levels we are talking about. With the net gearing, the net debt ratio, we set 0.5. We want to maintain a strong balance sheet going forward, this still gives us a good headroom, especially now when we're becoming debt-free going forward to make these acquisition. We will also, in the future, continue to generate strong operation cash flow, which will, of course, strengthen us in giving us more opportunities to grow, going forward. In the end, no changes here.
Sandvik is a generous company when it comes to dividend. 50% of our earnings per share is going to be paid out in dividend. This might vary a little bit between the years. Some years it might be a little bit more and some years be a little bit less. Of course, our ambition is not to lower the dividend. That is, of course, important. I think my co-pilot, Shirley, can give us some more in-depth when it comes to our financial targets. There you are. He's very orange today. I'm not used to seeing him like that. Please.
Thank you, Björn. I'll do my very best, you really have to stop calling me Shirley. Good morning to you all. I will start by shedding some more light on the financial targets, especially the first two ones, the margin target and the growth target. What you see here in the graph here is where we are right now and where we have been, the group, so to say. You have the growth on the x-axis, and you have the margin on the y-axis. Right now, as Björn mentioned, the organic underlying growth in the group is around 2.5%. We need another 2%-3% every year in acquired growth to reach the 5% growth through cycle. I will talk about the funding of that later on in my presentation. That should work out.
If you take a really long perspective on the Sandvik Group, if we look at 20 years from 2000 up until now, the group has grown from a little bit more than SEK 40 billion up to SEK 100 billion. If you CAGR that, it's close to 5%, and that includes everything, includes acquisitions and divestments as well. I think it's actually 4.7% to be exactly right. 5% is what we should be able to do, at least. On the margin side, the previous trough reported, that was in 2016 or 2015, really, end of 2015, was 12% EBIT margin.
Of course, if we look forward now, we should adjust that number a little bit because we have divested some of the businesses and are about to divest some of the businesses which we had back in those days, like Varel, other operations, which were dilutive to the margin. If you put that back or take that out, the trough was 13.7%. It's still more than two percentage points up in trough margin. 16% is ambitious, and it's a level that we haven't had before. I will move into the income statement and balance sheet. I will give you a little bit of an update on where we have been over the last four or five years. I will talk a little bit about the previous financial targets and connect them to the new financial targets.
I will venture also a little bit more into some areas we normally don't talk so much about. Of course, just to mention, if I talk about market trends and sales and current trading and all that's all March 31st, Q1. Nothing refers to today. As you know, we're two months into the quarter now. We can't talk about the current trading. We're not allowed to do that. Everything is Q1. Anything which sounds like guidance is not guidance. Let's start to talk a little bit about planning, because this also has to do with resilience, it has to do with agility. How do we run this company from a financial point of view? We don't do budgets. We don't like budgets. We stopped it three years ago and haven't heard one single question asking for a budget over these three years.
We don't measure deviations against something we believed last year with assumptions on currency inflation, GDP, and what have you. We measure real performance, and real performance is actual over actual. How is the company doing right now? Are we doing the right things? Where do we have to step in and be a little bit more sharp? However, we do have scenarios all the time. Every division, every business unit has a base scenario. Where are we going? What is happening? We always have a zero-case scenario with a linked contingency plan. That means zero in order intake, we always have a worst-case scenario, which is double-digit negative growth with contingency plans linked to it. That worst-case scenario, that is the 16% that we talk about. It's a bottom-up process, really.
It is done by every business unit, every division, and aggregated to the business areas, and then up to the full group. Of course, what we want to achieve with all this is to be more resilient when we go into a weaker market and a weaker economy. As Björn mentioned as well, we have a scorecard-based system for quick analysis. Easy, quick, straight to the point. Let's move then into the numbers and of course, start with the top line. The screen doesn't work for me here, so I have to take a look. Yeah, that's the right slide. We are on a very high level, as you know, if you follow us. A very high level. It works. Thank you, Ansin. The magic touch. Of course, we're meeting tougher comparables, of course.
The growth rates and percentages will come down, are coming down. SMS, as you saw in Q1, the growth in SMS is sort of flattening out a bit. SMRT and SMT have good order intake and very good order backlogs, of course, are driving revenues. Gross margin. Gross margin development has been strong and good over these years, and continues to be good. You can see it's more than 300 basis points up in gross margin. Factors behind this are, of course, pricing, starting with pricing. We are market leaders basically everywhere in the world where we are. Number 1 or Number 2, where we should be, which means we are price leaders as well. In the worst of times, price is 0 or close to 0. In good times, it's like 2%, maybe a little bit more than 2%. 0 to 2.
That's extremely important for us, extremely important for the financial performance. Productivity has been mentioned here as well. We have the 3% productivity target for all our businesses. We also have for SMS and SMT, what we call cost productivity to make sure that we have a good product cost performance as well. The never-ending footprint consolidation, which has been going on and will continue in the future. This drives gross margin. SG&A, if we go back to the capital markets day in 2016, we talked about SG&A. Previous peak, we had 23%, then we went into a downturn. It boomed up to 20, or Well, it sort of slided away up to 26.5%, which was not good. We said we have to come back to 23%.
We are back on 23% right now, as you can see on the chart. In money, that's the bars here, the columns. We spend more, of course, driven by the strong markets, et cetera, but the ratio is okay. We have to be a bit mindful here going forward. We really need to be on our toes and manage the SG&A cost if the market weakens. We feel that we have a system to deal with it. Gross margin and SG&A gives an EBIT margin, this beautiful chart shows the journey from 12 to in excess of 18%. That's 600 basis points up. The good thing with this is that half of this margin improvement comes from gross margin, half of it comes from SG&A.
This is kind of a little bit, let's say, rule of thumb we have, that at least half of your margin accretion has to come from gross margin because gross margin sticks. It's pricing, it's product cost improvements, it's other productivity measures, et cetera. That sticks even if you run into a downturn on the market. The other half, SG&A, of course you have productivity there as well, but quite a bit of it is just cost absorption. Cost absorption just goes away unless you cut out exactly the same relative amount of cost as such. It's very dangerous just to inflate your margin with SG&A and nothing from gross margin. You can see the blue lines here, the blue dotted lines. That's the, let's say, the previous financial targets. We were at 12%, and we said we should, within three years, reach 15%.
We reached a little bit more. You see the brownish line, that's the new financial targets for the margin. That's 16% in a trough market. Of course, you can ask, why don't we have a peak? Why don't we have a range? Some companies have a range. Should we say 16% to something? We decided not to in the end, because we didn't want to cap the EBIT margin as such. You could question, okay, is the peak 18.5% or where are you? You can always do a little bit better. It can be a little bit higher than what it is today. We still have things to do. If we then move over to the two big business areas, SMS and SMRT, same time period. Please mind you, it's not exactly the same scale. SMS stops at 25%, 26%, and SMRT stops at 18%.
You can see the journey is approximately the same for these two businesses. SMS started to pick up in margin even before the volumes came in in early 2017. The demand or the sales, the top-line level is flattening out, means that we are more like defending the margin. As you know, lately we've had some issues with the tungsten powder business, which has diluted the margin a bit. On the SMRT side, you can see how the margin started to pick up very dramatically second half of 2016, and that was when the equipment sales started. That continued and are still continuing. However, slowing down a little bit in early 2018. What happened after that was that the aftermarket business in SMRT really picked up with a very strong and good margin accretion.
That has been fueling the latest, let's say, four or five quarters of margin accretion within SMRT. That's where we are right now. Let's move then beyond or below the operational earnings and talk about something which I find very interesting. This is the interest net by quarter. You can see where we started in 2015, we had SEK 400 million per quarter, that's SEK 1.6 billion per year. We have, over these last three years, we have reduced the debt, and we have recapitalized our subsidiaries. We have taken out all high interest rate debt in various countries in Latin America, in Africa, in Asia, and replaced it with equity instead. Of course, we have strongly or heavily reduced debt situation as well. This is about 50/50 here. Half of the debt interest rate reduction is from recapitalization, and half is from reduced debt.
We have taken it from SEK 400 million down to below SEK 200 million. Now, going forward, we have exciting stuff, which we talked about in April when we released the Q1 report. We are going to prematurely repay, in advance, some bilaterals. I'm not, and I have to say this, talking about publicly traded bonds now. Of course not. We're not touching them. This is bilaterals that we have as well. We have both public bonds and bilaterals. We're going to pull the string on a big chunk of the most expensive bilaterals running with interest rates on 5%-6%. This means that when we've done that, we're going to push the quarterly interest net down to way below SEK 100 million per quarter.
That's quite a journey from SEK 1.6 billion per year down to below SEK 400 million per year as from the second half of this year. That means a lot, as you can understand, for earnings per share and shareholder value. Tax rate. Now the screen is not working again, I think I can survive. Look at the brownish line here on the left-hand side. That's the underlying real tax rate. It's been on 27% for a few years. Now what's happening here is that in 2018, 2019, you had the U.S. tax reform that had a 70 basis points impact on the group tax rate. We have positive mix effects in the tax rates. We make a lot of money, or we do good, I should say.
We have good performance in a number of countries like Czechia, Finland, Sweden, and the U.S., of course, where the tax rate is around 20%, that drives the tax rate down. We have a new guidance, which is 25%-27%, right now we're at the start of the year running on 25.0 exactly. We're really at the bottom end of that range, we're not changing the guidance right now. Okay, let's move to the balance sheet and the cash flow. On the left-hand side, you have the cash conversion. Cash conversion we feel is the right way to measure cash flow to decide what is a good cash flow. Everybody understands that a higher cash flow is better than a lower cash flow, what is a good cash flow? A good cash flow is your ability to transform earnings into cash at the bank.
We had some issues in 2018 in the inventory situation. We sorted that out, now the cash flow is developing according to how the earnings is developing. On the right-hand side, we have working capital. Historically up to close to 30%, we don't have an official target for this, we want to keep it on 25% or lower, that's where we are. There's a little bit more to do here as well. Returns. On the left-hand side, you have the relation between capital turnover and EBIT margin. I mean, the two sides of the DuPont equation. You can see how the turnover has increased as well as the margin. Now lately, over the last two quarters, margin is up, turnover is somewhat slowing down.
That's driven by a little bit more of M&A, a little bit of working capital, and a bit of excess cash. We'll deal with that as I just mentioned here on the previous line. Also currency, of course. You can see that on the right-hand side, there you have two brownish lines. 14%, that's where we started. 17%, that was the target, and we have reached in excess of 20%. Going forward, of course, we have to manage this as well. We will continue to have a high pace of acquisitions. That will, of course, have a dilutive effect on the returns, but we will try to sort of manage it on these kind of levels. To finish off, I will talk about capital allocation, and what we will do with the free cash flow going forward.
This model we have used for a few years. We will manage the debt, we will maintain the dividend policy, and we will continue to use M&A as a growth vehicle for us. Let's quickly touch on these areas, starting with CapEx, as Björn mentioned as well. We have taken the CapEx down to 4% or below 4% of revenues, and that's where it should be. The investments we need to do will be contained in this 4%. We have not invested in any capacity over the last three years. We will not invest in capacity going forward as well, because we don't need more capacity. What we invest in here is new product, new technologies, new powder plants, et cetera, but not pure capacity, because that we do have. M&A. Again, we've talked about quite a bit, both Björn and myself here.
We have two main streams here of M&A. Grow in the current core, that's like round tools or what have you, drilling equipment like Inrock, for example. These are easy bolt-on acquisitions with more, let's say, normal multiples. Should be accretive to return within five years, or at least five years. Then we have adding to our DNA. That's digital connectivity, automation, electrical vehicles, all of that, where we sort of go into these new areas. Of course, these multiples are, I don't know how to express it, a little bit different compared to the bolt-on acquisitions. This means that it will take quite some time to be accretive. They will drive growth because they normally have a growth rate of sometimes more than 10%, like two, three, four times higher than the basic organic growth for the group.
They will be accretive to the margin in many cases. If they are up and running and make money. They will have an impact on the return on capital employed. That's just how it is. Of course, when we do this, we want to pay attention to our investment grade credit rating, of course. We have A- right now. We come from BBB flat. We have gone to BBB+. We're now an A- with stable outlook. Speaking of the credit rating, this is the balance sheet, or the net debt, I should say. As you know, we have three components here. We have the lightish gray part. That's the financial net debt. That's what will go away pretty soon this year. That will transform itself into a net cash position. It's only SEK 4.4 billion left.
Not much compared to more than SEK 30 billion not too many years ago. You have the bluish, which is the pension debt, that will continue to swim around SEK 5 billion. Then we have the capitalized leases, which is just accounting, you don't really have to pay any attention to. The gearing 0.2. You can see the bluish line here. That's 0.8. That was the previous financial target. You see the new one. That's 0.5. New financial target. On the right-hand side, you have net debt over EBITDA coming from 3, now down to 0.7 here. Question we always get, and what we discuss internally as well is what kind of firepower do we have then for M&A in the balance sheet if we would like to do something bigger? This varies of course. This is an equation which has two components.
It's first of all, of course, the shape of the balance sheet. The second one is which credit rating do you have? It's a huge difference. With an A- credit rating which we have today, but with a good balance sheet, we can go to 0.5. That's our financial target. We have SEK 60 billion in equity. Half of that is SEK 30 billion. 10 is already, let's say, occupied by pension debt and capitalized leases, so that leaves SEK 20 billion. If you would have a BBB+ or a BBB flat, that number 20 would be instead 50. That's the difference. In a BBB flat kind of rating situation, you can go up to a net debt EBITDA of 3. On an A-, you are between 1 and 1.5, it's quite a difference here.
It's still investment grade we talk about. Concluding here, on the current rating, the firepower is a little bit in excess of $20 billion right now. That's if we would gear up the balance sheet. Finally, dividend policy. Look at the right-hand side here now. These last 4 years or 3 years, the adjusted EPS has gone up with more than 100%, the dividend, of course, follows through. You saw the target, 50% payout ratio through cycle. Of course, we have to be a little bit careful here as well, it can vary between something less or something more. We want to maintain the dividend. You don't want to end up in a situation where it has to go down, you have to be a little bit careful. Okay. Very last slide here. How does the math work here now?
Debt reduction, dividend, and M&A. Well, we don't really have any financial net debt very soon, we don't have to spend any money on that. Dividend, that's SEK 5 billion annually. How much free cash flow do we have? Well, right now, as the company's performing, we have SEK 10 billion, SEK 11 billion, SEK 12 billion. That's after paid taxes, that's after paid interest net, and all of that. SEK 10 billion, SEK 11 billion, SEK 12 billion, something like that, to spend on these 3 areas. That's an annual cash flow cycle. Not talking about gearing up the balance sheet. This is what comes in every year. Half of it would go to dividend. The other half, let's say SEK 5 billion, SEK 6 billion, would then be available for M&A. That is enough to acquire the 2%-3% in acquired growth that we need to reach the 5% growth through cycle. The whole thing works. Okay.
I'm sure I missed something. Anyway, I think I'll hand over to captain, my captain again for conclusions. I think I'll stay for Q&A, I guess. Oops, sorry.
Thank you, Tomas. It was a little bit in-depth when it comes to the financial performance, just a short summing up of where Sandvik stands today. I think we are happy with the financial performance of the group. You know my viewpoint of this. Sandvik is the sum of our 30 operating entities' performance. If our 30 operating entities are performing well, Sandvik is a great company. I think so far we've done a good journey. That's great, we have more to go. We have a strong foundation. I think Sandvik is a great company in many ways. The way we operate in the market, the way we work with product development, the way we develop the group in a way, it is a great company. It's a strong foundation to build the business from.
The third thing is, yesterday we have the financial means, we have also the ambitions to take the next step. Here we're talking about the new Industry 4.0, Core Plus, new, making sure that we are in the front line when it comes to technology and products and technologies to be there. This is important for us. We are there today, and we will continue to invest within this area. In the end, yes, there is still a lot to be done. We can be more efficient in all our operations. We can do more when it comes to organic growth, we can also do more when it comes to acquisitions going forward. I think the future looks bright. Thank you very much. We have a couple minutes for some questions.
We'll have a big Q&A in the end, it gives you an opportunity to hear.
Thank you. It's Klas from Citi. First, maybe a question for you, Tomas, on the trough margin equal or above 16. Can I just ask you a little bit on the divisions? Are we thinking maybe 20% in SMS, 15% SMRT, 5% in SMT? Could I ask you about the volume assumption in SMS? I know that you've talked before about a normal mining downturn for SMRT, but in SMS, I know that a lot of people are interested in how you get to the divisional trough, if that is 20.
Well,
You want to answer?
Sure. We haven't really broken down the targets on the divisional level or business area level. The targets are the result of the contingency plans, the worst case, double-digit downturn on the top line contingency plan from the divisions. That gives 16%. We have, on repeated occasions, said, or our captain here has said many times that SMRT will not go below 15% in a downturn.
We know that the volume for equipment goes up and down, in a downturn, you haven't the volumes. That's the reality of that business. The great thing today is that the aftermarket in SMRT is about 61% or 62% today. In a downturn, it can be as high as 75%. That thing is very steady. You look at the long term in the mining industry, if it's downturn or upturn, it doesn't really matter. It goes 1%-2% up. With a strong foundation in the aftermarket and making sure that we are flexible regarding our equipment, and that's very much dependent on the way we work with satellites. I said that there is no reason why we should go under 15% on SMRT.
For SMS and SMT, we haven't given any specific numbers other than we've said that it will be higher than before, both for SMS and for SMT. SMT has been down to zero. That will not happen. SMS, well, the previous trough, 1920, something like that. Next time, better.
It's no secret, when we look at SMT, it's between 5% and 12%, somewhere where that business is moving. With a good management, I think you can keep it to go above 10% somewhat. I think Göran will talk a little bit more about that. Of course, that business is more volatile, of course, than the other two businesses. That's pretty clear.
I have one follow-up also for you, Tomas, in terms of M&A and thinking about the net gearing target of 50%. You want to buy into round tools. You want to buy into additive manufacturing and industrial software. I get these multiples to roughly 5 times sales on average. Considering the 2.5% target from M&A at the current base, that's SEK 2.5 billion. That would give us to obviously SEK 12 billion-SEK 13 billion of cash outflow, just to those multiples. Is that roughly how you're reasoning? Does that mean that you could start to do M&A more already today, or do you want to wait for the next downturn?
I think this is a combination of that. We have identified, as I mentioned, we're probably working with approximately 100 companies at the moment that we are looking into. Some of them is correct, valuations are a little bit too high, that in the end, we have to get a good return on these investments. That might be different timings with it. We are both investing in core as well as in these more digital kind of companies. It varies, of course. I think when on the core, it's of course not those multiples that we are working with. It will be a combination, and we will be moving around, and when we can catch a fish, we'll do it. I can assure you, we'll be on our toes to make sure that when the opportunities arise, we'll be there to snap it up.
You could do simple math on that. Let's say you spend SEK 1 billion on bolt-ons, which is 1x sales. That's SEK 1 billion, then you have SEK 4 billion to go. SEK 4 billion, okay, let's say it's 4x sales. That's the other SEK 1 billion. That's SEK 2 billion. That's 2%.
If we would make-
Yes
a little bit more a sizable acquisition, of course, we would probably exceed some of those-
Yeah
targets. Of course, ambition would be immediate to get back to the levels that we have set.
And five bill-
These are not a limit that we cannot cross. These are financial targets.
No. We have three buckets here. We have the first one is the SEK 5 billion-SEK 6 billion I talked about here in the annual cash flow that we can use, without changing the net debt. You have the SEK 20 billion if you would gear up. Of course, as Björn says here, if we would find something really interesting, that's the third bucket.
We feel pretty flexible in the way to operate. Yeah.
Thanks, Björn, Tomas. Lars from Barclays. Two quick ones, if I can. Just with reference to Klas' question, am I right in understanding that the like-for-like trough margin, Tomas, was 13.7%, excluding announced and prior divestments and M&A?
Sure.
That 230 basis point uptick from prior trough margins. I wonder again whether you can give a little bit of color around SMS. I say that because obviously we've seen big improvement as far as margin resilience or uptick in margin resilience for SMRT, SMT as well, I would argue. But what is embedded in that uplift to prior trough margins for SMS is concerned, number one, and then I had a quick question on return on capital, which is obviously omitted from targets. I wonder whether you can talk a little about what return on capital for the group looks like ex SMT. There's a bunch of cost and capital employed-
Come back
at the group level, to what extent how we should think about an uplift to return on capital ex those unallocated cost and capital. Thanks.
I can maybe answer on the trough margins on SMT a little bit. There's been a lot of work with SMT during the years. We closed more than 15 factories, moving from these low-performing into the higher-performing factories, running on a higher level straight over. I think also with the fully-divisionalized structure, adopting their costs in relation to the demand much quicker than before is some of these levels. We made contingency plans for all our operations, that's what we are actually basing these on. What can we do and what can be done to be able to offset lower volumes within the different businesses. We feel pretty comfortable.
It's very difficult to go in exactly in the trough with the different businesses because we don't want to go. Business areas is a combination of a number of divisions, and all divisions are a little bit different. If you really want to go down to details, you have to boil yourself down into all our operating entities, and we really don't want to do that. You have to trust us. We said 16% is the trough level that we have for the group. It can vary a little bit between the division. It could happen that one manage a little bit better than the other one, because this is. You have to manage these targets. They're still challenging going forward, and that's what we're going to be fighting for. We'll keep the group over 16%. That's our ambition.
We wouldn't talk about 16% if we didn't believe in it, of course.
Definitely. There's the returns.
The returns. Yes, of course. We have to remember that there's no decision on an external separation. It's only a decision so far for an internal separation. The board decides, and the owners decide. Of course, we've done the math. Of course, we have. If you would take out SMT, the return on capital employed would jump up to in excess of 25%. Why isn't it over 30? Because we don't have everything in the balance sheet allocated to business areas. You have big chunks which is sitting in group common, like deferred taxes and other stuff, which sort of dilutes it. 25% or a little bit more.
We have all the cash at the moment.
The excess cash, yes.
Which is sitting there on the
Which I'm trying to deal with
Which is not helping our returns at the moment, if you put it that way. It's not bad with cash
A little bit much.
It doesn't really look so good in the financial numbers, as you all know.
Yeah.
Good afternoon. Isn't it an amazing place? I have to say it like this, that I'm deeply in love with the metal cutting business and whatever we deliver. I have to admit that mining has larger drills, larger machines, and nicer looking mines. With that said, in my presentation today, I will be joined by Lars Bergström, that will succeed me from beginning of July. I will talk through what Sandvik Machining is about, our markets, our product offers, how we perform. I will talk about what we did say last Capital Markets Day, what we have delivered until today, also about strategy execution moving forward. Lars will talk about the journey moving forward. In and out during the presentation, I will also touch upon sustainability, because sustainability in my book, in our book, within Sandvik Machining Solution, is part of our DNA.
We have always delivered productivity to our customers, less use of resources, improved cost efficiency, and we're also doing it in our own operations. I think you know the numbers, most probably better than myself in some aspects. Sandvik Machining Solution is a SEK 40-plus billion operation. We generated an EBIT of 25% plus. We have roughly about 19,000 employees when decentralization has moved into our operation. We are grabbing a market that represents some SEK 200 billion. The core of our operation is all about our divisions. There are four different divisions. The core division aiming for the metal cutting market or the machining markets. Three of those are true premium, and the leader of the pack is Sandvik Coromant. Those three are among the six most valuable brands in the marketplace.
Dormer Pramet, an operation aimed for the mid-market, very much about growth moving forward and expanding on that. We have two additions, investments for the future, additive manufacturing, that consists of powder, and additive manufacturing services that we're building up. As well, then applied manufacturing technologies. If you have not seen it, if you have not touched it, please take a look in the coffee break as well and talk with our people over there when it comes to how we're expanding into the arena of digitalization and connecting our industry. In between then, we have Sandvik Machining Solution Supply, providing then these operations and powder across the different divisions. The products. The most important products, the consumable and the value creator in metal cutting, the inserts, representing more than 50% of what we are selling then.
Round tools, something that we have talked a lot about, and as you can see, if you go back in the numbers, have expanded in share, driven by own development, driven by our clear focus of expanding and also bringing smaller bolt-on M&As. When it comes to round tools, we have a lower market share than what we have on average. When it comes to round tools, electrification of vehicles are driving a higher consumption of round tools. When it comes to round tools, also near net shape, higher speeds in machines, five axis machining is driving that, and that's the reason why we constantly focus on round tools. Then we have the tool holders, the insert carriers, and the investment product, the tooling system. Then we have the future, the evolvement of new businesses. Geography and segments.
I don't think that much has changed, but at least a few observations. You may remember that we talked about automotive representing roughly 30%. It is a little bit less now than in the past, and the main reason for that is we have been moving forward more and more towards both general engineering, but even more so towards aerospace. We are growing the shares in those areas. Energy has also bounced back to some extent. It is not only oil and gas, but it's also other parts of the energy sector as such. I think we have a fairly balanced geographical outlook. We are in the northern hemisphere of the market, i.e. we are in North America with some 20-plus.
We are in Europe, both when it comes to footprint and when it comes to market exposure, around 55%, and then in Asia, predominantly, of course, China then, around 20% as well. That is the overall description, and I think those of you that have followed us, it is not any big surprises. When I later on will start to move into the strategy, I don't think that you will see a lot of big surprises even there because we are committed to the strategy that we launched a few years ago. Just to move into that, and then moving back to what myself and others talked about during last Capital Markets Day. Our strategy is built up around four pillars. The pillars are all about we are a customer-centric operation that sells value to the customer.
Sometimes I said, if we would be a pen manufacturer, what we are selling is not the pen, it is the art of writing with that pen, and that is the essence of value selling. It's about being close to the customer. It is about technology, if I may say so, old technology, inserts, coatings, what has brought us to where we are, but it's also about new technology moving forward. It is the conviction about we can always do it better, operational excellence. Then the other conviction that we cannot do everything ourself. We can collaborate, we can acquire, or we can work with others in various ways. I think we have actually been delivering quite well on this.
Going back a little bit to the end of last quarter and perhaps back a little bit further on, if I go back to 2016, I think on average per year, the CAGR, we have been growing around 4.5%, give or take a few tenth. When it comes to EBIT improvement, it has been around 19% plus during this period. Even more so, I think that during last quarter, we also showed that we can start to handle then if we see a forthcoming leveling out of the market or if we see that we are a little bit overstocked, we can also start to move that down in a controlled way. Talking about the strategy execution moving forward then. It is all about, let's call it a vision, let's call it an ambition, let's call it a target.
It is about that Sandvik Machining Solutions can become a world leading provider to the wider component manufacturing industry, i.e. not only machining, also go into pre-machining and post-machining and expand the offer that we bring to the market and the market that we serve. I think those of you that have seen it already, we have talked about it. The component manufacturing value chain consists, generally speaking, about four different parts. It is the component design where you start to decide what type of methodology you should use, should it be additive, should it be subtractive? It is about preparing yourself for how you should produce it. It is to execute and machine, and then it's about verification.
In the coming minutes, I will explain how we look upon this market and how we see that all this is becoming more and more connected, not only touching itself, also connected through digital means. If I start with the core of the core, machining, this is something that there is still a lot to be done in this area. It is about the products that we bring to the market, but it's also the expanded products that we bring to the market. I think you've heard me say many times, we are part of the industry that we serve. I think you have seen a few examples of that during the walk around here. I hope that you saw in the production of SMRT products, it was Sandvik Coromant tools, and it was Metrologic, Agnostic Metrology software that were used, i.e.
driving that through in our own production, not only touching top line, but also working with the bottom line. The four pillars that has generated 20% market share at current, consisting of more than 150,000 different products, 19,000 employees worldwide. If I drill down a little bit more, and I think this is essential, future success in my book is very much built on the success of the past that you continuously evolve moving forward. The customer centricity is all about we do not sell on price. We sell on value. It is inbuilt in our DNA. All people joining Sandvik Machining Solutions, they get it with the mother milk, so to speak. 93% of all customers do recognize Sandvik Coromant and do use a lot of those tools. It's the 5,000 sales engineers that drives that knowledge, brand recognition around the globe.
In our centers, similar centers like this, not underground. You that have been in other centers, a little bit more glossy, a little bit more light coming in through the windows, like the one in Sandviken. More than 38,000 visitors coming into those, being educated, asking questions, being given answers, working together to form an industry. 100,000 direct customers being either touched face-to-face physically, but perhaps even more important, 44% of our customers today, we are not touching physically, so to speak. It is sales over the web or through other electronic means. Here we have advanced fairly much. I think you've heard me passionately talk about technology and innovation. I think that is the essence of a company moving forward. Technology, there is still so much to be done within machining and metal cutting. Here comes it into sustainability as well.
All those three examples are delivering at least 30% productivity to the customer compared to the product they used in the past. It goes from the Seco tool, the face milling cutter, less energy consumption, less vibration. It goes to round tools, our advancement in round tools, just by tweaking the tip of this. How difficult can it be? It is really difficult. By tweaking the tip of the drill, you can improve the whole quality with more than 30%, and thereby having safer airplanes being produced. In the middle, PrimeTurning that you saw in action out in the workshop, but also program and technique linked to physical products. Some of those products delivering 90% productivity and 300% higher price that customer would like to pay for. A lot more innovation and value creation still to be done in the core of the technology.
M&A, I said it in the beginning, the conviction that we cannot do everything ourselves, M&A predominantly in the core dedicated towards round tools and niche products, areas where we are not strong enough and where we can grow much faster than in the past. I think we have been decently successful. We are not satisfied yet. More to come, I hope. OSG, Dura-Mill, and Wetmore Cutting Tools, different markets, different divisions driving that through. A favorite of mine, operational excellence, why is that a favorite of mine? I think that we have tweaked our DNA to some extent. If the DNA is customer focus and innovation, now we have adjusted it a little bit to be operational excellence. We can always do it better.
It's the daily improvements, it's also about larger programs like closing a plant, we will continue to do that, as Björn said in the beginning, whenever it's needed. It is also about efficiency drives, also lower volatility. Since 2016, 2015, more than 10 different production facilities have been closed. Since 2017, four production facilities have been closed. It's also about being better in planning, being earlier on the ball, i.e. sales and operational planning, lowering the network capital, not overstock, constantly be on that. By doing that, the readiness for an eventual downturn or eventual upturn makes us more agile as such. Operational excellence is also about sustainability. As an example, we recycle roughly 50% of sold carbide. What is the result of that? If you use recycled carbide, 40% less carbon dioxide is used in the production.
If you use recycled carbide, 70% less energy is consumed making the product. In Gimo, you may have heard that it was recognized, the production plant in Gimo, not only when it comes to lighthouse in digital, but we are also working with Gimo to become a green plant, i.e. to be in the forefront of what it means to be sustainable. For me, all this goes back to we are part of the industry we serve. How many other companies can say that exactly the same type of products that you sell to your customers, you can use in your own operations producing those products? That is not only the drills and inserts. It is in the future, the metrology equipment, the digital solutions, because we are in the wider component manufacturing industry.
If I leave what we are today and try to expand a little bit into what we are starting to become. Component design is all about deciding what type of methodology you should use. It could be additive, it could be subtractive, it could be something in between. It could be is to start to pre-plan how you should cut the metal. Two very concrete examples that we have delivered during this year, that is this 3D-printed 390, delivering more than 80% higher productivity and a heavily reduced weight by using the methods that we are going to bring to the market in our own products. It is also about YouFab, something that you can see over there. How can you speed up a customer's quotation process, simplify the productivity to quote products for customers? Touching productivity very much outside machining.
Production preparation, it's coming closer to the machining, closer to the production. It's about deciding the strategies for how to machine or how to produce. Two different examples there. One is about Prism, I will come back to Prism a little bit later. The other one is about TDM system, how to handle logistically your tools, your tool data, and so on. Then moving into verification and our first step, as I think we said roughly a year ago on a journey that we set ahead, metrology and Metrologic. It is going pretty much according to plan, and what I mean with that, we didn't put the hockey stick in the beginning. We do understand that it's bringing something new. You have to work with it step by step.
A clear evidence that has convinced me that we have really done the right thing, that is, I think we have some of the most stubborn production manager in the world, the production manager of the Seco plants and the Sandvik Coromant plants. They have now judged if Metrologic as a software is better than what they have. They have raised their hand and say, "We would like to exchange the software that we have to this agnostic system." In my book, nothing else could be more rewarding. They ourselves have decided that this is the tool that we should use. This chain is coming closer together. It is overlapping in between component design, to production preparation, into machining. It's overlapping when it comes to verification. In the past, as you've heard me say many times, you produced, and you measured, and you scrapped.
You started to statistically take out samples, now it's moving into machine cells and more and more into machines. That is a development we would like to lead because we own the machining. It could be through own developed solutions, as I've talked about, as you can see over at the end. It can be about acquisitions because others know this better than us in some areas, or it could be through partnerships, collaboration. This chain is also digitally connected. It will be a closed loop. Different data that is produced, created early, should we print, should we subtract, how should I quote, is stored and being brought forward in the chain and then reused or reshaped in the later stages. Production preparation, as an example, then Prism is a brilliant example here. In plain languages, what is Prism then?
I have to look out and see here the light is. I see at least a few gentlemen, I think, that is in my age. If you had the same type of mother like myself, you may recognize that some of your mothers then subscribed on recipes 30 years ago, we talk about now. How to make a cake, how to make a starter, how to make a main dish. In the beginning, you bought the binder, then you subscribed on recipes. The binder is Prism, the program Prism. The business model moving forward is the application knowledge, the recipes in how to produce. The brilliant thing with this is it is not only a recipe, how you bake the cake or how you produce, the ingredients that are provided is our tools.
The recommendation tells to bake this cake, to make this recipe, to make this product produced, you should use this sugar or this drill. A program that is simple to use, that is fit for the youngsters of today and the engineers of tomorrow. You program it, you bring it in, you can start to work with the machine. We have started to move this forward, I should not exaggerate that this is something that is selling sky high, but I think it is a very tempting example, and we are giving a lot of good feedback. TDM, expanding into logistics and other areas, connecting tool data back and forth. Machining, as I talked about earlier. Yes, I am starting to be so excited, so it slips off here. How to program this example of back turning.
Many years ago, I used to be a development engineer, I blame myself to some extent to say, "Why couldn't myself and my fellow colleagues at that time come up with, if you turn backwards, then you can increase the speed and feed with 300%?" You couldn't do it at that time, most probably I was too stupid to even believe it was possible. With new programming technique, that is possible. You sell the tool and you sell the program, you have two revenue streams. Verification, as I talked about earlier. This is linked together. Metrologic being a first step in many more steps to come.
If I'm a little bit more visionary, when you're moving this into the machine, I think that in the future it will go from, as I said, the machine cell, then coming more into the machine, and not too far away during machining. You have a sensor and you machine, and at the same time you measure the surface finish, and it's a done deal, at least in theory. I think that is what we are aiming for moving forward. As you know, I believe, not too far away, but I have a fellow companion that I would like to bring up on stage. Lars and myself, we have worked together for seven, eight years now.
Seven years, yes.
We have been working with the strategy. We feel a mutual ownership. Maybe I will give Lars a call then a few years ago and said, "What a great success," or, "What have you done?" No.
Okay.
Over to you, Lars.
Thank you. Thank you very much. Thank you, Klas. Well, it's really a pleasure and a privilege to take this role and take over Sandvik Machining Solutions. As you said, we've been working together for 7 years in the management team. I met quite a few of you when you've been visiting Fagersta and in previous other events, as I've been running Seco for 8 years. It's a pleasure to take over the relay stick, and I think we do that running because we have actually developed this quite a lot together. If I look into the future then, and we start to talk a bit about the journey ahead. Björn had a slide this morning, where he described grasping the opportunity whilst growing.
It was an XS curve where he had emerging take off a mature technology, then he plotted in different areas that affects us in our business. Now, if we relate that back to this slide and this value chain that we are working with and trying to further develop ourself in. If you talk about what we call subtractive metal removal, for me, it's metal cutting, it's easier to say. It's a mature technology. We can still do this type of invention, as you talked about, this turning grade that actually go backwards, and suddenly we get a lot of more productivity. There are areas of growth, and we need to be there and grab those opportunities. There's another thing that you also touched upon on that slide, which says net shape forming. Oh, sorry, near net shape.
This is something that has affected our business since, I would say, 30 years back. The simple thing is that it's better to pre-form a part and then machine it than to have one big block of metal. I take this as an example because sometimes we think that things are going to change just overnight. Near net shape started like 30 years ago. Still, we see some effect of that. Think of that next time you board an Airbus A340. I was down in Toulouse visiting Airbus 6 years back. Above the door and under the door, there is a beam, a two-part beam, one upper and one lower part. That piece, 6 years back, was manufactured out of a solid piece of, well, it was actually pre-formed in this U-shape of titanium. We machined away, believe it or not, 96% of the weight. 96%.
There's 4% left, and it's still held together, so it's a solid part. Believe me, it will hold. How do they do that? How has that changed? Well, today they forge it instead. There's still machining, but a lot less. Just a fraction of it. You can imagine the waste in sustainability terms and so on. Now, what has happened with that then? Well, at that time, we were doing a lot of roughing applications, as we call it. That's to remove metal very fast. We don't do that anymore. Now we do more finishing operation. The funny thing with finishing operation is that it requires more delicate tools and also more round tools. One of the reason why we sell more round tools than inserts, percentage-wise, is actually in that shape.
This has been going on for 30 years and continue to develop in that way. That's one technology shift, but it's been very gradual. If you move down that curve that Björn showed, you see smart factories. Of course, this is this fantastic Industry 4.0. It's been now going for quite some years, will continue. It's not going to be a very quick shift, but we see it developing gradually. Further down, you have additive manufacturing. Additive, as you know, a lot of attention around it. Still, it's a very tiny fraction of parts that are being made by additive today. Also there, I can take one example. One of our biggest customers in medical area, they have the biggest installed base of additive machines today, probably some 60 machines in one plant.
They were one of our biggest customers, and we would believe that that business disappears. Actually, what happens for us is that the business is going up instead. Why is that? Well, even when you manufacture a part with additive manufacturing, you have to trim it. You have to give it the final touch. We were grasping that opportunity some five, six years back when we started to do tests for them, and we today have an optimized solution. It's about grasping, again, the opportunities in this growth. Finally, at the very bottom of that curve, in that grasping opportunity, it says closed-loop manufacturing. That is actually to take what you saw today out here in the shop with that robot, with feeding the turning machine, and then you saw this measuring machine.
What you do instead, you bring that measuring into the machine, and you close the loop between the measuring and the machine and adjusting while you are machining. You don't have to have this extra to take it out and place it in some measuring machine, you can do it online. Why is that important? Well, as you said, we have 100,000 direct customers, and we serve them over the web, but we have physical contacts with them, obviously, also to talk about what tools they need and so on. We can do that also with more automated. 5,000 sales engineers, and we understand machining. I had a discussion with some of you last night about what is happening right now and why we're doing this. Well, there's a huge number of lean consultants out in the industry to trim the production.
The problem with many of these lean consultants is that they can find the bottleneck, and often they come and say, "Well, the machine is at the bottleneck." Because in the machine shop, added value is in the machine. How do you cure that? They can put a finger on that and give you all these fancy reports and so on. What we actually can do is to help them, not only with selection of the tool, but we can also help them with the programming, the sequence of machining, the feeding of the tools, the Tool Data Management, and it's all there, and we are legitimate to talk about that because we understand what happens in the machine.
That is what we say when we say we are trying to expand from machining upstream towards design and production preparation, and downstream to also get some of the measurements closer to the machine in itself, and our own development. With that in mind, when we then come back to this target of 5% growth, as Björn said, the organic growth is perhaps 2.5%. Then, of course, we need to add M&As, acquisitions to that, and we also have to find new offers.
We believe that of the growth in SMS going forward, about half of that will come from the traditional, as you would see it, Seco Tools, Walter, Coromant business, tools in the machines and all that, while the rest of the growth will actually come from tool data management, these type of things that you talked about, the Prism and tools like that, which are a kind of a programming tool, and at the same time, also a recipe tool. It will come from also verification side, like the Metrologic, which we will also ensure that we tie better back to our core offer, so to say. By doing that, also further expanding our offer outside what is the core today. How do we do that then, and what's the journey we are on? Well, we are right now building the base.
We've done that since many years back, but we continue with it also, it's kind of an ongoing journey. To digitalize the offering, two things. One is that we are working with smart tool holders, like the CoroPlus, and these type of connectivity in smart devices. We have since, I would say 10 years back, we're working relentlessly with digitalizing our product information, digital catalogs, but it goes far beyond that. For instance, if you go into Seco Tools, which I of course know the best myself, we have a functionality called Suggest. That is a function that actually suggests not only what tool our customers need, but depending on the operation, exactly what cutting data they would need to have, speeds, feeds, and all that stuff. It's not just an Excel thing, it's actually built-in algorithm and so on.
We spent a lot of energy with that. It's been ongoing for years with this digitalization. Building the additive manufacturing platform, which we have been doing since quite some time. This is again, the powder. It's also building our additive manufacturing center up in Sandviken, where we are actually able to advise our customers how to move from subtractive metal removal to additive manufacturing. Then the agility. That is, of course, for us to be able to be more resilient against swings in our profitability when the market goes up and down. We've done a huge restructuring of our footprint. We've taken down the net working capital quite a lot. We are working also on our product range, and we are working also with the flexibility in our own workforce.
We are doing outsourcing so that we also can balance and not only have our own resources to take up the swings when we have peak loads, so to say. It's a lot of things ongoing to handle that. Moving forward and how to accelerate. Round tools, as I said, the ratio between inserts and round tools are shifting a bit, and it's a growing area. On top of that, we have lower market share in round tools than in inserts, and it's definitely an opportunity for us. Footprint optimization, well, I think it's a easy thing to just describe as it's just to continue to ensure that we have very efficient plans, and we continue to work down that path. Digital sales channels goes without any further explanation, is also a journey. Coming back to additive.
Additive in itself requires a lot. It's not only to take a part and say, "Okay, let's do this now with additive manufacturing." Instead, you have to do a lot of re-engineering of the part and also the material in it and so on. With the new investments we are right now building in Sandviken for titanium superalloy powder, we will be able to address both aerospace and medical in a better way. We are growing into the design preparation and all that. Prism is a extremely interesting thing we are launching now. It will take time to get it up in volume and so on, but it's a combination of a very intelligent programming help for smaller and mid-size customers. On top of that, also a possibility to get advice, recipes on how to do different type of machining.
All this, again, I would say the journey ahead for Sandvik Machining Solutions is, as Björn said this morning, to grasp the opportunity of the shift that is ongoing in the business, build on the core of the core that we have, which is the fantastic tool divisions and their core, and then also ensure that we get this connected together through our sales network and our customer contacts. At the end of the day, of course, the vision is that we are looked upon not only as a tooling partner helping with just the machine, but also to be part of the journey towards more smart factories and everything that is happening in the world. Now I have to ask the SMS captain, because I'm just a co-pilot. I'm trying to adopt this new career path that we have in Sandvik, so being the co-pilot.
Mr. Captain, was that a proper description of my strategy?
I think that was sort of the exam to me moving down to be only the co-pilot very soon then.
All right.
With that, I think we open up for questions, we jointly stand here, whoever is the captain, whoever is the co-pilot.
You're still the captain.
Well, I'll be the Q&A captain.
Yes.
We have questions here from Lars. Yes, please.
Thanks, guys, for a good presentation. I was intrigued by the example you gave, Lars, with regards to a customer that's moving to additive from subtractive 60 machines, and that actually being a revenue opportunity that's growing as opposed to contracting for you. Could you help us to decompose that? I would have thought as we go from subtractive to additive, a GE fuel nozzle was built in 20 different parts five years ago. It's printed in one today. Am I to understand that that core business that's gone away in that example is being more than made up by post-processing, by powder, by tool management, et cetera?
It seems a bit counterintuitive, but if you could sort of give us, and again, I don't know whether that example you gave was sort of an apples to apples comparison, but what does that addressable opportunity look like for you in an additive world versus historically a subtractive? Thanks.
It's a very good, classic example, this fuel nozzles from GE that it's really one of the first parts, actually, that is done, really using all the opportunities. For that typical part, first of all, it's a quite complex final machining you need to do on the part. There are opportunities on the part itself to fine-tune it, which you have to do, so still machining to do on a part like that. Secondly, of course, now GE has a huge organization today within additive, so they are kind of self-servicing themselves. There are so many today that actually, when they take a process like that, they need advice down the line, consultancy work, and so on, how do you actually do that?
Once you start to get into it, unless you have your own prototype machines, you will have to buy prototype services somewhere, which is something we actually can offer today, or we do offer from Sandvik and from our center. Eventually, once you are there, you need to get very high quality powder, which is something we have in Osprey. It's a combination of actually our traditional yellow coats from Coromant-
Very much so
together with our new additive team, together with our powder team, where we actually managed to blend this together in a way that no other competitor in our industry can do. At the end of the day, a part like that might have been 10 parts before, and now it's one. Of course, the total of it is less machining than it was before. There's nobody else in this industry today that is able, actually, to do what we can do for that type of customer and type of servicing them. I also believe myself that once being there and having that opportunity, there are many other components that GE are doing where we will have other possibilities.
Because the thing with additive, if you look at additive today, the best analysis I've seen says that probably somewhere between 3% and 5% of the parts being machined today can actually be done by additive, because there are physical limitations. It's a very costly method. Today it's very often not competitive at all. You do it because you want to be part of the technology development. It's still a fairly limited part. We believe that this will help us to strengthen the rest of our offer. Answer fair enough? Thank you.
Yes. We have one question there with Andy on the left-hand side, and then we have another one here on the right-hand side.
Hi, guys. It's interesting you've got a fairly well-defined view, I think, of how you see this market developing outside of that core. Can you just talk a little bit about, I guess, what you're seeing in terms of your competitors doing along the same lines? Is there any sign that they're seeing the market developing the same way? Are you seeing them introducing similar, I guess, competitive models that you've obviously talked about there? Just interested how that's developing.
Also very good question. If I divide the competition into two pieces, so to speak, one, the traditional competitors, i.e. the Kennametal, the Iscar, the AMC, the Japanese, et cetera, generalizing. As you know, neither Lars myself normally like to talk so much about competitors. We would like to do it ourselves, so to speak. I don't think we see anyone of the traditional competitors either neither being into additive and that type of approach, nor being into digital and metrology. I think that is an evidence that we are leading this. A few years ago, North American competitors tried to move forward in that area, and I think they brought themselves back again later on. The Japanese competitors are not doing much at all. With that said, we should have the highest respect for competition.
Always.
We have others, the machine tool builders that are part of our industry. When it comes to connecting, et cetera, they are moving forward, but they are also very much collaborating, cooperating with us in that range.
Thank you. I had a question on the mix between what we could call new growth and old growth. Obviously, you say that half should come from digital additive metrology in the future. What is that share today? That is my first question. Linked to that, do you include round tools in the new growth?
If I start and then you. First of all, if we take machining as such, then, and if the definition of machining is sometimes only the inserts as such, but Coromant, Seco, and Walter are also progressing in this. We should not look upon it as expansions only outside the existing three top brands, so to speak. Here you have the CoroPlus, here you have other areas as an example. It is a smaller part of what we have today. I don't have it in on top of my head, but take the percentages that we present, and then you see the residual. This requires both organic development, the SEK 300 million that Björn mentioned, and said that we are committing to on top of everything else we do, but then, of course, also to work together or to acquire companies.
It is a small part, but it's growing fast.
Final follow-up on the same topic would be on the multiples or our evaluation. When you look at round tool manufacture today, obviously 10% market share, market is 30%, you want to expand here. I understand that multiples here are also quite hefty, even if not as high as on the industrial software side. We're talking 3x-4x EV sales, or could you give some indication in terms of, to enable us to model this a little bit better? Thank you.
Maybe you should start, Lars, because you have been the driver for one of our.
Yeah. Sure. We don't normally talk about the consideration for individual acquisitions, but as you say, there are different multiples compared to the high-tech areas. What we typically try to do is to find companies that really want to become part of us, and then negotiate from there, and try as good as we can to lock them in through relations rather than to be part of a bidding process. All the, not all, but most of the offers, or well, the process we've been into, we have gone into exclusive negotiation and then we try to find best way then to build in also earn-out structures to kind of reduce our own risk because of ensuring that we get a good return. It's very much on individual basis. I would say we look at each acquisition on its own merits.
I think it's absolutely correct, Lars, and I think it's fair to say as well, if we talk about bolt-on acquisitions, if you bring them in, I'm very convinced, we are very convinced that we can create, we can deliver value on that. We can improve the profitability, we can improve the growth, and at the end, it's a value creation for Sandvik and thereby, Sandvik Machining Solutions.
Welcome back, everyone. Great to see you back. I think you're all here. My name is Henrik Ager. I'm the BA President for SMRT. We're going to take you through our perspective on SMRT and our focus areas, with a special attention to what we're doing in the digital space. Pat's going to help me with that. Before I do that, I just want to say thank you to Björn for allowing us to have this here, but more importantly, thanks to all of you for making the effort to come. We're really excited about what we're doing here, and it's great to see that you've all walked around and touched and felt our equipment and what we're busy with, and what we're really passionate about. I will start, as we normally do, with safety, and show you a brief overview of one safety statistic.
We follow a lot of safety statistics, and keeping our people safe and our customers safe is a top priority for us. What you're looking at is something called lost time injury frequency rate. It's the number of accidents per million work hours. What this translates into, though, is that during last year, you can see for 2018, we're at 1.0. That is 30 accidents when somebody came to work and left work without being able to go back the next day because they hurt themselves. That's never okay. All accidents can be prevented. It's a question of how good we are at implementing safe working practices and following them. That effort never stops. We are with a 1.0 or a 0.8 where we're at at the moment. That is a remarkable achievement if you look at the history.
It is also a very strong performance if you compare us to our peers in the industry or our customers. Significantly better than most of them. That does not mean we stop. We continue to go after this. One good reason for that is safe operations are productive operations. These go hand in hand. You do things the same way every time. You do them the right way every time. That is also productive. It helps us in that way as well. What I'll do is give you a bit of an overview of the SMRT business. A little bit of view on the market and the trends that we see, then go into the focus areas that we have and so on, that really characterize the direction that we're taking with Sandvik Mining and Rock Technology.
If I just start with our exposure, you look at the sales by segment. Mining is a big part, three quarters of what we do. Mining has had a stronger development than construction in the recent years, so the share has grown a little bit. Construction is a very important part of what we do. Close, construction and mining are close. A quarry is a rock mine. Whether you develop a tunnel for a road or for a mine doesn't really matter that much. They're very close. If you look at by geographical area, no major changes. What we've seen recently is stronger performance in APAC and South America, a little bit weaker in North America and in Africa. That's the recent development that we've seen. You can see we're almost 40% equipment, 60% aftermarket currently. These are 2018 numbers.
If we go into that offering, let me take you through that quickly. These are our applications, if you will. At the top, you have the drilling and blasting cycle, and what we offer that. Obviously it's the drilling and it's the rock tools, but it's also the load and haul application, or loaders and trucks. In the middle, you have our crushing and screening offering, both the stationary and the mobile, and also the breakers. I think you saw the Rammer hammer outside. That's a big piece of steel that is good at breaking rock. Of course, our parts and services, and our automation. Parts and services serving all the equipment divisions. Automation that we'll talk a lot more about. Finally, mechanical cutting.
There'll be quite a few questions around mechanical cutting, which is 90% into coal or 88, into other softer rock like potash and phosphates and salt. Coal is dominating, as you heard, for mechanical cutting. That's also where we do the development for our hard rock mechanical cutting, which is in early stages for us, as it is for our competitors. If we can make it work, it'll be fantastic, but it'll come piece by piece and slowly moving forward. We have a machine, as you may be aware, working down in Austria, and it's going to start cutting again today or maybe tomorrow. We'll see how we move forward with that machine. If we then look at the exposure that we have to different commodities, gold and copper is clearly dominating for us.
Really the core of what we do is in hard rock. We have most of our businesses in underground hard rock, and that's predominantly in copper and gold. That's the biggest for us. If we look at construction, it's mostly in aggregate, so mentioned quarries. Also tunneling and then demolition and recycling. That's our mobiles business. Mobile crushers do that when you tear down buildings and that type of thing. Now, if we go into a little bit the market, if we start in mining, obviously commodity prices drive the profitability of our customers, and that also then drives their willingness or ability to spend money on new equipment. If we look at that over time, what we look at is a commodity index that is in accordance to our exposure.
Again, copper and gold being about 50% of that commodity index that you see here on the chart. I wanted to give you a flavor of the longer-term development. We had a peak in 2012. That then tapered off and went into a trough, where we went to 76 on this index. 100 is then at 2010. During the last year, we've been hovering around 100. Now, this is the dollar-denominated commodity prices. We have done the analysis to look at, well, what does this mean for our customers? Half of the copper comes out of Chile and Peru. What does it mean for them? Well, then the development is a little bit different, and the current index, starting at 100 in 2010, then the current index is sitting at 136.
There's actually a better environment for our customers in their local currency than it is in a dollar-denominated currency, because the dollar has appreciated. These are somewhat uncertain times. We've got Trump and China going after each other, that's not necessarily helping the global economy. Currently, we are at good levels. One other thing that has happened, I'll come back to that in a second, is that the productivity of mining companies has improved in the last five years. Before that, we have had 10 years when it worsened. There's been a trend break for mining, when it's become more productive. It's become more productive because they are adopting new technologies. They are using more information, analyzing and improving their operations. More of that in a second. If we look at mining and how much is surface and how much is underground.
If we just look at the material moved, all the rocks that are moved, regardless of whether it's mineral-containing rock, which is called ore, or if it's overburden or waste. If you look at all of it, about 25% is underground and 75% is surface or open pit. If you look at the amount of money spent, just looking at CapEx, underground is bigger. It is more expensive to mine underground. You need more machine, you need more infrastructure to mine underground. That's where we play predominantly. We're also in surface, predominantly we are underground. That is our sweet spot. If we look a little bit at the trend, one that often comes up is, aren't we shifting more and more underground? We've looked at this, it's remarkably stable.
Here you see copper, which is the one mineral that is increasingly going underground. Between 2000 and 2018, it didn't move. You look further back in time, it's remarkably stable. The estimates to 2030 is that the share of underground mining is going to increase to 14, which is a big change compared to what it's been recently, which is good for us. This also assumes we have a few big underground projects that are important. We got Chuquicamata in Chile, we got Oyu Tolgoi, we got Freeport Indonesia, you got Kamoa or Ivanhoe in the DRC. Those are four big copper projects. They're all underground, that's going to expand production, that drives this development. It assumes that a number of surface mines are going to close.
The one thing I know about mining, when you look at it over a long period of time, mines stay open. They find a way to keep operating. I think maybe we'll see that go to 12 or 13, I don't think we'll get quite to 14. I mentioned productivity improvement, here is the average cost per ton. This is AISC, stands for All-In Sustaining Cost. Think of it as cash cost for mining. The average cash cost in copper has gone down 19% since 2012. That is massive. Before it was increasing a number of percent every year from 2000 to 2012. That's a trend break, which is important because mining companies see that it's possible. It's important for us because it comes from deploying more technology, better performing equipment, using data more. Capturing more information, analyzing it better.
That's what we want to work with our customers on. If I try to summarize again in mining, steady slow demand growth. Björn mentioned it's about 2% per year in production growth. Yeah, it can go to one, it can go up to three, but that's where we operate normally. If it's one or even less, then commodity prices are low. If it's three, then commodity prices are high. Share of underground is slowly growing. Remarkably stable over time, but slowly growing, which is good for us. Mines do extend. They find a way to stay open. They go deeper, and they find a way to keep operating. We do see ore depletion for sure. That means our customers need to move more material, which is also good for us. Productivity gains, they are significantly driving costs down.
Again, we've seen that in the last 5 years. We didn't see that before. That's exciting. What customer wants from us is safer and more sustainable products. Sustainability plays a role. Sustainability and productivity go together for our mining customers. If you look at CO2 emissions or greenhouse gas emissions, they come from the energy that they use. If they can be more energy efficient, they save money, and they save on the environment. They go together. They want more automated equipment, more productive equipment, and more electrified equipment. We'll get back and talk about electrification in a second. This is somewhat forward-looking page where you see the expected growth in construction. Construction tends to be a little bit more stable.
What's exciting here is the tunneling is expected to grow faster, driven by China, Japan, India, the main markets. I'm sure you've heard about the China One Belt, One Road project, which is a massive project to connect China to the rest of the world. This is driven by urbanization, GDP growth, et cetera, that's driving these infrastructure investments. Drilling and blasting is, and we believe will remain the dominant method for tunneling. Today it's about 80% of road tunnels and 90% of rail tunnels are drill and blast tunnel development. If you look at our performance, this is what it was in Q1. This is SMRT performance with almost 10% order intake growth compared to Q1 in 2018. Revenue growth, a little bit less. We also show the numbers here excluding oil and gas, excluding Varel oil and gas. The oil and gas part of Varel that we're busy divesting.
This is to give you a flavor, and you can see the big jump in return on capital employed. That was the state, if you will, of SMRT and our business right now and a little bit what's going on in the market. We turn our eyes forward and where we want to go and what we want to focus on. If I start with our ambition, obviously then meeting the overall financial targets for the group is number 1. To do that, we want to ensure we deliver disciplined, profitable growth. Stability, profitability, growth, in that order is how we operate and how we look for growth.
We want to be the industry leader in EBIT and return on capital employed through the cycle, do that by being number one or number two in the applications and the customer segments where we choose to participate, then gain market share over the cycle. That summarizes our ambition. What we will focus on, think of this as the next 18 to 24 months then. Our focus areas will be, I'll go a bit deeper into each of them, but deliver customer value. B, take our customers to a place where they're more productive. Work with them over time to make them more productive. Introduce new services, new products, to make that happen. Shape the industry ecosystem. A lot of the things that are happening in automation, digital, and electrification in our industry is early days.
Even though we've been busy for a while, it's still early days when it comes to penetration in the industry. We are taking the position that we want to shape the ecosystem through our own development, through making acquisitions, and through partnering with companies. You've seen some of that today. Safe and sustainable. We have to be safe and sustainable, but also we want to help our customers be safe and sustainable. Have the best people and be agile in our execution. That comes back to managing with the cycle. If the cycle turns and the market slows down, we need to be quick and on our toes. If we're going to defend that 15% EBIT margin, we got to be quick to act. Finally, of course, continue to work with our portfolio, which includes both divestitures, acquisitions, and partners. All right.
Let me start with the customer focus side. We just made a very simple model, more to explain and to talk about it. If you look at this and Y-axis being the perceived value premium products. The products you've seen today, in our view, are the best performing products in the industry. The customer's perceived value of that. On the X-axis, you have the perceived value of premium services. Capturing and analyzing information, training operators, having the best supply chain, those types of things. We divided then our customers into four different groups. Bottom left, you've got the price hunters. Just give me the cheapest product. If it's a 45-millimeter drill bit, just give me the cheapest one. That's what I care about.
You have on the top left, the performance chasers that just give me the best machine, I'll do everything else. Bottom right, you have the people that are in remote places that want their operations to work. If you're sitting on a ton or a mountain of copper in the middle of nowhere in Indonesia, you want machines that work every day. You want the spare parts to be on site, you want all the consumables to be on site, and you want the Sandvik people there to support you. Whether you are the most productive mine in the world or not, doesn't matter as much. Then we have the productivity partners that want the best of everything. Here's how we target. We selectively target in the price hunters and then, of course, everybody else. We target them a little bit differently.
If you take this will shrink eventually, we selectively go after the price hunters. The performance chasers, we can work with them to set benchmarks on new features and making new things work on equipment. It's technology-focused, the service is basic but has to be spotless. If we take the stability seekers, they want availability. They want support on site. They want a reliable supply chain. That's what we need to work with them on. Finally, the productivity partners, here's where we develop systems together. Pat will tell you about a couple of those examples when we do that. If we look a little bit at where we are on the X-axis, the aftermarket and the service, where we're coming from is bottom left.
Here again, you've got customer value on the Y-axis and our share of the aftermarket on the X-axis. We're coming from a situation or a place where we reactively deliver what customers ask for, what they order we delivered. We've spent quite a bit of time to get into a proactive stance where we can provide them and offer them what the fleet demands or what the fleet needs. What that means is what the average loader LH621 would need. Where we are going to now is that we start working with these machines as individuals. Depending on where the machine is, who operates it, and who maintains it'll behave differently. It'll last longer or shorter. If it's automated, it'll likely last longer. If it's driven by a woman, it will likely last longer. If it's driven by a man, it'll last shorter.
How do we use that information to make sure we can provide maintenance that reflects that behavior of the machine? Here you see some of the things that we've done in that middle part, we've done over the last five or six years in our aftermarket, is we've connected our fleet that we have out there, the 13,000, 14,000 machines that we have out there operating in the market, actively monitoring them remotely. Connect them, monitor how they perform, connect our customers to My Sandvik, have them use our e-commerce platform, et cetera. We're moving to having not only our equipment connected, but also our service technicians to personalize the operator training. Help the man be a little bit smarter with the machine and treat it more nicely, and proactively deliver recommendations to our customers. That's a little bit on the service side.
If we now move over to the product technology side and now shaping the ecosystem, I want to start with electrification. We talk about electrification as something new, I just want to give you a flavor of the timeline that we are on. We delivered the first electric loader in 1981. We've delivered the first electric truck in 1988. The biggest electric loader, which we have operating at Kiruna for LKAB, is the 25-ton electric loader, was delivered, the first one, 1995. We're now working with them to deliver the next generation of those loaders.
We've been busy with electrified equipment for a long time, now we're adding batteries to this, and you saw this hybrid, where we have a cable and battery working together to produce a much more flexible machine that you can disconnect and drive to the maintenance shop or to a different part of the mine to operate over there. It's a very practical way to solve the problem of, it's very difficult so far to have battery-driven loaders that run a full shift. We're getting there, and we're working with Artisan to deliver those solutions, but that is very challenging. You do that hybrid of cable and battery, creates flexibility and makes it a more practical solution for a lot of mines.
If we then look at automation and do the same type of timeline, you might have heard through the presentations that we launched AutoMine in 2004. This was with Codelco. This is the state-owned or government-owned Chilean copper mining company. We launched with them at El Teniente. Some of you might have seen we had a press release yesterday, thank you, Pat, where we got the order for El Teniente automation again. We also got their other big mine, Chuquicamata, we're well-entrenched with Codelco, which is great. Then over 15 years, we managed to break into 43 different mines. The addressable market is about 700. We have a long ways to go to grow this. We're not fully penetrated in each of the 43 mines either. There's a long way to go. Having said that, though, we've got 43.
Our closest competitor has got maybe five. This is underground. That's important. That's where we are, we feel confident that we're the industry leader. We know we got to be on our toes and move quickly to stay the industry leader. We're really excited about where we are. If we look at this then, historical adoption hasn't been very fast. Been quite slow, to be honest, which is how this industry works normally. Things don't go really quick, it's sped up a lot, we have a lot more pull lately. Customers see that to continue on this productivity improvement trend that they managed to get on since 2012, they have to deploy new technology. They have to deploy automation, digitalization, some of them also have to get into electrified equipment.
We deliver value today, Pat will go into that in a second, how much value we can create. Again, this is the beginning. We got to be on our toes and move fast to stay in the leadership role and shape that ecosystem so we take as big a part of it as possible. If we talk about the ecosystem very briefly, if you just think of very simple value chain, explore and plan the mine, excavate the rock, then crush it. If you look at the digital side of that's got a number of different parts, we've talked about them. You've seen them in the different rooms that you've been in. We're working with partners with the networks, in the mining Internet of things. We mentioned Newtrax. Eovent is Ventilation on Demand provider.
When you get more professional and you put electrified equipment underground, you can start managing ventilation much smarter and save tons of money, both in CapEx and then in OpEx, and that's energy cost. Again, good for the environment. Eovent's an exciting partner. We work with AutoMine and OptiMine to deliver the core of the automation and the digital solution. Then we work with IBM for the analytics part. If we look at electrification. We're working with suppliers and partners across batteries, hybrid technology, how we engineer these things together, the charging systems, et cetera. We integrate it, and now together with Artisan, we feel we are in a very strong position also when it comes to electrification and battery-powered vehicles. With that, Pat, over to you for the digital side.
Thank you, Henrik. Thank you very much. Looking at the digital offering here. We saw this morning, we talked about My Sandvik, we talked about OptiMine, we talked about AutoMine for loaders and trucks and surface drilling and so on. Just to recap, there's three basic pillars here. There's connected equipment, which more or less pertains to My Sandvik. Analytics and process optimization, where we're more engaged with digital transformation type of projects with customers, which is more along the OptiMine line of thinking. Then autonomous equipment and features, where we mostly talk about AutoMine. Those aren't the only offerings that we have. You can see the rest of them here. There's just not enough time to go through them all today, we're actually being very aggressive across a whole range of digital offering as well.
Taking now the next slide, looking at our installed base, breaking this down a bit. You saw this in the OptiMine room. There was a map shown across 4 offerings, AutoMine, OptiMine, My Sandvik and Newtrax. Which of those offerings have been implemented where in the world? To date, we've had 43 AutoMine implementations. What's interesting to note is, yes, it has been slow to date. More than half of those have been implemented since the beginning of 2017. When we talked at the last Capital Markets Day about automation and digitalization being on a growth curve, we were serious about that, definitely, and it's really accelerated. More than 400 AutoMine trucks and loaders have been delivered to date. Turning now to OptiMine. You saw in the OptiMine digital showroom, OptiMine is a suite of software modules, basically for improving overall equipment efficiency.
These sites that are listed on the map are sites where we have at least one of those modules implemented. Again, actually, more than half of those have been implemented in the past couple of years as well. This is gaining steam. My Sandvik is about mass connectivity. Henrik pointed out the importance of connectivity of the fleet for the purposes of getting the most out of our installed base in terms of aftermarket penetration, parts, and services. That's been our strategy with My Sandvik. It's a mass connectivity, cloud-connected data collection service, B2B client portal for doing spare parts business, for learning more about what's happening with each individual machine, so we can be very granular and target those machines for different types of performance kits, spare parts, and so on, getting closer to the customer.
Knowing what's happening with the machine before the customer rings us and says that there's an issue at the end of the day. Complementing all of these is a company called Newtrax, which was a partner. We announced the acquisition of Newtrax just recently in middle of April. I'm going to go more into that one in just a minute. If you look at the entire installed base here, across these four offerings, if you do the math here, there's 361 site deployments. Those are all not unique sites, as you can see by looking at the dots on the map as well. In fact, only two of those sites have all four of those offerings. As Henrik pointed out, even with those ones, there's different levels of OptiMine, different levels of AutoMine.
There's plenty of room for lateral penetration and growth on a per-site basis, then adding more sites as well. As Henrik pointed out, we figure that the total addressable market for these type of solutions in underground hard rock mining is at least 700 mine sites. We believe the portfolio here makes us the leader in underground digitalization. As Henrik also pointed out, we need to stay on our game and continuously innovate to continue to penetrate here. How does that work? Well, if we look at OptiMine, questions we always get from customers when they come in to see us, "Well, what value does this create?" When you create more customer reference cases, it's easier to explain the value it creates because you've created reference cases. Customers can go visit them.
Most of our customers are happy to entertain visits from their mining colleagues to talk about the solutions that we've implemented and so on. At the end of the day, when we talk about OptiMine, we talk about the increase in overall equipment efficiency. What we're actually trying to do is we're trying to improve the effective time underground in the mine. What happens during a shift? This is actual data from a customer site. There's 24 hours in a day. It turned out that that customer had 9.4 hours of effective time. Then through the various steps in this OEE, so-called OEE waterfall, equipment insights, operator insights, production insights, which basically means improving availability, improving utilization, improving the quality of the work.
Those three things together add up to OEE, and we were able to demonstrate that we could lift the productivity there, an OEE, by 39%. If your overall equipment efficiency increases, naturally, your productivity increases. Those things are correlated, right? Might not be one-to-one, but they're definitely correlated there. If you've got more effective time, you're going to get more tons out of the mine, and as a result, your cost per ton is going to go down as well. Not to mention that if you get better visibility of what's happening in the mine, you can also improve health and safety at the same time. For AutoMine, similar concept.
One of the main drivers for the value of AutoMine is that you can operate more hours during the shift as well, because typically when you blast underground, people have to clear the working area, and that typically means the mobile equipment is sitting idle, depending on what part of the mine it is in. With AutoMine, you can continue running the machines because the machines do not care, it turns out if there is noxious gases there from the blasting process, the machines are not really concerned about that. It could be another case where there is a shift change and some of these mines are very, very big. It might take you an hour and a half or two hours to get to the working area from the headframe or from the portal. This is actual data as well from a real customer. This customer had implemented AutoMine Haulage, so trucks.
They actually saw that there was a 59% increase there in utilized engine hours versus the manual case. How much of those actually come out to increase production? Like I said, it is not one-to-one correlation, but definitely it is the case that your production is going to increase. If you are getting 59% more hours on automation where the trucks are running, you are going to get more production out of the mine as well. Here are a few public cases as well where we can identify who the customer is. These customers have agreed to allow us to share this information, obviously. It is their information. It is not information that Sandvik has provided. These are interviews that have been conducted with these customers about the highlights of automation and digital and where they deliver value. You can see the common themes here on the left-hand side.
Increase production, reduce cost per ton, improve health and safety. Those are the common themes that typically apply to these solutions. The first two, Hecla and North American Palladium, both in Canada, involve AutoMine, the first one being with haul trucks and the second one with loaders. Both of those are actually YouTube videos as well. The third one is about autonomous trucks and also about OptiMine Analytics here. We noticed that when we implemented OptiMine Analytics at Petra Diamonds, that there was an immediate 9% increase in fill factor as well of the loaders. It is funny how all of a sudden the fill factor increases when people realize that they are being monitored as well. You can see that coming out in the dashboards of the system. That is all well and fine. That is how our customer captures value.
Hopefully, that is pretty clear by now, but how do we capture value from this? Well, for those of you that attended the Capital Markets Day in November 2017, you would have seen this slide. It is slightly modified now, but basically, we are sticking to our story here, is what it comes down to. Premium pricing. We can get premium pricing when we have high technology solutions that improve productivity, we can command a premium price, and it gives us pricing power. It allows us to go into mines and get a higher market share than we otherwise would have. Of course, then there is the digital add-on revenue. These systems, OptiMine, AutoMine, My Sandvik, Newtrax, you have to pay for these systems. Typically, there is the project implementation fee, and then there is typically a yearly support fee or licensing fee that goes along with that. That is additional revenue as well.
Of course, typically in these type of digital services, and increasingly so, there's contracts. There's service contracts associated with those, and that allows us to capture more of the aftermarket in terms of spare parts as well. If I look at some of the autonomous haulage cases, we had a service contract to service those autonomous truck fleets. Of course, that allows us to keep out the pirates and get more aftermarket share. Then recurring service, naturally, those things are recurring. Then to the extent that we have annual support packages and license fees for the software, it becomes an annuity that we also collect. Then, we've been propositioned by many customers for gainsharing or production-related bonuses as well.
We haven't actually widely engaged in those type of contracts, but customers are asking us, "Okay, why don't we lock in basically the cost per ton here, and why doesn't Sandvik take on more of the risk?" We haven't actually done that yet. I would say because things are becoming more transparent with the systems and whatnot, we're moving closer in that direction. There's still too many variables in the underground mine environment that we can't control yet. We're controlling more and more of them as time goes on in terms of transparency and information. It's becoming more attractive possibly to look at that type of logic. Then expanding market size. More mines are feasible. If you can lower the cost per ton and you lower the cutoff grade, more mines are going to be in operation.
As Henrik pointed out, mines don't close that often. When they become more productive, this is extending mine life. It's putting previously unfeasible mines back on the map as well. Just some of our clients that we've deployed this commercial logic or business models across, a few of them that we've already talked about. Codelco, Henrik mentioned. We've made a couple recent announcements around autonomous loading and hauling at Codelco, at both Chuquicamata and El Teniente, so we're very happy about that one. You heard about Hindustan Zinc also in the OptiMine room. Looking at a particular customer's summary of how they view this as well, we thought it'd be interesting to put in a slide. This is actually from the investor pack of one of our clients, Resolute, who we've talked about before.
This implementation is now much further along than it was last time we discussed in 2017. This is Resolute's own slide on their PowerPoint template regarding the impact of automation. Again, the same three themes there that we always talk about. Increase productivity, reduce cost per ton, improve health and safety. You can see them all there, and you can see the numbers that have been presented by that client to us and to their investors. Interoperability, increasingly important. What does that mean? It means that when we deploy these software solutions, they have to be able to communicate with other equipment and other systems at the mine site. Although we would like to have the entire mine as an orange mine, as a Sandvik mine, that's a bit unrealistic due to procurement strategies and things like that.
To make it easier for clients to invest with us as well, we need to be increasingly interoperable. We also need to communicate across different types of wireless networks. We had the connectivity question a couple times in some of the sessions. What we're doing now is we're positioning ourselves so that we're fleet agnostic and we're network agnostic. You see here narrow band LTE, Wi-Fi, and 5G. Narrow band is basically sub-gigahertz where you can transmit a little information on a leaky feeder radio system. Every mine that operates has a leaky feeder radio system at a minimum to communicate with walkie-talkies. If you don't have Wi-Fi, you at least have a walkie-talkie. We can also transmit data across those systems with our Newtrax acquisition as well.
No, there's no part of the mine that's dark anymore, really for this. I mentioned Hindustan Zinc a minute ago. That was kind of a big announcement we made back in November where we're connecting 166 machines at their SK mine in India. Turns out only 75 of those are Sandvik and the rest are non-Sandvik. There you go. There's another real example of interoperability as well. That was part of the logic that was behind the Newtrax acquisition. To maximize the OEE, it's no longer good enough to just look at your own fleet A but the entire fleet B. You need to look at people, machines, and the environment, because all of those things affect how much you're going to get out of the mine.
That's why we've cast the net a little bit wider here and why we've gone now with an acquisition of an underground Internet of things provider that can measure where people are, can measure what's happening in the mine, can also collect data from non-Sandvik machines as well, and feed that data, hopefully into OptiMine, but in the interest of being interoperable into any system as well. Small company, 120 people, but growing very fast. The reception from our customers has been excellent on this. With that, I'll turn it back over to Henrik.
You might remember from this morning, Björn introduced our new 2030 sustainability targets. I wanted to touch on sustainability and show you an example of how sustainability and productivity go together with our customers. I'll start with our SMRT sustainability strategy to put things a little bit in perspective. First one is, of course, to work with our own operations. We can improve the energy efficiency and the greenhouse gas efficiency of our operation, minimize waste. Again, that makes a lot of economical sense as much as it makes sense for the environment. Also optimize our logistics. I used to be responsible for the Rock Tools division. We managed to half the amount of product or half the volume that we put on airplanes.
By doing that, we save the equivalent of 30% of the Rock Tools emissions in total, just by shifting from airplanes to boats and trucks and trains. We want to have a greenhouse gas efficient offering, and here is where we can make the most difference for the world in terms of reducing CO2 or greenhouse gas emissions. We are going to introduce greenhouse gas and sustainability as criteria in our product development, in our supplier selection, et cetera, to drive that performance. Again, obviously linked to productivity and sustainability together. Zero harm and zero tolerance, to some extent that goes without saying. Zero harm is our vision. We do not want anybody get hurt at work. We have a ways to go, as you saw previously, but that is our vision that we keep striving towards zero harm.
Luckily, most of our accidents are not serious. It's fingers, hands, and so on. Still, there are too many, and we need to reduce, and zero is the vision. Obviously, being compliant in every aspect of our business is non-negotiable. Zero tolerance for anything else. If you take the mining emissions, and I'll get back to that in my example, but if you take the total mining industry, the CO2 emissions are about 800 million tons. That's about 4% of the global greenhouse gas emissions of about 20 billion tons. 800 million tons. If you look at what we can impact, well, with give or take 25% market share that we have, it's about 200 of those 800 million tons. If we look at Sandvik's emissions, it's about 380,000 tons, and if you look at SMRT, it's 70,000.
Just to put things in perspective, where we can have the biggest impact is with our customers. I'll show you an example. We're going to take you back into the mining environment. It'll start with a short trip down back into the mine. Get you all back in the mindset of being in a mine and drilling. You saw a three-boom tunneling jumbo. This is a twin-boom mine tunneling jumbo. If you drill with unsophisticated tools and the wrong equipment, well, you're going to drill less straight holes. You drill every hole four meters, but they're crooked. Well, the rate of advance you get, because you're going to fill those holes with dynamite, blow it up, and then move the rock away, and then you've advanced. The rate of advance you'll get on average is about three meters.
You drill four, you get three. The profile that you get is crooked. It's hard to see. It's a bit light gray, but you get an uneven profile. If you look at this profile is pretty smooth that we have in here. If you would have blasted it this way, you would need a lot more cement to create this. If you then drill a straight hole, something different happens. Your blast is more efficient, and the rate of advance can go from three to three and a half meters, and your profile is smoother. This is maybe a tad exaggerated, but it'll get better. It'll get better, you need to move less material, you need less cement. If we then combine that with automation, electrified equipment that can move faster, et cetera, you get more out of your underground mine.
Some of you commented, we've talked a bit about ventilation. Ventilation can be as much as 60%-70% of the energy cost for an underground mine, energy is a big part of their OPEX. That's running regardless if you're advancing at 3 meters or three and a half. That engine is running all the time. If we do this, we get a better fragmentation and better profile, we go with faster, more energy-efficient equipment, we go in with electrified equipment, et cetera. The emission potential, we think, if we look at all of underground hard rock mining, is 30 million-50 million tons. We could impact 12-20 of that. If we grow our market share, we can do more.
Again, you compare that to our own emissions, this is where the bang for the buck is when it comes to sustainability. We have to do our own operations. That goes without saying. Absolutely, we have to do that. Here's where the big bang for the buck is, both in money and in sustainability. That's a key reason I'm excited about this. I mentioned being agile and managing with the cycle. Some of you who followed us for a while will know that in 2016, our EBIT margin for SMRT was not great. We were sitting at 10.5%, the year before that it was even lower. In the last quarter it was 17%, last quarter last year, which is quarter four is usually a better quarter for us, it was even higher.
Björn kind of stole my thunder on this one, our target is to stay above 15%. The way we're going to do that is, obviously we have detailed contingency plans and a trigger system to set them off. It doesn't happen at the same time in each division in every part of the world, we have to be a bit more focused or surgical in that. We have a flexible manufacturing setup. We have satellite factories around here in Finland that handle a lot of our assembly capacity at the moment. We have factories in factory where we have a part of our site here in Tampere that is operated by an external provider. We have third-party workforce, time banks, et cetera. We're going more ambitiously after fixed cost to stay above 15% in a down cycle.
One of the things that we haven't talked so much about, also because we're here in our pedestal drills, these are larger surface drills that drill only with rotation. You put a weight on top of the drill string and you rotate the drill bit, that's how you drill. Those drills look like this. They're made in Alachua. It's been a not strong performing part of our portfolio. Coming back to this evolving our portfolio, here's an area we're working to turn this division around, we created separate focus on it by making it division, recruited a new management team. We have an offering underway that we are excited about, also our customers are excited about when we talk to them about it.
This is a focus area for us to turn this business around and take a leading position or recapture our leading position in this. You would have seen some of the acquisitions that we have made. Inrock and horizontal directional drilling, Artisan in the electric vehicles and then Newtrax, as Pat talked about, in the process of divesting Varel oil and gas. We'll keep looking at the portfolio and if there are things that we are less excited about, areas that grow a bit slower. One thing that we're looking at is the development of the coal market. Coal is going to be used in the world, I'm sure, for the next 100 years. Hopefully less and less for the sake of the environment. If it's less used, then it's not so good for the business of coal or the coal mining equipment.
That's one thing that we are looking at and seeing if we should do anything different there. A brief summary, and then open up for question. We feel the markets are robust, maybe slowing down a little bit. We see some indications of that, but there are a lot of things that are positive, and commodity prices have remained at strong levels. We'll drive for more customer focus, more customer closeness, and drive those productivity improvements for our customers. We think that's going to gain us share. We'll shape the industry and work very hard in the digital space to shape that ecosystem. We'll continue with our decentralized organization and drive really hard to stay above 15% should the market turn on us, and then continue with the selective M&A. That brings me to a close of the presentation. Happy to take any question.
For questions, if we have microphones ready. Yes, we do now. Very good. Wide awake. Do we have any questions? Klas is on the ball. We go for Klas, please. Right at the front, and then we have someone at the back. Yes, number 2.
Thank you. I had a question on OptiMine and open source. We talked about this before, but also want to hear from you, Henrik. There are 700 machines connected, seems to be around half Sandvik machines. You have now decided this is within OptiMine only. You have now decided to open up your systems more. You have Newtrax, you're becoming more OEM agnostic. When you look at other OEMs out there, are they also opening up? One of the key hurdles to see mine automation really taking off is that Komatsu has been sort of holding back, and obviously they're also surface, but it would be interesting to hear if this is a trend with everyone becoming more OEM agnostic.
I'll let you answer that, Pat.
Yeah, look, it's clearly things are headed in that direction. I don't think it's if, but when as well. I think some OEMs, us included, have viewed historically that holding the data and keeping that proprietary is an advantage for us. What's clear is that the rate of adoption in the business in these areas is not increasing fast until these systems can be interoperable. The reality is that there's many OEMs that are mined and there's many systems that are mined, and they have to be able to communicate with one another. Just a couple more important points to follow that one up. First one is open source is different than interoperable, right? Our software is not open source. All right? No one else can change the programming in our software, but it does communicate with other systems as well.
Then, yeah, that's the main one, the main point.
I guess what I'm trying to ask is whether OptiMine can also not only in the duopoly become relevant, but whether it can be relevant also outside. When you look at Cat and Komatsu, whether OptiMine can take a bigger share as a platform for automation.
I think, absolutely. Our view is that OptiMine can be purchased or engaged on its entire scope, which is quite wide, and the scope's increasing all the time. Some customers want bits and pieces of it as well. I think what makes any software package in this business really become important in the industry is to the extent that it can be easy to implement, which means interoperability, and then demonstration of return on investment. Those are the two things that are going to really determine who wins and who loses when it comes to the mining software. I think we're well-positioned for that.
Good. My final one is on the portfolio. Obviously, Henrik, you talked about mechanical excavation, coal, you talked about Varel, these are areas that Björn and team have talked about before. The importance of being number 1 and number 2 is sort of for the whole group and for SMRT. Obviously, crushing has seen a big improvement in the margin and a job well done. Where is crushing right now relative to competition? Because you have some quite big players out there. Is crushing still within the 1 to 2 position or below?
For stationary crushing, I feel we're in the number 2 position, strong performance of that business. Mobiles is much more fragmented industry. We are one of the stronger players. Our estimate is that we are somewhere in that number 1, 2, maybe 3 position, but strong. Like you said, the business has performed a lot better. You look at from an aftermarket point of view, crushing is fantastic. A stationary crusher can consume the equivalent of seven to 10 times its equipment value in wear and spare parts. Definitely see it as core to the business.
Thank you.
Yes. Is that Graham?
Yes.
Yes, please.
Yes. Graham Phillips from Jefferies. I take your point about coal, and the fact that the market may be one that you don't want to be in longer term. What sort of products are you supplying to the coal market, and what implication might they have on the portfolio? The second part to this is that, of course, your biggest competitors on the surface are very focused on coal and soft rock. Are you worried that they're going to start to develop products so they can capture this growth in the underground market that you've well and truly talked about today?
If we start at our portfolio targeting coal, we call them bolter miners. It's continuous miners that have bolters on them at the same time. We also make continuous miners, but they are part of developing coal mines for long-walling production, but also their production equipment in room and pillar coal mining. Room and pillar you have in the U.S. and South Africa, a little bit in Australia. Australia is more long wall than that. China is mostly long walling. That's the equipment and obviously there's a spectrum between do we try to grow the business. It's well performing at the moment. Do we try to grow it aggressively and acquire? Do we invest a little bit less, or do we look at reducing our position or maybe even exit? We're looking at that spectrum.
When it comes to surface and underground, the product offering is so different. You've got Joy, Komatsu, and Caterpillar dominating the surface space. Cat is in underground with load and haul. Joy is in underground with coal, for sure, or Komatsu and Joy together trying to break into hard rock, but it's very different from what they know how to do. From that point of view, a bigger challenge. Our biggest challenge when it comes to the surface players is Cat for underground load and haul. They've been that for the last 10, 15, 20 years. That's not new. They're a big, strong, and important competitor for us to watch.
Welcome back from the coffee break. Now finally, what you've all been waiting for. The to-be separated business area, Sandvik Materials Technology. My name is Göran Björkman. Maybe you wonder why we have a guy in space on the first slide, and so did I when I received it from communication. Obviously, these solar panels are produced using Kanthal's heating technology. We also have products in space. We have hydraulic tubes in the SpaceX. With that said, the rest of the presentation will be much more down to earth. I will very shortly give you some facts about Sandvik Materials Technology, elaborate a little bit on the performance the last two years, go back to a slide that I used 18 months ago in the previous Capital Markets Day, and then end this presentation with my view on SMT, on our capabilities, and our strategic direction.
Last year, we invoiced SEK 14.3 billion. That's restated, excluding the power business that was moved to SMS at year-end. We had an underlying margin of 7.6%. I'll soon show you the performance improvement, but this is in line with the targets we set up to meet 10% this year. If you look at the revenues, how they are spread geographically, we're close to 20/60/20. 24 in Americas, 57 in Europe, and 19 in Asia. This is how we invoice. This is our invoiced customer. Our products end up very often in different ways than this shows. For instance, we sell umbilicals to Norway, most probably the umbilicals in the end end up somewhere else, maybe in the Gulf of Mexico or outside Africa. This is our invoiced footprint. Looking at our segments.
Energy is important for SMT, I think I will show you later on, I think energy is something good to be in. Oil and gas, 18%. I will also describe a little bit how I view the oil and gas market development. We're also pretty big in other segments. Part of the strategy that I will share with you is that some of these segments are also our focus segments when it comes to growth. I will not bore you with organization charts, but I'll still show you that we are today three divisions, Tube, Kanthal, and Strip. They're very different in size. Tube is roughly 70%, Kanthal 20%, and Strip 10% of the revenue. All three of them have their own product development. Centrally, we share what we call strategic research.
That's where we do alloy development, since all divisions sort of share the alloy portfolio. This is the slide I will talk a few minutes about that. I think I used this also 18 months ago, showing the SMT performance from 2013 to 2017. I added on the 2018, of course. I also think I said something like, "This is not at all a performance that we're proud of," and I think I also said that we were underperforming. All businesses has its up and downturns, but I think what we did not manage in the downturn, with the oil price, 2014, 2015, 2016, was we were much too slow on acting on that problem. I also think I said that I see a lot of potential when it comes to commercial and operation excellence.
That was only three weeks into my position, so of course, that was a pretty quick conclusion from my side. I have to say, more or less, I still have the same conclusion. I maybe found some more potential, but I have the same conclusion today. Sometimes I make a joke with my boss, because at that Capital Markets Day was when the 10% target for us was launched. That's also a way to have sort of the yearly goal dialogue. It was a good target. Now, when I came back from that Capital Markets Day, I gathered my management team and said, "Okay, this is now the target." We debated, is it a run rate target? Is it run rate fourth quarter? What is it?
I said, "The simplest way to do the math is it's a full year target for 2019, and let's see what we need to do about this." What we have done, and I think that has been good for the process, is that we have looked at the short-term plan. In parallel, we also worked with our long-term strategy. The short-term, a little more top-down, and the long-term, more bottom-up from the divisions. We have had one rule, and that is we are not allowed to take decision that would meet the target in the short-term period if it hurts the long-term perspective. All the things we have done should also be sustainable and helping the long-term strategy. What you see, we have managed to turn the curve. We had a pretty good year last year, and this year will be even better.
The 10% target is there, and we will meet that. What has happened then? If I start with the market, the market has helped us. Part of the Tube business came back in a better shape last year than it had a few years earlier. Oil and gas. I don't think we have communicated that so clearly because a lot of the other business has improved so much. Oil and gas was a pretty poor year, 2018. Was actually worse than 2017. Now that is picking up. We have had an, I would say, impressive and very good order intake since fourth quarter, now also into the first quarter. The trend of moving from gas furnaces to electric furnace is also important, and it's helping the Kanthal improvements. What have we done? I've divided them in two areas.
One is more how do we manage, the second one is what have we actually done. The first one, tried to build a better execution culture in SMT. I think we've had a tendency to act too late. I think we've had a tendency to, when we don't meet our plans, let's make a new plan. Try to change that. We've implemented a simple but effective performance management. Of course, we use all the numbers, and Tomas, your scorecards, they are magnificent. We also implemented what we call a key initiatives review. If you make a plan and you commit to a number, you also need to think about, so what do I need to do and what do I need to achieve? Every division has their top list of things they promise to do in order to reach the targets. We do that bimonthly.
We follow up these key initiatives. First, we check, have you done what you promised? Second, did you achieve what you expected? There were some questions when I installed it, now it's part of our normal way of working. If we look on the initiatives as such, we have optimized, or I would say, cleaned up part of the portfolio. We have sold off both wires, both the welding and the stainless wire. We sold the majority of our shares in Fagersta Stainless. We have a little bit part left that we're going to sell later this year, just to have a place in the board to check that some contractual things are met. Also, part of Kanthal components, that is also divested. All of these businesses where we could not be number 1 or number 2.
We have worked with cost efficiency, both from spend point of view, I've seen so many spend programs where you measure what would have been if I didn't negotiate. This has been bottom line spend programs. The money is out, or the cost is out. Also reduced the number of people, then kept that at a decent level even with the growth. We've driven productivity last year very much with lower number of people and increased volumes. Not that much volumes, actually. It's more value because volumes are not up that much. We work with mix optimization, also price management. In some of the areas where, I would say we have improved, or maybe that is too nice to say. We have implemented price management.
Mix management mainly in the Tube, also in the Kanthal system, lowering the volumes on the less added value products, the long products. In Strip, we pushed a lot on having a price structure that reflects our market position. Meaning we have stepped out of some businesses that were too bad. We've also done footprint changes, or at least communicated. I think many of you might not know that, I have a slide on that. That has not at all helped us so far, They will not help us 2019, We'll have nice effects of those going forward in 2020 and 2021. We also managed to increase the manning flexibility. I think we are better prepared for a potential downturn, at least we will act much faster if that comes.
Tube division has worked through its footprint to look for opportunities, not only from a cost point of view, that is of course important, but also from a market position point of view, both to help the decentralized organization, which in the Tube case is very regionalized. Of course, also to reduce costs. We have taken a number of decisions late last year and the beginning of this year. We are right now closing a factory in Canada, in Arnprior, Canada, moving that volume and that business into Scranton in Pennsylvania, in the U.S. That will be done end of the year. We will have effect from that in 2020.
We've also announced the closure of two factories, two production mills in Sandviken, one for heat exchanger tubes and one for instrumentation and hydraulic tubes. We will move that to Chomutov in Czech Republic. That will be done in phases 2020, 2021. We also merged two production units in Europe, one in France and one in Germany. We are increasing our capabilities in India. We do that also in phases. Phase 1 is now done, and we will do that with 2 more phases in next year and the year after that. All in all, this will be nice effects after 2019. If I look at Sandvik Materials Technology, what kind of company are we? We call ourself Materials Technology for a reason. We don't call ourselves steel, even though most of the products we do are kind of steels, superalloys, stainless steel.
We are very different from many other steel actors. That graph represents the world market for steel. It's 1.7 billion tons. Out of that, a small part is stainless steel. A small part of that is where we act. From a steel community point of view, in volume, we are extremely small. In all markets where we act, we are big. We are normally number 1 or number 2. I will not share any numbers, but if you should check some other companies and you look for added value or price per kilo, you would see huge differences. You can check some Nordic players. I think we are the innovation leaders. I would soon show you, I think, an impressive portfolio where I see at least in the Tube division.
I travel a lot. I should probably travel even more, meet even more customers. When I meet customers, I am always impressed by the long-term relation we have. It goes decades back. In many cases, we have developed solutions and product together. The way we work with the customer is more almost like partners. I also show you, I think the world needs to be changed. I will show you some of the trends. I think we are very well fit for the trends of both sustainability and energy efficiency. I will go through three, I think, of course, we have more, but three capabilities that I think are crucial for our success. One is our supply chain, where we are a fully integrated company.
I know some people, probably some in this room also sometimes ask me, "Would it be easier if you didn't have your own smelter? You would have a lighter balance sheet, you know, less fixed costs." Sure. I view it the complete opposite. This is, I would say, the key competitive advantage. With having a fully integrated supply chain, we are independent, we control the quality from start to end, and most important of all, to be a premium player, you need to constantly introduce new products. To be able to do that as a materials technology company, you need to have your own metallurgy. Having our own metallurgy is key for SMT. Our footprint, I think, is another capability that makes us strong. Sure, Sandviken is our main site. It will continue to be our main site. That is where we have the large steel plant.
We have a small one in Hallstahammar in the Kanthal structure as well. This is where we have the hot work in the majority of the extrusion presses, big part of the tube production, and the strip production. Of course, this is the main hub for R&D. We also have a lot of production units globally. We're also building some of those stronger. I would say, as I said before, with the changes we do now in tube, we are increasing also capability in North America. Scranton will be stronger after the closure of Arnprior. Chomutov will be stronger after the move from Sandviken. We're building Mehsana in India much stronger. Mehsana in India used to be just an extrusion plant.
We put in some cold working capacity over the years. Looking to that, we have so many opportunities if we increase capability in India. There's a big growing industry that fits us well. You need to be local to be able to compete with the prices. You could do that with extremely interesting profit margins if you are local, and that's why we're increasing capabilities there. The global footprint gives us also sort of the feeling that when you're out in the marketplace, that you have your own production. It's helping up the governance structure and the decentralized structure we have in SMT. You feel you have your own production. It also helps with, I would say, backup and flexibility. The same kind of products are produced in more than one unit, and also the opposite.
With a footprint like this, we can afford to have a few units also being specialized. Last but not least, as a world-class capability, that is our R&D. I have colleagues in the industry that has a different setup when it comes to R&D. I think we have most of our expertise in-house, and I think that is a strength. We have, over time, developed knowledge and expertise in our area that is world-class. With the long-term relation we have with our customers, we know our customers very well. We understand their needs, we understand their processes, and to mix these two together, I think we have a leading position when it comes to develop products fit for our customers. Looking at the global trends, we all know those. Population. We get more and more people on the planet, and they are more and more wealthy.
We would need more and more energy, more medical care. Globalization, we need to travel in a more environmentally friendly way than we used to do. Sustainability, with more need of energy, we need to find other energy sources, and we need to work with energy efficiency. All of that puts higher demand on materials. It is the perfect place to be with these trends if you are good in material science, which we are. The world will need stronger and lighter material, more heat resistance, and in many cases, also more corrosive resistance and fatigue resistance. In my book, we are perfectly positioned for these trends, and it is up to us to work with product development in a clever way. Digitization also opens up for, of course, internal efficiency, but also finding new business models. I will show you one interesting example in a minute.
To put this together in one way to describe our strategy, it will be much more interesting in the slides coming, because then we will dig into the divisions. If I look at SMT overall, with the capabilities we have, with the people and the products, we should have industry-leading financial performance. We could have no other target. Our business and industry is volatile. That is the name of the game. I think we have, both when it comes to portfolio and also to how we manage things, we have both the ambition, I think we have the potential to reduce volatility, and that is a strategic target for us. All of this, the main enabler is that we should be number one in material science. We put the strategic targets in five different boxes. You could do it different ways, but we have chosen five different boxes.
Customer focus, of course, that is the highest priority after safety. I will not go through a long list, but things like in sports, you should develop your talent. We are very good at long-term relations. We should build on that and be even stronger. There are things we could do more effectively. There are potential to handle the customer relations in a more seamless way and a more effective way, and we have digital solutions ongoing for that. Moving into the innovation part, as I said before, parts of our business now has a very strong portfolio that we need to capitalize on. Other parts needs to speed up its new product renewal. To be really successful, I think there are things when it comes to innovation where I really think we can improve, and that comes to commercialization, industrialization.
We have good ideas, but we need to put them in the market faster and secure that our production technology and supply chain is efficient to produce those. Ability to industrialize, that is a lot of the things that we have done and are doing now short-term. Pushing operation and commercial excellence. After these two years when we have met our target, of course there will be more potential, because every time you improve something, you find even more things to do. In my visionary world would be that in the future, we should be so good, so when we do an acquisition, you have synergies from day one, because we know how to do things. The two last ones, expand the segment portfolio and our geographical position. They go a little bit hand in hand. They are there for, I would say, two main reasons.
One, there are market shares to grasp. There are segments where we are not as strong as we could be, and there are geographical markets where we could increase our market shares. That is one part, an obvious one. Another part is also to help us and to support the target of reduce our volatility. If you have a broader portfolio, your volatility actually becomes smaller. We will focus growth in areas like renewable energy, Aerospace, medical. Kanthal Gas to Electric will grow Kanthal in the future. As I said, it's more interesting to look into the divisions, so that's what we're going to do now. We start with Tube. I think I have been around for many years now, and it was a long time, if ever, I've seen such an impressive list of new product introduction and interesting products.
Tube is in a very good shape for introducing new products. Tube is also, as I said, focusing footprint changes. What I'm probably most proud of and happy about is that we, for once, we take decisions before we're forced to take the decisions. Last number of years, we have been forced to do things, and we've done it sort of in the last second or too late. Now we're taking decisions, and we can control it in a clever way when it comes to move equipment, handle our own personnel, and most important, handle the customer when we do footprint changes. We take decisions before we're forced to. Tube division has a very strong market position in most of its products. Just a few examples, and maybe you will feel it's strange. Sanicro 25. I'll follow Henrik's example and say sustainability.
We will do our homework, I think the big impact we can do on sustainability is through our products. Talk about sustainability and coal power maybe sounds strange, this is a product that makes it possible to run coal power stations at much higher temperature. With that, you get much higher energy efficiency, meaning less coal for the same number of kilowatt hours. Just to give you a visionary view on that, if all coal power plants in China would install this and use it to reduce emission, the magnitude of that is something between 1.2, 1.3 billion tons of CO2. That's sort of the same level as the total emissions from a country like Japan. The potential is huge. We also developed the first, in a long time, own developed high nickel product, which is the focus area for Tube.
We have increased our capabilities when it comes to nickel-based alloys and have an interesting portfolio now of nickel-based alloys coming out on the market. Also products for the hydrogen society, I think that's a growing market. The last one, the Tube production on site. It's a solution where we move a small part of our production close to the customer, and I will show you a homemade movie on that. There is production in this container. We have now one container with a customer. That is Kanthal. Let's go in the other direction. That are building a hydro station around in Germany. They move this container, and the amount of tubes they need, they take it from this container. We have done a solution that where we, of course, that is connected to our production unit, and we do automatic replenishment of that container.
Whatever they need, we serve that. Kanthal, I think we, for some years, we managed to, should not use that word, but messed up Kanthal a bit. We put it together with strip, with wire, powder, God knows what. If you have a lot of operation and you have a problem, you focus on the problem. I think to some extent, we managed to not focus on all the opportunities there is in Kanthal. My long-term target is to really grow Kanthal. I want to have Kanthal at double the size one day. They are, as I said before, very well-positioned. They have global competitors in the heating material in the wire part, but their heating system, there are no global competitor. Their market position is, I would say, unique.
They are moving from focusing too much on the heating material and focusing forward integration into the heating system where we do finished elements, heating cassettes. We don't do the furnaces because then the margins go down. That's the overall strategy for Kanthal. As you know, Kanthal is also a part of a medical business, extremely profitable, and there we have Both organic and probably also non-organic strategy to grow that business in a very good way. Moving into Strip. Sorry, some products for Kanthal. As I said, going from gas to electric, that gives the customer normally more energy efficient, no emissions. It's easier to control. If you go into the Kanthal homepage, they have a CO2 clock for every installation they invoice to customer, they have a calculation about how much less CO2 we let into the air, and that clock is on their homepage.
Semiconductor is important industry for Kanthal. Additive manufacturing, we have started to print heating elements. Traditionally, we do the heating of elements from a wire or from a strip, so that's the forms we have. With the 3D printing technology, we can print the heating elements to the shape which is best for the heating technology, and we have the first product coming out now. If you look into the medical parts, this is example of online glucose measurement for diabetes patients. We have hearing control, heart control, a lot of things. Then to the smallest divisions, Strip division. I think, looking at margin development, that is the most remarkable during this time period. They have, over the last only eight, nine months, doubled their margins from very poor to pretty good. With some simple measures, I would say.
They managed to do a lean program, with a few simple mistakes, we changed that. Now the productivity and output has increased. We also implemented a price management tool, we're focusing prices in a different way, doubling the margins in Strip. Long term, they need to focus more on new product renewal. That's the weakness in Strip, and they are addressing that. Some interesting projects, valve steel. Huge part of the electric energy consumed in the world is actually for compressors. I think it's over 10%. Through Strip, the compressors get more efficient, and now we're coming with the next generation of steel, making the compressor even more energy efficient. Hiflex for Stirling engines. Life cycle assessments. All the divisions are working with that. I think Strip is the one who come the furthest, helping customers of a life cycle analysis of the products.
Now starting to end up with scrap buyback programs from our customers. That will also help our steel plant. If I should summarize this, I think we've done well. I think the development over the last years has creating for us a solid platform to develop from. I think looking at our divisions, we have world-leading positions in all our markets and with all our products. We are now very well positioned for strategic growth. That one tells me I have 4 minutes and 40 seconds for questions.
Be quick. There's no microphones en route, we'll use this one.
Thanks. I would like to come back to the operational performance. Looking at the chart you showed us, in 2018, you had revenues of SEK 14.3 billion and EBIT of SEK 1.1. In 2013 and 2014, you also had revenues of around SEK 14.3 billion, the EBIT of SEK 1.5 billion, it's a difference of SEK 400 million.
Yeah.
What explains that?
I think if you compare. First, you have 5 years inflation you need to beat with improvements. That's one part of it. We're doing less volumes than we did 2013. Still, even though the tubular business has picked up, the tubular business was even at a better level 2013.
Hi, Göran. Klas from Citi. I just want to ask you, obviously, market observers are currently focusing a lot on Sandvik Group without SMT and what that means, but it's also interesting in terms of an own equity story, if it would happen that SMT is a separate company. There are high margin areas, such as in aerospace, powder, medical, oil and gas, and obviously M&A would perhaps be a bit tricky within Sandvik for you to do, but outside, there could be opportunities. Could you talk a little bit about margin enhancing or a mix enhancing M&A in terms of, you don't have to mention any targets, of course, but are there decent targets within these high margin areas, and would that make sense for you to expand into?
I will answer the question. I will just say, I think I received similar questions in the coffee breaks, et cetera. I think we have done one mistake when we have communicated the big tube, which you call current standard, which is a big part of our portfolio. That is not that much standard. Also in that area, we have nice pockets of premium products with nice margins. With that said, yeah, to your question, first of all, I think we have a solid strategy for organic growth. That's the starting point. When it comes to M&A, M&A should support the organic strategy. Of course, we are looking into. I said we did an acquisition in Kanthal last year, in the heating system part. There are a number of similar companies, and those are on my list.
I think complemented acquisitions in the segments where we want to grow could be others.
Do we have any additional questions? We have one here. Tina, please.
Göran, Lars here from Barclays. Maybe just a quick one on balance sheet in a standalone scenario. I think we heard Tomas earlier talk about, or management team talk about a cash debt-free business at the time of the spin. Can you help us a little bit with your thinking around balance sheet? What is the kind of leverage you think you can sustain, or should this be a net cash business on a standalone business through the cycle? Thanks.
Let me do it from the different parts of it. I think, first of all, we have reviewed our CapEx need for the growth we're looking at. We have noticed with the high nickel development that we have much more capabilities than we thought. Actually, I think we have communicated before that we need huge investments to do this organic journey. We will not. We will invest roughly in line with our depreciation. That will help the balance sheet. When it comes to net working capital, I think that's an area where I'm not as proud as I am with the EBIT margin development. The main focus now will be to stabilize net working capital. I think we are too much up and down. Once again, you need to do things does not happen just because you make a plan.
Tube, I think they have a solid program now how to control the supply lines in Tube. We will have no surprises. First, stability, and then I think we have room for reducing net working capital, and that will help us grow. Otherwise, it's too costly. Does that answer your question?
Any more questions for Göran? We have one here from Klas.
Yes, a follow-up to Andrea's question before. Can we just measure this from when you took over, 5% margin going to 10%? I get the self-help to be around half of the 500 basis points, and then you have volume and mix being the rest. Obviously, oil and gas growing from a low level is mix positive. How much was self-help volume mix from when you took over, Göran?
First of all, we measure mix in different ways, mix in the accounts and between the accounts. Between the accounts, it was a pretty bad year last year because we had a much lower oil and gas business, actually. I think we all can make EBIT bridge calculations, and so do we. What is productivity? How much is price? How much is mix? How much is volume and currency? That doesn't say everything. If we push prices, was that only performance, or was we helped by the market, et cetera? This is not science. My estimation is that over this period, something between 60% and 70% is actually performance. The rest is market and also currency.