Welcome back everyone to ABG Investor Days. My name is Henric Hintze. I'm an analyst here at ABG, With me now I have one of the companies I cover, SinterCast, and its new CEO, Vítor Anjos, who took over the role just a few days ago, right?
Yes, exactly.
Please go ahead.
Thank you, Henric. Good morning, everyone. It's a pleasure to be here again to tell the good story about SinterCast. I have here a short presentation I will go through to show where SinterCast stands at the moment and what is our forecast for the future. For those of you that have not heard about SinterCast until now, we are a technology company. We develop software and hardware that allows for the reliable production of a new type of iron called Compacted Graphite Cast Iron, or as we call it, CGI. CGI, it's a stronger and stiffer material compared to conventional iron that it's used on internal combustion engines, cylinder blocks and cylinder heads for vehicles. Because it's a stronger material, it allows for the production of lighter engine blocks as well.
Every time OEM makes a transition of a conventional iron to CGI in a new engine program, they normally have up to 10% weight reduction in the engine weight. With that reduction of weight in the engine, and also the fact that the material is stronger, the new engines, they can also operate in higher pressures inside of the combustion chamber. This means that they get more energy out of the ignition of the fuel, and they have higher power. Traditionally, engines that go from conventional iron to CGI, they have 5% or 10% more power and torque, and they are also 5%-8% more fuel efficient than the conventional vehicles. This is more applicable on big engines where you need a lot of torque.
Those are also the ones that consume more fuel, so you have a bigger fuel efficiency when you do this transition from conventional iron to CGI. It's a big contribution on CO2 saving. We don't produce the castings ourselves, naturally. We develop the technology, and we implement the technology in the foundries that produce those castings in order to ensure that they produce this material with the proper quality and in an efficient way, in their production process. Our business model, it's based on the royalty. We have a royalty-based business model. 90%-95% of our revenue is recurring from a production fee that we charged based on the volume of production of the foundry, and also from some consumables that the foundry needs to use to measure the quality of the liquid iron, as we see there in the right side of the picture.
That's an example of our consumable cup. We sell around 200,000 of these cups every year, so it's a real high volume production. Looking then into which segments our technology is applied. Almost 50% of our production goes to commercial vehicles, and these are the heavy duty commercial vehicles, so the ones that will do the long haul travel to transport goods. We have the Super Duty segment, which are the big pickup trucks that you have in North American market. Our main customer for this kind of product, it's Ford in the U.S. They have the Super Duty segment with 25% of our production. We have the full size pickup trucks with 14%, then the mid-size pickup trucks with 8%, and we have some for industrial applications.
This is railway, marine, and energy generators or gen sets that are now growing to be applied in data centers and servers for AI. Looking at this, naturally commercial vehicle engines are the ones where we expect a bigger growth in the future, and I will show some information about this. This chart plots our production data in the way that we measure. We measure our production volume or the production volume at our customers in terms of engine equivalents, because every engine has a different weight. We divide that by a constant weight, and then we have a weight equivalent or engine equivalent. We see each point, each data set, it's the running rate at a given quarter over the last years, and we see that we have had stable growth over the years.
Lately, on September 2024, we had a program with an OEM that reached the end of life, and that's normal. There are programs that reach the end of life, and they are replaced by other programs. That happened by the end of 2024, and in 2025, we naturally had the market headwind from the decrease of the sales of commercial vehicles. If you follow Scania from TRATON GROUP or if you follow Volvo, you would have seen that the market was quite tough for commercial vehicles in 2025. Because they represent 50% of our volume, our production was also down.
We will now enter a period of recovery. We actually updated our forecast to reach 5 million Engine Equivalents in 2027, to reach 6 million by 2029, and we extended our projection to 8 million by 2031. I will explain how we will get this performance. Looking at our financial data from 2025, you would see that our revenue here in the red line, it pretty much aligns with our production because 90%-95%, it's recurring revenue. If the production is up, our revenue is up. We have here a drop on our revenue close to 20% last year, which is in line with what the commercial vehicle market also had. We have slightly decrease in our operating result.
What I want to stress here is that even when the market, it's down, we continue to be a high resilient company with a very strong financial result. Even in last year, we had 70% of gross margin. We reached a little bit above 30% of operating margin. Yeah. The forecast is that increasing the production volumes, the revenue will increase. Our cost side will stay stable. We have different cost-saving programs being implemented in the next years. We expect that our operating margin will increase in the next years, and we have set a target to reach 40% operating margin by 2028. We are a small company. We were 25 persons last year. This year, we are 23. Our senior engineer, or most senior engineer, retired in December last year. Our CEO retired last Tuesday when I took over.
We are now 23 persons at the company. If you look at the data from last year, and you divide our revenue by the 25 people, we can make SEK 4.3 million in revenue per employee, and we can deliver SEK 1.3 million in profit per employee. It's a really efficient and high profitable company. Looking now into the year of 2026, one quarter is done. We have three quarters ahead of us. If we look at the commercial vehicle market update, we see that sales in the first quarter increased. In Europe, sales of commercial vehicles increased 13%, and in North American market, it increased 90%.
What this indicates us is that we are now starting to make the recovery from the tough year in 2025, especially in the North American market, where the decrease in sales on commercial vehicles reached, in some brands, 40% last year. They are now starting to recover. In the United States, it's quite particular because, in the beginning of next year, in January 2027, the new EPA rules for emissions will enter in United States . This normally indicates that before the rule applies, there's a pre-buy. Everybody rushes to buy the cheaper trucks before the new regulation enters into law. We are seeing this start of picking up for the pre-buy, and that's why we see that the order books from the main OEMs, especially in North America, they are 96% up, 78% up in Volvo Trucks, and 86% up in Daimler.
We have this pre-buy effect that gives us the confidence that we will have a big recovery or fast recovery in 2026. Overall, in Europe, we also see an increase in the order books from the main OEMs. That gives us confidence in this recovery. Looking more into our business, so, our biggest customer in the commercial vehicle is the TRATON GROUP , so Scania, MAN in Europe and International in North America. We are the only supplier of technology for their engines, so all of their engines for the CBE, common base platform for the 13 L and the 11 L engine. It's produced with our customers, so with Scania here in Södertälje and in our customers in Mexico and Brazil. Looking at their potential volume with the total number of engines, we see that we are currently running at 0.7 million Engine Equivalents.
The potential is to reach 1.8 million Engine Equivalents in volume from our production. This will happen in the next months or up to a year as MAN is now taking in the new engine, and International in the United States is also making the transition from the previous engine, that generation, to the new CBE engine platform. TRATON announced last year that they started the production in their plant in Rugao in China, also to supply the Scania Trucks in China. We will also have additional volume for everything that Scania does and ships to the Chinese market. Last year, we also had the confirmation of two new heavy-duty commercial vehicle programs to start in 2027. Important, we started working last year to secure two new projects in the European OEM to be started by end of 2030, beginning of 2031.
We have a very good overview of what will happen in the industry in the upcoming four to five years and how this will grow, and that's the base of our confidence to extend our outlook in the production growth up to 8 million Engine Equivalents. The reason why this happened over the years is that every time there's a new emissions regulation, either in Europe or in the United States, the allowance of emissions of NOx and CO2 are reduced, and this can only be achieved by more efficient engines. It happened over the years that, in the example of Europe, every time a new Euron orm enters into effect, the internal pressure inside of the engine to ignite the diesel and to have combustion increases always over time.
To comply with this increase of pressure inside of engine, it is required that the material transitions from conventional iron into CGI. Every new emissions regulation helped to increase the uptake of the CGI material. Over the years, you had different OEMs that adopt this new material to be applied in their engines. We estimate that 40%-50% of all engines have a CGI component on it, either the cylinder block, the cylinder head, or both of them. We expect that in the future, with a new Euro 7 here in Europe or the EPA 20 27 in United States , this will grow to 80%. Let's see now in a bit more long-term what will happen to our customers. As I told before, the pickup truck business altogether corresponds to approximately 45% of our production.
In United States , around 3.5 million vehicles in this segment are sold. You see there that the sales of these vehicles over the last three years has always increased slightly. These are vehicles for passengers, but they are normally used to pull up a lot of load and to carry a lot of load, so they are not the conventional passenger vehicles like we have here in Europe. Electrification in this segment has proven to also be difficult over the years. If we see here an example of Ford. Ford is our biggest customer in this segment, so they produce around 830,000 vehicles per year in this segment.
If we see their breakdown by the business units, this is data from 2025, we see that Ford Pro, which is the big pickup truck, so this is the engine that we do to this segment, this V8 diesel engine, they give Ford a profit margin of 10.3%, so 10.3% EBIT margin. Ford Blue, which is the smaller segment on the pickup trucks, where we have this V6 petrol engine, they have a 3% EBIT margin. You see here the Ford Model e, which is the electrical segment of Ford, and you see that it's giving 72% loss to Ford in this segment. The attempt to bring electrification into this segment has proven not to be beneficial for any of the OEMs in North America, neither for Ford or to GM.
What we see lately in the news, and this is a news from Ford on December 15, where they claim that they are drastically scaling back the electric vehicle plans and refocusing the U.S. manufacturing footprint on hybrid and gasoline vehicles. The same thing, more recent from GM, on the 22nd of April of this year, they stated that they will indefinitely delay the next-generation electric pickups and redirecting cash to gasoline engines and plug-in hybrids. This shows that the two biggest OEMs in North America are quitting their development and investment on electrification, and they are investing again on the development of new and more efficient internal combustion engines for their pickup segment. This is where we are, and we will continue to grow in these segments. It's a more mature segment.
We will not grow that much, but we will keep constant or grow slightly over the next years. It's a secure business for us. We look at the big commercial vehicles. If electrification has been difficult on passenger vehicles and even more difficult on pickup trucks, it's even harder to electrify commercial vehicles. This represents 47% of our volume as well. Due to these difficulties on electrification, the industry is realizing that we will have to continue to invest in internal combustion engines and make them more efficient. The European Union is also realizing that the push that they have made for zero emissions through electrification will not be viable.
They are also softening a bit the way they calculate and the way they punish the OEMs if they don't comply with the targets, because they are also delayed on enabling the infrastructure that allows for the uptake of electric vehicles. Electrification in commercial vehicles, it's difficult because of the usage of the vehicle. You cannot use a vehicle as efficiently in logistics in internal combustion engines as you would in electric vehicles, because internal combustion engines allow you for a much higher utilization of the truck when you are using it. The payload is not reduced because the batteries are heavy, so if they have a heavy battery, that cannot transport so much load, and also because the grid infrastructure is not there.
All of this together and the availability of green electricity in Europe. All of this together, it's pointing out that there are better solutions to be explored, and the better solutions are efficient internal combustion engines with alternative fuels. You see here an example for North America with the EPA 2027, where the emissions are stricter. They have 82.5% reduction on NOx, or 82.5% up to 90% reduction. They realize that the best way to do it's to replace diesel with alternative fuels. They are indeed pushing a lot to do this replacement. A recent article or study from the Engine Technology Forum stated that 67% of all diesel truck and buses on the road are powered by advanced near-zero emission diesel. In Europe, we are also making that work.
The European Union is also working to have a regulation or a framework that allows for the use of alternative fuels to replace diesel and account that for net-zero or near-zero CO2 emission fuels. This statement or this prediction that we have that shows that in 2025, only 2% of all commercial vehicles were electric. 40% were internal combustion engine. In the best of the chances, by 2030, studies say that they will represent 10%. We think that it will be much less than 10%. The most important thing is that CGI will represent 80%. CGI will grow from 40% of the market to 80%. We have been telling over the last years, my predecessor, that along the time, all the OEMs will transition from conventional iron to CGI, and they will invest in new engines.
Just a couple of weeks ago, Volvo announced that their next-generation engine will be done in CGI. They finally did the transition from conventional iron into CGI, and they stated here, "Unveils most fuel-efficient engine ever." Yeah. Volvo was then the last of the OEMs in this segment not to have a CGI engine, but then they announced that they also do the transition. This really shows the strength and the growth potential that CGI has in commercial vehicles. If the volume of CGI increases, SinterCast will also grow. Thank you so much for the attention.
Thank you very much for that, Vítor. We have time for.
Welcome.
A couple of questions.
Yes.
First of all, I thought we could talk a bit about, in March here, I believe you returned to Engine Equivalents growth for the first time in a bit more than a year. Given what you told us about the larger OEMs in commercial vehicles and how orders have been developing there, do you think it is fair to say that the trough is probably behind you here on Engine Equivalent production? What sort of pace is reasonable for us to expect throughout the rest of the year? on production recovery?
Yeah. We see in all of the reports from the OEMs that they are confident in the recovery of the market going forward now. This is also confirmed by their increase on their order book. This increase in order book will reflect it in the increase of production. We know that they were quite low in their stock because during the year of 2025, they used a lot of the stock that they had because the sales were quite low. We are waiting to see how quick this will come to our customers for them also to increase production because they also reduced stocks during last year. We expect the recovery to come more in the second half of the year. We are at the moment in the first quarter with 3 million Engine Equivalents. We expect to recover in the second half.
It's still hard to say where we will end the year with this recovery. We know the recovery is coming. We are not sure on how accelerated it will be now towards the end of the year, but we will continue to grow for sure.
Yeah. All right. Sort of on the same topic but longer term, you mentioned the 8 million Engine Equivalent target by 2031. You said now in Q1 you were at 3 million. So that's-
Yeah
quite the growth path.
Yeah.
You talked a bit about the programs that are going to drive that, but could you walk us through maybe the bridge from three to 8 million there?
Yeah
counting on there?
Yeah. The first big growth opportunity is the growth on the TRATON GROUP . We know that TRATON converted first Scania into the new 13 L engine. They were supposed to have done the transition also at the MAN to convert to the new D30 engine. This was quite delayed last year. This year they are announcing more intensively that they are bringing the new engine also to the MAN Trucks. Also the implementation of the same platform in the North American market with International, with the S13 engine. In the next months, we will see a growth in volume by the uptake of the new engine by these two brands in the TRATON GROUP . We have announced last year the start of production of two new programs for a new OEM to be done at our customers in Mexico and Brazil.
This is additional volume from a new OEM that is transitioning to a new engine platform that uses CGI. This program will enter in 2027 and will also scale over time. We will have the growth also in our Chinese market, with the uptake of CGI in those regions as well. It's been quite slower than we have expected, but we see now signs that the market is accelerating. The fact that Scania is also bringing into the market a CGI engine will motivate the local brands also to bring out their CGI engines that were in the shelf until now. We also see a considerable growth there. By the end of the decade, the new program we are also starting to work on together with the OEM to bring in.
All of this new programs, scaling of existing programs, new engines coming in, and the ones that we will have by the end of the decade, they will all contribute to this growth to 5 million, 6 million, and 8 million in volume. That's where we get our confidence that we will get this recovery. We don't need the commercial vehicle market to grow for us to grow as well. Our growth will come from the replacement of the current engines with the old material by the ones with the new material, and this is happening.
Yeah. It sounds like the programs that are going to bring you there are very well defined.
Yeah.
In your roadmap. Are there any other optionalities, other commercial vehicle manufacturers with programs which could provide opportunities for you in the coming decade.
Yeah.
Maybe that you are not really counting on?
For the passenger vehicle market and also in some extent to the pickup truck market, we are naturally exploring opportunities on hybrid vehicles or range-extended vehicles. These vehicles require a smaller engine that just generates energy to go to the electrical engine. We have done, together with our customer, Tupy, a couple of years ago, developed a prototype of a light, compacted small engine in CGI, which is lighter than an equivalent engine in aluminum, to show the benefits that CGI can also bring into the passenger vehicle market. This is something that had no acceptance from the OEMs a couple of years ago, so they were completely focused on electrification, and they were not investing in any new internal combustion engine program.
That situation changed in the last year, so they are more receptive to sit with us at the table and discuss new programs for the small compact engines for range extenders. This is an additional opportunity that we are not factoring into these numbers, but if it happens with an OEM, it will scale even more our production volume, because on passenger vehicles, the engines are smaller, but the volume in number, it's much bigger. It's an additional opportunity that is not accounted for in this forecast.
Okay. Very good. That's unfortunately all we have time for today.
Yeah. Thank you so much.
Thank you very much and thank you all for listening.
Thank you. Thank you so much