Hello and welcome back, everyone, to the next presentation here at ABG Investor Days. My name is Henric Hintze, and I'm a stock analyst here at ABG. One of the companies I cover is SinterCast, and now I have with me the future CEO of SinterCast, Vítor Anjos, here to present the company for us. Please, Vítor, go ahead.
Thank you, Henric. So good afternoon, everyone. It's nice to be here again, always around Christmas time. It's always nice. So I'm here to present SinterCast. Some of you might already know it. So I will start with a short introduction of what SinterCast is and what we do, then show the growth outlook that we have coming forward to us, and a little bit of our strategy going forward. So to introduce SinterCast, we are a technology company, and we developed a process control method for the reliable production of compacted graphite cast iron, which is a new kind of cast iron. Compared to conventional cast iron, CGI is stronger and stiffer than conventional iron, and it's mainly used for the production of cylinder blocks and cylinder heads for internal combustion engines. Because it's stronger, the engine designers can optimize their engine design and reduce weight.
Typically, if you go from conventional iron to CGI, you can have up to 10% of weight saving on your engine, which for any car or any truck, it's a meaningful saving. There on the right, we see an example of an engine that uses our material and our technology, which is the Scania V8 16-liter, known as King of the Road, produced at Scania here at Södertälje. Some of the advantages for the engines is that if you have a stronger material, this means that you can also compress the fuel harder during the combustion phase. If you do that, you can have a higher efficiency on the fuel ignition, and you have less fuel consumption, and this will also translate into lower CO2 emissions from the consumption of that fuel.
Typically, engines, when they transit from conventional iron to CGI, they can be 5%-10% more powerful, more torque, and more power, and they can be between 5% and 8% more fuel efficient. This means that it will also be 5%-8% less CO2 emissions. T his is particularly important if you think about big trucks that have a lot of load, that need a lot of power. That's a meaningful contribution that you do in terms of CO2 savings. T hen here again, we have an example from the Scania truck that, again, last year won the Green Truck Award due to the savings and the efficiency that they get from this new material in their engines. So then how do we make our money? What is our business model? So we have a revenue, a royalty-based business model.
So we charge, we don't produce the engines ourselves, so we produce the technology, both software and measurement equipment, and we supply the foundry with this equipment, and they produce the engines. So what we have, we have a production fee charged to the foundry, and we also have the sales of a consumable that is used by the foundry to measure the liquid iron and then estimate and calculate what is the quality of the material that I'm producing. So this is a typical layout of our equipment, and on that side, you see this consumable that we sell to get the measurement from the melt, and we produce around 200,000 of these cups per year here in Sweden and ship it all over the world. Then who uses our technology, which companies or which segments use our engines?
So we see that most of the production goes into commercial vehicles because it's where you have the big engines, like 11-liter, 13-liter, 16-liter engines, working with diesel, where you need a lot of compression from the fuel to get the fuel efficiency. T hat's actually where we will have most of our growth going forward in this transition from conventional iron into this new CGI iron material with the advantages that I just spoke before. Then we have 25% for the Super Duty pickup trucks, and these are normally 6.7-liter V8 engines for the North American market. Then we have 14% for full-size pickups, also for the North American market, and this is not diesel, but this is actually a petrol engine.
They have two versions, 3-liter and 2.7-liter V6 engine for the North American market, and F-150 pickup truck is the best-selling truck in North America, so it's a really high volume. Then we have the small mid-size pickups, again, diesel, V6, 3-liter and 2.7-liter, and then we have 5% for industrial applications. H ere we have railway, marine power generators for data centers, everything that is not assembled on a truck or on a road vehicle. Yeah, but 50% is commercial trucks. The rest of the business is quite stable. This is where we will have most of our growth.
And talking about growth, let's see how we developed over the years, and we see here a chart since 2008 with the count for engine equivalents, and that's the way we, because every engine has a changing weight, and we just normalize this to one standard weight of an engine block, and then we have this relationship with engine equivalents. So over the years, we were able to grow because SinterCast was also on the early beginnings of the technology. So as the material starts to be adopted, we also grow with it because we were from the point zero going forward. So growth is never a straight line. Yeah, we always have ups and downs, but we always manage to recover and go back to growth.
So if we look here at what is happening lately, more recently, so in the middle of last year, we had an engine program that reached the end of life, and this is normal. Yeah, you have an engine, OEM has an engine, it runs for 10, 15, 20 years, and then they replace it. T his is one of the cases of an engine program that was phased out, and we have the drop in production as expected, but we knew that there are a lot of new programs coming into the market. So in the second quarter of this year, if you see, we started our recovery, so we started seeing the volumes getting back up as we expected, but then suddenly we have again a drop. T his drop was due mainly to two things. One is the slowdown of the market, of the economy.
Yeah, so OEMs that produce commercial vehicles, they report drops around 20% in sales compared to last year. So this had an impact, the slowdown of the market, both in North America and in Europe. T hen especially in North America, it was forecasted that the new emissions regulation will take effect in the United States in 2027. That is the EPA '27, but the new administration in the United States, when it took power a few months later, they announced that they would review the regulation. E verybody expected that they will be a little bit softer in the regulation, so everybody stopped to see what the new regulation will say.
Naturally, before a new regulation enters into force, there is a pre-buy because everybody rushes to buy still the old version of the truck before the next, the new one, more expensive comes in, and this did not happen in 2025, so all of this contributed for us to have this decrease at the moment where we were doing our natural recovery, and how are we going? How do we see this situation evolving in the future, so if we think about EPA for North America, in the last two weeks, EPA announced that they will keep the EPA '27 to come in 2027 so that it's positive, and they also announced that they will not change the NOx emissions regulation. So the thing that would more impact the efficiency or the gain of efficiency of an engine, they said that they will keep it.
So now it's clear that EPA '27 will come in 2027, so we expect the pre-buy to happen in 2026, so that is positive from the market point of view. I n regards to the market instability that we see, I think that we are all more or less used to the new North American posture and the tariffs and the way they regulate international trade. So there is some level of more confidence of what is coming ahead. The tariff situation is also a little bit more clear and more stable, so we see the market starting to gain confidence again and recovery.
We see that if we look at the quarterly reports from the biggest OEMs for the commercial vehicles, we see that their order book is increasing at the moment since the middle of this year, which means that within three or six months, we will also see an increase in sales. The situation is improving forward, and we hope that we go back to growth as we expect. A part of this, we also have our organic growth of new engines coming in, and I will address that a little bit later. On and on, if we look at our 10-year growth, compounded annual growth, we are at 4.4%. On 15 years, we are at 9%. Naturally, the latest quarters did not contribute for this high compounded annual growth that we were hoping to have, and that is also related with our target.
One of our financial targets by 2030 is to achieve double-digit growth. We will be close. I can't assure that we will hit 10, but we will be close to 10 the way we see the market recovering. W e keep our forecast of growth before we said we will reach 5 million engine equivalents by 2026. This situation moves our forecast to 2027, but we will get 5 million in 2027. Then we will grow further to 6 million in 2029, and I'm sure that we will continue to grow beyond, as I will show in a moment. In terms of revenue, because we have a high recurring revenue, so the revenue correlates quite well with the production that we have. So naturally, we will have a decrease on our revenue this year, but last year, we were at around SEK 135 million.
What is unique at SinterCast is that we are a small, lean company. We are 26 people, 20 of them working in Katrineholm here in Sweden. If we divide the revenue by the number of employees that we have, we reach 4.5 million SEK per employee in revenue, and we have more than one million SEK of profit per employee. This is one of the strengths of SinterCast, where we are a high operating margin company. Last year, we were at 31.9% operating margin, and our target is to reach 40% by 2028, and we will have a very big improvement in the next two years, 2026, 2027, in what comes to our operating margin. Building a little bit the story to where we are going in the future, we were always helped with every stringent emissions regulation that came in over time.
So if we look back in 2003, 2004 with the Euro 4 regulation, then the way the OEMs find to comply with the new regulation is always to increase the pressure inside the engine. So when they put the fuel in, the more they can squeeze the fuel inside the combustion chamber, the higher is the efficiency, and the lower will be the emissions. So over time, every time a new regulation comes out, the new engines start to increase in pressure. So at the moment, we are at around 250 bar of internal pressure, and with a new regulation with the Euro 7 that will come into effect in Europe in 2029, they will have to raise the pressure to 270 bar. C onventional materials for engine, they cannot comply with this level of pressure anymore. So slowly, all OEMs transition to use CGI in their engines.
We see here quick, how was the story over time? It started with DAF, then came MAN, Navistar, and Hyundai, then with the Euro 6, Scania, Daimler, and Hyundai with more engines, and most recently, Traton Group and FAW in China. On and on, at the moment, between 40%-50% of new trucks sold in North America and in Europe, they have a CGI engine in it. The way we see it going forward is that Iveco already announced a new engine in CGI, and others are also coming on board, so that we estimate that by 2030, 80% of all new trucks will have a CGI, either cylinder block, cylinder head, or both in their engine assembly. To be more specific on what we have ahead, I made here the list of the things that are coming new with our production.
So we see 2025 SOP means start of production. Yeah, marks the point where the OEM starts producing and using that engine. So FAW in China with the 13- and 16-liter engine SOP in 2025, it was slow because in China, the government also pushes for the use of natural gas as an alternative to diesel, and that slowed down the ramp and the intake of the new engine, but it will happen in the future. MAN has a new 13-liter engine started also this year because the market was kind of low. This slowed down the ramp, but as they recover and the order book increases for 2026, the volume will continue to increase next year.
We have the Scania, which besides the 13-liter engine, now also has an 11-liter engine that was announced this year, and it will ramp or started to ramp this year. Sales will be more significant next year, and then we have International, which is also from the Traton Group, that will start to use the new 13-liter engine in the North America market next year. Actually, they already started the production at the foundry, and because we have close contact with the OEMs, we know that there are three new programs being announced by European OEMs. One to start next year, two to start in 2027, and we actually are also starting to work now with a foundry for a new engine for a European OEM to be launched in 2029.
So we have a good visibility of what's coming ahead in terms of engine production because it takes time for the OEM to design the engine and put it in a foundry to work. So we know what's coming in the pipeline. W hen I talk that we will reach the 5 million and the 6 million, it's clear because we see this volume increasing from these current programs, but we also believe that we can grow even further and reach the 7 million a little bit later on. Yeah, so we have a really high confidence that the volumes will increase and more OEMs will come on board. T o feedback on our financial targets, so in 2023, we announced what would be our financial targets, and I just want to give a quick feedback on them.
So 10% compounded annual growth by 2030, as I said before, we will be really close to it. 70% operating margin, we are over this value already, so we just have to keep it on track until 2028 and beyond. 40% operating margin, as I said last year, we were a bit above 31, and we have clear actions to improve it even further in 2026 and 2027. So high confidence that we will also hit that target. 100 million tons of cumulative CO2 savings. At the moment, we are at 77. We are saving 10 million tons of CO2 each year, so we will also reach the target by 2028. T hen we have 25 consecutive years of increasing ordinary dividends. So this year was the 15th year of consecutive increasing ordinary dividend.
The current market situation tells us that probably we will not be able to comply and increase again next year, so it will be a 15-year streak that will end, and next year, we have to start a new one again. So as I take the role of CEO, that's a nice challenge to start building it and try to beat the current record from Steve Dawson and also see how I can achieve the 15 years or more of increasing dividends, and my last point in the presentation is to address one topic that we released in our latest interim report in the Outlook section, which is related with a new strategy that we are including at SinterCast, and I will just read part of it really quick, so I will start at the end of the first line.
So the board has initiated a process to explore value-creating opportunities beyond the current organic growth strategy. By leveraging the company's strong balance sheet and cash flow, the addition of an inorganic growth strategy could enable further growth opportunities, enhancing long-term shareholder value. Contemplating the current financial targets, a search process has been initiated to identify potential opportunities for acquisition. This might come as a surprise for some of the followers of SinterCast, but for us, it's clear, and we know what we want. I t's clear for us which path we have to go to make this inorganic growth. T o help to convey this confidence, we will stick, I put here, five of our principles that are governing this strategy looking for inorganic growth. So first is to leverage on SinterCast's strong cash flow to generate synergies and capture more value from our activity.
The second one is to strengthen our measure and control principle, yeah, by getting new foundry measurement technologies, new process control, new data specialists to bring more value to what we already do. Expand our brand into new materials and applications, so look into other materials and other products to be produced. Leverage brand recognition and international presence of the newly acquired business because SinterCast is a well-recognized brand among foundry industry.
We built this credibility over the years, and we can use our strong brand and our connection and our knowledge of the foundry sector to speed up the growth of a newly acquired business. L ast but not least, the support of our experienced board that will provide us with strategic oversight and guidance through all the process of search, acquisition, and integration of the new business. T his is how SinterCast will grow in the future. We have a strong growth pipeline from our organic business, and we are also looking to grow beyond what is our current business. Yeah, so.
All right. Thank you very much for that, Vítor. I have a couple of questions. So first, to follow up on this strategy shift here with acquisitions, for those of us who are not as familiar with the foundry industry as you are, could you maybe expand a bit on what possible relevant things there could be for you to acquire and sort of how many possibilities you see in this space?
Yeah, so we have our principle of measure and control. F or measuring and control, you need hardware measurement equipment to measure and access the information about the liquid metal that the foundry is producing. F rom the other side, you also need software, mathematical models, experienced people in the foundry business.
That's how we grew over the years, and that's what we are also looking for in a company for acquisition. Yeah, someone that works and is related with the metallurgical area and material production, not only CGI, could be other cast iron alloys or non-cast iron alloys that produce components for the automotive industry, but not only to help also expand to other products. A ll in this field of measure, control, data analysis, mathematical modeling, precision, that's what we are looking for because that's where we are strong and where we can create partnerships and help them grow and have a company that has a product or a software that can also help us grow. So that's the target.
Okay, yeah. Earlier in the presentation, I think you mentioned that 40%-50% of commercial vehicles currently use CGI. You think that will go to 80%. S ort of what share of that does SinterCast have today, and how do you expect that to develop?
Yeah, we have at the moment two-thirds of the world's CGI production. It's done using our equipment from foundries that use our technology. So in this growth to 80%, we believe that we could grow and have more market share. I cannot predict if it will be 70%, 75%, or 80%, but our ambition when we look at the growth outlook, we have growth in the foundries that are already SinterCast clients, but we also explore opportunities to gain new customers. I think that these two factors together will benefit from the normal growth of the market and our growth in share of the CGI production as well. W e are working at the moment intensively into getting new customers.
And a quick final question. You mentioned the different programs that you see coming. You have pretty good visibility there. How should we sort of think about the pace of those programs ramping once they get going? Can you tell us anything?
Yeah, I don't have a percentage of how much they will grow. I mean, it's a little bit reflected in our estimate. So at the moment, we are around a little bit over 3 million engine equivalents. W e say that until 2027, we will go to five, and by 2029, we will go to six. So we will double our production from now until 2029. T hat's our confidence from the ramp of those programs when they come. T his is all based on our current pipeline without accounting for new conquests of new customers and for new projects.
So I think it will happen fast because the emissions regulation has to come. We see EPA in the United States and in Europe, the Euro 7 will be in 2029. Then that's what gives us confidence that this shift and the implementation of the new engines have to come until 2029 because that's when the regulation will be in place. I think it will come quick. B ecause we now go out of a downturn on the economy. So a lot of investments from the fleet operators in new trucks have been holding up a little bit.
Once we get this confidence in the market and we start recovery like in 2026, those fleet operators have to renew the fleet at a higher pace than what they were doing before because they have to compensate for the fact that they did not make any renewal in 2025 or they made less. So we see a strong pickup opportunity in 2026 when the market starts to recover. There's a lot of momentum in the market.
Okay, very good. Thanks a lot for that. You're welcome. That's all we have time for.
It was a pleasure. Thank you so much.
and thank you for listening. Thank you.