Good morning, and welcome to our Capital Markets Day. We're happy to see that so many of you made the effort to come here to Gothenburg today. Warm welcome to you, and also welcome to those participating online. You've all received this. In there, you will find some practical information, like Wi-Fi, transportation, and whatever, but also the agenda for the day. We will essentially spend the morning here in this room, where we will listen to Alrik, Christian, and Luc having presentations, after which we will break for lunch, which will be served just outside. For the afternoon session, we will split into three groups: blue, red, and green. Please take a look at your lanyard, because that's the indication of which group you belong to. In the afternoon, we will go through three different events.
You will have the possibility to visit our brand-new manufacturing plant for spherical roller bearings. That was opened as late as yesterday, so it's brand new. You will also have the possibility to listen to presentations on connectivity and innovation, and also the recent updates on Automotive and Aerospace. After that, we will rejoin here in this room for a summary session and Q&A. So since there are individual programs for the different groups, please take a look at your individual programs. I hope you will be enjoying the day today. It will be an interesting day, I believe. With that, I leave the world to our CEO, Mr. Alrik Danielson.
Thank you, Patrik. Thank you. Thank you very much. Whoop! Welcome, everybody. Good to see so many new faces and old known faces and some new faces as well. Please tell me, who were here a year and a half ago? Can you raise your hands just so I get a feeling? Oh, that's great. Great. You know, thank you for coming. You were here the first time, and you came here to follow chapter two. That's fantastic. You know, I just want to start to say that we have the opportunity to listen in on what we're going to talk about. Of course, from my perspective, it's a little bit about the chapter two in this story.
You know, we-- When we were, we met a year and a half ago, it was still a lot about new changes, new initiatives. Now, it's about saying, you know, some of them are actually working very well, most of them, all of them, I would say, in some way. And to show you some of the advances we are doing. You will also, of course, have the opportunity to mingle with, with the people we have here. I would like to say, all of the-- John, John Schmidt from US, please stand up. Patrick, are you here somewhere? Patrick Tong, you know, China. We have, well, you will see Luc and, and Victoria and Bernd, and then we have, Robert Wiktorin, who's working in the, responsible for product lines, will be here to mingle with.
Then there are other people, so please feel free to put them nice questions. Nice questions. You know, today, we will talk about give you more meat on the bone of, of around our, our strategy. There will not be any radically new things. I think the same thing we said, things we said a year and a half ago are still valid. It's more about progress. I will also not give you any new guidance or anything like that, so you can ask me, but I tell you, I will not give you any new guidance. So it's more about what is SKF doing and how does the market look like, et cetera, and how do we go forward. But there are some good things to talk about. I hope you will see that.
So if I start about us, and I think you know that, you've seen it also. It's also, of course, about reducing friction, and it's about reliable rotation. This is what we are doing, and I think one of the things you already saw last time was how we understand that our core focus is around the rotating shaft. It doesn't mean that things outside of that are not important. Everything that helps us to do the job around the rotating shaft and within our core competencies around the machines are, of course, where we need to be. So what has happened? If I summarize since we met last, well, you know, we have. We talked about divestments, if you remember, Christian will show you more about that. We talked about divestments.
I think we did what we said we were going to do. We strengthened our balances, and we did five divestments. We talked about new businesses. We talked a lot about, if you remember this, going from a more application-specific product offering, also in on the industrial side. I can tell you it's there. It's still in the beginning, but we have some really good successes based on that, meaning that we're not only producing the bearing that will last forever, but we can also produce a bearing that does exactly what you want it to do at the right cost.
You know, in the automotive business, that's been going on for ages, but in the industrial business, this was sort of a change in our strategy, and I think you will hear more about that and how we are developing that. We have the turnaround plan in on automotive, and I think you will hear from Bert that it's developing according to plan. And we have done what we talked about. You know, at that time, when we met a year and a half ago, we had started the making SKF leaner, quicker, and more direct in responsibilities.
Even this year, now we took one step more, making SKF even smaller in management, and it's, of course, one of the reasons now that SKF is smaller, smaller in the sense that less complicated, more direct, closer to the customer. And you know, there's really no change in what we said before. We talked about create and capture customer value, and in the long term, you know, that's really all—what it's all about, right? And this is what we're going to talk about today. We talked about application-driven innovation. That's what Victoria will show later how we're looking and how we're working with that. World-class manufacturing, you will see it firsthand, and you will hear Luc talk about it.
Cost competitiveness, which is, of course, going as a red thread through what we're doing. And all with that, which is my internal message to my people, to maximize the cash flow over time. Yes, we have our targets, and, I'm sure you know, we need to grow, and now we're growing again. You remember, that was one of the big challenges that was put to me a year and a half ago. "So when are you going to start growing again?" Now we're growing again, and we see that this will continue.
We talked about, you know, our targets at that time, and of course, we're still not at our targets, and there are never any excuses, but if we wouldn't have had the Unite, and I'm sure you're going to ask Christian about Unite. If we wouldn't have had the Unite, actually, we would have been basically on target, already end of last year. So, you know, we have... This is an internal slide that we're showing you here. This is how we sort of help our people to define the two strategically different businesses.
You remember I talked about that also a year and a half ago, where one is a transactional product business, and the other one is this when the customer, when actually, when we have given our product, the customer still needs and wants our support to get that reliable functionality. And, I'm sure you will ask me a lot about that. I think that's one of the key questions going forward. What is it really that an industrial end user is buying? Is it a bearing or is it a functionality? And I argue that every time we get to interact with a customer, showing the customer what we can do around the rotating shaft, everybody, in the end, wants functionality. The cost of the product in that equation is nothing. You will hear more about that.
What are the change drivers that we see going forward? Well, it's digitalization and connectivity, and of course, everybody talks about it, but what does it mean? And I think I told you my vision to say that the more rotating machinery that is connected to SKF, where we're actually doing the diagnostic and being able to identify the issues with the product, where we can go in with a full concept of products and services to remedy the things we find around the condition of the machine, that's when we can truly add value. And you will hear more from Victoria about how we're running. I will talk about some of it later on as well.
Manufacturing technology, of course, you know, I argue we just as much as the IT boom of the nineties was shown not to be Fourth Industrial Revolution is real. I really believe in it, and I even think that it will have a bearing on the world business climate. This is my own taking on it. I think that all industrial companies are today sitting understanding that they need to invest in their manufacturing to stay competitive in this new world. We can talk more about that. And of course, everybody's looking what happens to the electrification and the connected vehicles going forward? In the factory, of course, this is as important, and you will see some of that, and we're talking about it.
So it's not only the customer, but it's also, of course, throughout the value chain. And I think I launched the thought of a. We talked about integrated logistics or Logistics 4.0, that where the logistics value chain from going from being geographical to be completely integrated. And I tell you, we have started the first now out of, out of, our factory in Steyr, where we have our first real Logistics 4.0, where we are planning the inventory and the logistics globally. It will take years, of course, before we have implemented that throughout the SKF system, but you understand how what a complete different way of looking at logistics that would means going forward. And I think this is happening in most industries. This is not just our industry.
Digitalization, of course, here's a picture, and Victoria will talk more in detail about this. Here's a picture, of course, where you see how we are sort of having a suite of services and products to be able to give the customer this complete possibility of integrating machines, helping with the condition monitoring, but also developing new solutions, working with SKF, with their applications. And Victoria will talk about the truly important ones, like our new IMx-8 and the Quick Collect and et cetera. And I will—I have the pleasure of talking about... Oh, sorry, something happened there. The more fun ones, like the one, the HoloLens that you see here.
One of the things, one of the initiatives we're now driving is, of course, in the name of efficiency, and as you go and need to be there to be able to provide knowledge around the rotating shaft, it's going to be, in the future, completely impossible to always have somebody physically visiting a customer to see where what's happened to the bearing, or where should I put the sensor, or is this bearing good for remanufacturing, et cetera. And we need to be able to reach out with our professionals in a much more efficient way. And one of the things that we're driving now is this HoloLens concept. And I think there's a small video around that coming to show what I mean, and I'll talk more about that afterwards.
So what you see here is actually from, I think from yesterday, where we are making a demonstration here on a machine where I'm sitting, and I'm connected to... This is not me, but could have been me. I'm connected to the machine, and I see exactly the vibrations, et cetera. What I see is also seen by the expert sitting maybe on the other side of the world or whatever. There, you saw his face, and he's even able there, as he did, to give me an instruction, what I should do and how I should put the sensor or modify the machine or. Can you imagine the efficiency, the possibility? Because, of course, this is our biggest challenge: how do we massify our interaction with customers?
You can imagine that just as the big end users that we serve directly today in a traditional way, even the small cement mill coming in from town, I don't know if you saw it. It has, of course, the same necessity around rotating machinery as big end users do. For us, the challenge is how do we reach out to more and more and more customers? By doing that, we can provide that differentiated experience around the SKF product. Manufacturing, I argue, is entering into a completely new era, where globalization has been, for many decades, based on labor arbitrage. When I say labor arbitrage, I mean one country having a labor cost that is different than another one, and that has been driving part of the globalization.
Also, of course, the expansion of regions that were their internal markets have grown tremendously. Now, we're in a new phase where actually, you know, automation makes it possible to be competitive wherever you are, basically, and where flexibility and closeness to the customer is what's going to be the big differentiators. The factory that you will visit today is our first real investment in this direction. You see here the list of the ones we have in the next coming future on the same theme. Of course, as we learn and do this, next time it will be faster and less expensive, and then we will go forward. Luc will come back to this.
When we talk about the electrification of the powertrain, Bernd will talk in detail about how we do, what is our strategy around this, but I just want to tell you one thing, and, you know, there's a lot of discussions about how quick will it go, and I ask you, how many of you here drive a electrical or hybrid car? Well, it's not a big percentage. Oh, there, two. Two, we're two. We're two. It's going to happen. It's wonderful. I tell you, I can really recommend it. I have a Chinese car, Volvo, and it's really, really good. Made here in Sweden, though. It's really good. It's a fantastic experience, and I can recommend it, but it will take time.
We argue that SKF has plenty of time, given the kind of position we have in the automobile industry, and Bernd will give you the details. You can ask him later. There's plenty of time for SKF to actually both take advantage of this change and also gradually sort of shift whatever capacities we have to other markets as they eventually change. And then when you look at it, you will be surprised that there are still drivetrain components that will actually stay alive even in the electrified car. Bernd will come back to that. I will not take this slide, Bernd. You will talk about it, I know. So if we just quickly go around the market, you know how we are. We are still Europe-centric.
Here are some of the highlights from last year. I'm not going to, in any way, tell you, but you see now how again we are growing in Europe. If we take the Americas, yes, here are the highlights the same way, and some of the things, you know, we have been quite clear about that. We have been trading below market in the automotive side. We have been diligently trying to get away from those extra pre-buys to reach a target bonus, et cetera, in the Americas, in the industrial side. But we are now seeing going forward growth also in America.
In Asia Pacific, well, as I think I told you, it was one of those surprises that we had maybe the end of last year, that we were seeing a stronger upturn in Asia than we had expected, and growth will continue. So if you summarize, innovation in products and services, connectivity, not a buzzword, but actually made real, manufacturing excellence and how we drive that. We have growth in all major markets. We see this broad-based, and we have simplified ourselves to get closer and closer to the customer. And these are, let's say, the key drivers of the initiatives that we are trying to do. And as when you all see here and see us as the undisputed leader, maybe that's going to be, you know...
People ask me, "When are you the undisputed leader in the bearing business?" Well, maybe when you all tell me, "Yes, now we see it. You know, there's no doubts. SKF is the one who is on the forefront in all the major businesses where we see you." Maybe that's going to be the time I can say we are. I don't argue that we are the undisputed leader everywhere, but I tell you, we are getting there. With those words, I give the word to you, finance minister.
Thank you.
Yes.
Good morning. I also would like to wish you all a warm welcome to SKF, to our Capital Markets Day. For those of you who are physically present here in Gothenburg, to a sunny Gothenburg, and like someone said here before, unusually nice weather in Gothenburg. I thought I would start also by giving a little bit of a recap what I said in November 2015, talking about the financial side. We reviewed the long-term trends of SKF in terms of performance in margins and cash flows, and we concluded that we've had decent performance, but we have higher ambitions going forward. We talked about our needs to work with our cost competitiveness. We reviewed our cost cake. We talked about the areas where we intend to work on cost reductions.
We also, when it comes to cash flow, we are a strong cash flow generator in SKF. We have had historically low, property, plant, equipment investments, and we have an area of on working capital where we have been on a high, high side. Divestments, we had started focusing actively our portfolio there. We have, at that time, completed a couple of investments, and as you've heard, that journey has continued. We also said that our financial position has started to improve from a relatively, weak starting point. So what's happened since then? We have improved performance in automotive. We have executed cost reduction activities. We are somewhere 3,000 employees less now than what we were in the end of 2014. Cash flow have continued to be strong.
In fact, I would say 2016 was one of our strongest years ever on cash flow, with strong free cash flows and also with proceeds from divestments then. Five divestments completed, that also is one of the reasons then why we have improved our net debt equity ratio to where we are now at 84%. We have improved our cost competitiveness since the last Capital Markets Day, and first, I would like to say that we have a solid framework, a structured way to work with cost. We have clear responsibilities, a clear way to measure.
We work on a fixed currency there, and we present it to you on a quarterly basis in our report as an index, and we are now at the same level as we were in the end of 2014. Headcount reduction has been mainly in the field of white-collar and staff, and also, fixed cost is still and continue to be a high priority for us. And we are working on that. We have activities ongoing. We have others that will be launched during 2017, and I think Luc will give you an update on where we are when it comes to the manufacturing footprint type activities. Product cost, and even, I would say, equally or even more important area when it comes to cost competitiveness.
We have had in, if you take 2016, good material cost reductions, both coming from commercial side, but also the fact that we've been focused on specification changes, design changes, in order to enable us to to get material cost and also manufacturing costs down. World-class manufacturing, for sure, and also smart refurbishing are good activities in many aspects, but also when it comes to help us with our product cost. We have improved our financial position since last Capital Markets Day. We have moved up our free cash flow on a rolling basis from somewhere SEK 4 billion to a SEK 5 billion level.
If you take 2016 again, and we have it as a ratio to net income, we adjust for the one-time items, we were above 100% last year, which I think is a good performance. Net debt is reduced with SEK 6 billion compared to when we were together last time. I would say gross reduction is up to SEK 10 billion. If you take free cash flow, if you take the proceeds from divestments, if you take also the one-time effects that we had from the activity we did on the U.S. pension plan, and then obviously, we've had dividends. We have also the fact that discount rates have continued to be reduced, which has net increased than our debt. So a net reduction of SEK 6 billion.
That I think, I mean, it's a good—we are pleased with that development. We are not fully on target, but, I mean, we are at least clearly out of what I call the red zone. I would also with this slide say that we have improved on the cost structure, we have improved the financial position with the future in mind. It's not so that we have done stupid cuts in R&D or that we have postponed very much needed investments and so on. It's rather the opposite. If you look at the R&D, we spent last year SEK 2.2 billion, which is above 3% in relation to sales, which is above our historical average.
We have also, if you look into the R&D, we have increased our resources in core technologies like digitalization, we have already mentioned a few times, engineering softwares. And also, when it comes to output of R&D, we all know that it's an area which is not easy to measure, but where we can measure, we can clearly see that we have not suffered from, you know, cost reduction activities in terms of output. It's rather so that we see more valuable R&D at a lower spend. Investment side, you know that we have, we have historically invested around SEK 2 billion a year. We have now guided up to SEK 2.2 billion for this year.
If you look at the purpose of the investment, and you see that in the graphs here, we come from historically a big part of it related to capacity build-up and also to new business. If you see where we are now and also where we see 2017, we talk about cost reduction, and we're talking about replacement. And this is, of course, fully in line with our ambition to optimize our existing manufacturing footprint and also to upgrade technology-wise. And that's what we see here. Coming back a little bit more to this about R&D. So in fact, we see more, we see better output to a lower spend. We have reduced R&D. Number-wise, we have about SEK 200 million in the last couple of years, and we have done that by eliminating waste.
We have reviewed our patent portfolio. It's not about quantity, it's about quality in that. We have also looked at our R&D for, call it non-core products. We have also worked with the efficiencies when it comes to technical services and support. At the same time, we have increased our focus to manufacturing process development, which is also part of R&D. Very important in order to support our ambitions on manufacturing. And we have also strengthened our technology development, for example, in the area of sensors and microelectromechanical systems, as I think you will hear from Victoria about in the afternoon. Early last year, we released or communicated these financial targets. You also see on the traffic light that we are not there yet, it's clear.
We also know that the definition of these targets are an average over a business cycle, and I would say that 2016 was a year which clearly is below an average year of a business cycle. I have included, and that is not to institute a new measurement, it was already mentioned by Alrik. We have on the operating margin, you have two measurements. It's clear that the financial target is adopted, it's what we report. It's all in, it's no exceptions for one-timers. But just for the sake of understanding the impact of Unite, you have the 2016 number there, or the margin effect of Unite. Business cycle management. In a business like SKF's, business cycle management obviously is a key success factor, and we are now in an upturn cycle.
I would say that in the management team, we have been in that mindset now for some time. So I would say that we are well on the curve when it comes to upturn management activities. You know what this means. It's about managing production ramp-up, taking care of eventual bottlenecks internally or in the supply chain. It's about price management, it's about managing inflation, raw material prices. And to do that when needed with switching suppliers and working on other sourcing initiatives in order to compensate and defend, protect our cost level. It's also important that even though business cycles are there, and you have to follow them in your activity, you should not be absorbed fully in your management agenda of the cycle activities.
Because we have, and as Alrik has said, we have a strategic agenda, we have a strong agenda, and we continue to execute on that independently on where we are in the cycle. Unite, a recap, what Unite is, and I think you know this now, it's a program. It's not just a project, it's several projects. It's a program where we will implement a new globally an ERP system, which consists of different modules covering all our business processes. So everything from sales and service, manufacturing, demand chain, logistic, finance, and so on. And we have since 2012 took the decision that this is built on SAP. It's a multi-year program.
It's an extensive program, as you have understood, and we have now had, I would say, the first large size go live of this in the beginning of this year, and I come back to where we are on that in Sweden and Finland. Financially, you have this is nothing new. You have the guidance on this. We expect to spend in the range of SEK 950 million this year, cash-wise, whereof around SEK 800 million will go through the P&L. And you have also the guidance for the coming years. It's in the range of SEK 800 million-1.2 billion, and this is also what we have communicated previously. So clearly, it is a big financial undertaking for us.
So where are we now, three months after the go live in Sweden and Finland? I would say it was a good go live without critical incidents. We have had a large scale user support activity, supporting the users to learn this new way of working. And, of course, all processes are okay, although there are different improvement areas that are defined and are worked on. If you look at the factory output, I mean, the deliveries from the Swedish factories, we have gradually improved, and I would say we are at a normal output here in the end of the quarter. However, the upturn demands more now. I mean, seeing the business upturn, we need to raise the productivity bar in the Swedish factories even more, and that, of course, with the new way of working.
So we are working very hard on that. Also, we have a lot of lessons learned from this big go live. We are documenting that and bringing it into future steps of the program. We are designing and building new versions of the software, and we are preparing then the next coming implementations that we will have here in other European markets going forward. I would say when it comes to the business benefits of Unite, I mean, first of all, you've heard it before, we do it because we have no choice to stay with the very, very old systems that we had. But I mean, certainly, there are benefits with a modern, fully integrated, as this is, fully integrated platform.
I mean, we will see efficiencies, we will see better decisions because we will have clearer, much more transparent, better information for that. We will also be much easier to connect with suppliers, with customers, which is, of course, as you know, very important nowadays. So there are benefits in this. We will also see lower working capital with Unite. And coming to working capital, you've seen that it's one of our financial targets: working capital. The target is 25%. It certainly is an area where we can improve. We are not there. If we break it down, we have set targets, and you have them respectively for inventories, receivables, and payables here on the slide.
I would say the for us, the toughest of the three, I would say, is on the inventory side. It's also that some of you then, just as a comment, if you compare SKF with some of the peers, one thing you have to consider in that is that if you look at SKF, for example, versus Schaeffler, NTN, or NSK, we are much more of an industrial business versus automotive. I would argue that the industrial business is more capital intensive in the way that you have much lower volume per variant in the industrial than in the automotive. Activities to work on, I mean, they are about the same as what we had, we discussed last time, and you have them on the slide.
I would also say that if you look now compared to where we were at that time, and if you adjust for currency, we are at the same level, I would say. I would argue that you have a business cycle effect. I mean, obviously, the lower market demand has impacted the turnover on inventories. I would also say that we have somewhat a negative effect from the downturn in on the receivable side. While we've seen improvements on our on the activities on the payable side. This we talked about also last time, that we have a supply chain financing program when it comes to the payables. This is going very well for us. We have now somewhere 13 legal entities covered by this program, so SEK 5 billion of purchasing spend.
We have released, for the last two years, about SEK 1 billion in cash flow from this program. And we see also going forward that we will have some more positive effects here in 2017. Except for that, that financing program, we are also, of course, working on other activities. And one example is that we in China, we noticed that we had fallen a little bit short of the benchmarks when it come to terms, and with a very focused activity in China and the global purchasing organization. Last year, we have lifted that with around 10 days, and that is not ended either. We still have some part of the supply base where we are still negotiating.
I would say also, we have a potential of this when we see now volumes coming up and the spend is increasing, we should see positive effects from these kind of activities. Receivable days, we have continued to implement an outsourced collection process. We are now 19 markets that are covered by this. We have an external partner supporting us here. We see positive effects in terms of less overdue and also having a professional process that triggers activities to the sales organization. We will continue this work in 2017, also adding some new markets and also broaden the customer coverage in markets which are not fully covered.
Inventories I'm using—I used to say that when, when you're in, in management meetings, see a lot, see different slides between the meetings on the activities that, organization work, I used to be worried. So that's why I have the same slide as last time, and it's also the fact that we have... It's the same activities we are working on as when we were together last time. Obviously, we have progressed in it, and some activities are refined. I would also say last time we had, we called, something continuous improvements. That is now defined. We have the last three steps on the slide is now work packages, work streams. We define responsibilities and defined actions.
So we have also said that when it comes to inventory improvements, we have to get out of silo thinking, we have to have a holistic view, we need to look at what we do end to end, and that journey has continued. And just a couple of examples. On the first one, the stock ownership, I would say that we are now in a organizational responsibility, where we have a global demand chain organization that is fully responsible for, for all local stocks, and we manage that from one organization, centrally or globally, I would say. You don't see it centrally. When it comes to integrated planning, another area here, we are also progressing. We have now a pilot, this is also related to system issues.
We have a pilot where we now have three factories and somewhere 10 distribution centers, where we now plan the stocking globally for those product lines, rather than that we're planning per stock or per location. On these continuous improvements, just some examples. We work with our suppliers. We put resources with our suppliers to see what bottlenecks they have, what kind of process improvements they can do, and when we find areas of improvements and they are implemented, we are sharing the benefits of that. We also see to that we have a program where we request, particularly from long-distance suppliers, that they are responsible for stocking points close to our factories.
Just one example then on the last one, on the warehousing, I think you might have picked that up also, some of it, but we are working with our distribution footprint. We have, for example, in Asia, we have changed from a distribution center in Singapore to China for distribution for Northeast Asia and also for stocking of some of our products. And we have opened a new central distribution center in India, which has also reduced, for example, direct shipments from Europe. And I think this India distribution center, and I think you know that India now are changing the taxation on physical goods from state by state to a GST system from middle of this year, which will...
I think this distribution center will be a very good assets for us to have, and we are well in time to take benefits from that. Portfolio management for SKF has been pruning activities, obviously, with these five divestment transactions. I would say pruning activities are still in focus for us. But we also look at opportunities then to support and see where we could accelerate our growth agenda in the value propositions that we have defined. And you know them, and then you saw them on Alrik's slide also. We talk about rotating equipment performance, and here it's about our capabilities in the area of industrial digitalization. Obviously, this could be acquisitions related to this. It could also be different kind of partnership and other type of setups to add competencies here.
Or it could also, in the type of offerings that we will talk about in the afternoon, it could also be so that we have service providers that could be complementary to the offerings that we have, that could be of interest. Product side, yes, we are not perfect in terms of offerings. There are always some gaps to close where this can be of interest with M&A, but also, product adjacencies to the rotating equipment in order to complement what we do for certain segments or industries, complement our bearing business. So as a summary then, as for where we stand now, I would say we have done a focused execution of our strategic agenda during this last six, I would say, quarters with declining market demand.
We have improved our performance in automotive, and I would say generally had a stable financial performance. Free cash flow have further improved from an already quite good level. Financial position improved significantly. Business cycle upturn obviously gives new opportunities. Unite program strengthen our competitiveness, although it is sizable undertaking for us. And then on the M&A side, we are continue to be active, both when it comes to pruning what we have and looking at how we can complement to support our growth agenda. So with that, I'm on time, and I will leave the word to you, Luc.
Okay. Thank you. Thank you, Christian. Okay. Well, good morning, everyone. My name is Luc Graux. I'm heading up bearing operations. I was very much presenting here a year ago, so those who were here just a year ago probably remember my face, and you will maybe also remember some of the pictures. Because today, basically, it's a kind of reality check of what we have been saying last year. Last year, we presented a number of initiatives in manufacturing area, in operations, and a lot of that has been taking place, and you will even see in the afternoon the factory visit that it is running. So I will start slowly through the strategy and really take you step-by-step into what has been happening in the past year.
A lot has been happening since a year and a half when we had a Capital Markets Day here. This picture you've seen from Alrik earlier, this is basically our strategy, and this is also our priorities. If you look to the number three, world-class manufacturing is one of the SKF priority. This was presented a year and a half ago, and we've been very active on that. Alrik presented that picture also. I will not go into the detail. This is an internal document we're using for the teams, but I just want to show that what we already discussed in the last CMD, regarding the world-class manufacturing strategy and our key programs, four key program, is fitting absolutely perfectly. We have four programs, we're running.
On the top left, production system, and this is basically how we operate into a factory, how we run a factory for tools or methodologies, and also the mindset that we have in our factory in terms of continuous improvement. On the bottom left, we have our input cost reduction. Here also, we have a structured program called ICR, Integrated Cost Reduction team, where we look at the same time in an integrated way to the product spec, the product design, and the technology and sourcing. And this is really... I will come back to that in more detail, the program we're rolling out on all product line with some good progress. Those two element, those two program on the left side are very much operational excellence.
They're very much continuous improvement daily in our factories, daily in our, in our activities to continuously improve our performance. On the right-hand side, you have two other programs which are more disruptive. Those are step changes, and this is basically on the top, right, step ups in technology. On the bottom right, this is footprint. Footprint is basically where we produce what in the best way. So those four programs are the backbone of our world-class manufacturing activities and are the backbone of our strategy in operations. And when you put that together, you probably recognize exactly what we talked about a year ago, with those four programs supporting very much our strategic priorities, six of them: safety, quality, delivery, delivery meaning service, cost, work climate, and environment. And this is basically, in a nutshell, our strategy for bearing operation and for manufacturing.
I will take those 4 programs one by one, and just give you a little bit of an update on where we are after 18 months, I would say, of working on that. First one, production system. As I said, production system is very much about continuous improvement. How do we continuously improve our operations, how we work internally in our processes? And this is a base, this is a base of our manufacturing. We have been implementing 45 units so far, and this is global SKF. This is for, of course, the bearing operations factory. It's also covering some of the automotive factories. So that's global program. And we have another rollout, I would say, and we expect to be done by 2018.
We have introduced or reintroduced OEE, as you probably know, or an Overall Equipment Effectiveness, which is an industry standard for measuring performance. And that has also now been widely spread through all our unit, and it's helping us to continue to work on improvements by being more precise in finding waste and eliminating waste in our processes. Just a few examples. I will not go through all details, but just one example, starting with one of our factory out of India, out of Pune, working on with some pilot channel, some of the achievement that have been possible on this factory. So you can see on scrap reduction some fairly significant improvement, resetting time reduction, so more flexibility, net output increase, manufacturing stock reduction as well. And this is one of our internal pilot.
This is internally our benchmark, one of our benchmark, but it's also a benchmark externally. And this factory was awarded by Frost & Sullivan, Best Factory in India. So that, that's also basically what we're doing, competing internally, factories, all factories with an internal benchmark, but of course, competing externally, to be the best in the industry. So that's one element. That is very much touching, you know, as you see, a quality delivery cost work climate. We have launched a safety program that we call SHIELD, Safety First Program, which is now rolling out, as we want to make sure, of course, we are safe working place. There's no way we can be world-class if we have places where there's a risk in safety of our employees.
Environment, you probably read or heard recently about our new climate target, which is for 2025, 40% reduction on our manufacturing CO2 and as well as on our transport. I must say, what we have achieved in the last years is pretty in line with that. We have managed to reduce by 16% energy reduction in manufacturing and by 30% our transportation CO2. All the programs I will be explaining a bit later today on footprint, on technology step-up, all those programs will certainly help us to reach those climate target. Now, we move to input cost reduction.
Input cost reduction, and this is our ICR program, Integrated Cost Reduction program, where, as I said, we look together at three pillars, the product specs, the product design, and the product sourcing. And then by bringing that together in an integrated way, we can basically drive, first of all, standardization, variant reduction, and also leverage of volume for supplier negotiation. So this we have been doing now. All product lines have been covered, and this is fully supported by our global purchasing organization, which is category driven. So this is in place, and again, here, I will just touch on a very few examples. Those are very specific, very recent example.
I already presented other examples, previous CMD, Capital Markets Day, but if I do here, two of them on direct material side, we are looking into extending use of some plastic polymers, in some components, like pulleys or like cages, with some, of course, significant saving, in that case. Working very much on our, forging or soft machining operations, with savings coming from the machining itself, but also from the usage of steel, optimizing usage of steel in our, in our manufacturing processes. So you see some significant potential here, and of course, we are continuing to deploy new waves, with ICR. That's for the direct material. We are working equally with indirect, using, I would say, the strength of our, sourcing wave or strategic sourcing wave, with our purchasing organization.
Here also, you see a few achievements from the last months on the transport on some routes, of course, on some telephone saving for some countries, same on pallets. It's both cost and usage of pallets and metal cutting tools, where we are consolidating, standardizing, consolidating, having one spec or more standard spec, and then consolidating the leveraging the volume with our with all our factories. So those are some of the key programs or some few examples of what we've been doing with ICR cost reduction. Now, we come to what is more step up, and the rest of my presentation will be more step up now, starting with the footprint and then with the technology.
From a footprint perspective, we are looking at manufacturing and logistics together end-to-end, including our supply base and up to the customer side. We have basically a number of product lines in manufacturing. We have ball bearings, we have taper roller bearing, we have cylindrical roller bearing, we have slewing rings, and of course, a spherical roller bearing that we manufacture here in Gothenburg, and you will see some of that in the afternoon. So this is basically our key product lines, and there are, of course, a few other product lines that we are grouping on that footprint. Number of units, it's 56 factories, and you see some bubbles with numbers. So the top bubble is basically the factories or the sites per geographical areas.
So it's 11 factories in Americas, 24 in Europe, and 21 in Asia. So that is fairly balanced. And then just below that, you have a number of main distribution center. This is not all the warehouse, but this is a main distribution center, so two in Americas, one North America, one Latin America, five across Europe, and three in Asia. And we already talked about India being the latest one that we have opened in the region. The key here is really to work, I would say end to end, starting from the customer, looking where is our customer? What are the trends from a customer perspective? What are the expectation? What are the challenges?
Then work backwards inside, from outside in, work backwards into our logistics to supply the customer in the best way, in terms of service, of course, in terms of cost. And then our own manufacturing to be able to supply also here in the best way with the six priority that I was showing earlier, quality, sorry, safety, quality, delivery, cost, work climate, and environment. And then making sure we integrate our supply base into that. And it's really an end-to-end process that we need to optimize from supplier to to customer. From a supplier perspective, we today are buying around 85%-90% in the region where we produce, what we're buying externally. We still have some gaps.
We realize we have some gaps for internal, supply of components, and that we're addressing. You will see later in the investment list and footprint that we have already made some steps, for investing further for localizing components in our, in our factories in Asia. Footprint. Now, I will take you to kind of a reality check of what has happened in the past 12 months, region by region. I have only selected here 10 projects. I would say the top 10. The list could have been much, much, longer, but I just basically picked up the, the major program or project which have been, started and completed for some of them in, in the past year. Number 1, we have announced and already completed the closing of our, industrial activity in Puebla, Mexico.
This has been consolidated into other site, and now, we basically don't have a manufacturing in Puebla, Mexico for industrial products. So this has been done, fully effective. We have done the same for warehouses, where we have closed our Hebron warehouse in the U.S., and we have consolidated that with our Crossville activities in Tennessee. This was announced last year, and this is already effective since middle of last year. We are in the progress of consolidating three sites in North America, Hanover, Pennsylvania, Flowery Branch, Georgia, and Baltimore, Maryland, into two sites, and taking this as an opportunity for upgrading technology. So some of the technology upgrades I will show later, when it comes to digitalization, is gonna be, is in the making, I would say, also for this consolidation activity.
This is ongoing. This was announced, this is ongoing, progressing extremely well. And we are basically on track for this consolidation. In Europe, we have here. I selected here four different programs here. In Italy, we have upgraded and also optimized our footprint in Villa Perosa, where we make different product, precision bearings, railway product, and aero product, where we have consolidated and optimized our activity there. This has been done last year, so it's completed. We are upgrading and restructuring our factory in Poznań, in Poland, where we have made a significant investment to step up there the site, and also reducing the headcount in the factory. This is ongoing.
We have some outsourcing of our cage operation in Lutsk in Ukraine, so we can refocus the factory into core business of machine grinding and assembly of taper roller bearing. This is ongoing. We have also done quite some consolidation in Europe, in the logistics area, where we have consolidated and modernized some sites across Europe, and I will come to that a bit more into details later. There was a significant investment of some 225 million SEK to make this happen. Those are some of the European activities, so done for most of them or ongoing for some of them.
Asia, we've had also a few footprint changes in Asia, where we have consolidated our super precision and wide bearing business in Asia, in China. That used to be in Pune, which was consolidated and redeployed into other factories in China. This was done last year. We are working and we have been working on the consolidation of our stocking points in India, opened a new distribution center in Pune. It was inaugurated end of last year. So it's not only about a new distribution center, it's also about consolidating all the stocking points we have in the region, and for having less stocking points and less stock, and also faster reaction and as support service to our customers. This is also done and running fully in operation now.
As I said earlier, we have now recently also invested into our footprint in Asia with additional capacity on the component side, where we have announced investment in Dalian, our Dalian factory in China, of roller manufacturing. This was announced this year, and it is in progress. Also Malaysia, we have announced recently that we are adding capacity to a Spherical Roller Bearing in the factory in the region. So those are, I would say, top 10. The list could have been much longer, but we tried to make a selection per region. Of course, we have a clear process to work on our footprint activity, so we can very much starting from the customer footprint and customer drive, how we need to operate internally to be best in supporting our customer globally.
Now, if we move to technology, the other step-up change. Last time I talked very much about standardization, and I talked a lot about maintenance excellence. This time, I will talk a little bit more about digitalization and Industry 4.0. Just to go back to standardization quickly, it is obvious that we have developed, in the meantime, a clear standard for manufacturing. So we have standard equipment that allows us to be more competitive, that we make sure we have the right technology in all of our factories, instead of being more fragmented and having different factories with different solutions. So this is in place, and now we are, of course, leveraging our position to roll out around the world.
Maintenance, once we have the standard, we need to maintain that standard, and we are very much working on that internally, and also using internally the tools that we have and that we use for our customers externally. So this is one of our key program now. Digitalization and Industry 4.0. You know, we talked about it. You hear a lot of people talking about digitalization, about Fourth Industrial Revolution, about IoT, Internet of Things, Industry 4.0, as the Germans coined it. A lot of talks, a lot of discussion, a lot of ideas, and I think in SKF now, we don't talk about it, we've done it. We've done it.
We have entered the Fourth Industrial Revolution, and the line that with the channel that we opened here officially yesterday afternoon is the Fourth Industrial Revolution. So this is really a new era. So I will give you a little bit of an insight of what is on this investment. And of course, I hope that you can see it by yourself in the afternoon. You can smell it, you can maybe not touch it for safety reasons, but at least you can smell it, look at it, and hear it, you know. This is really... We are in the Fourth Industrial Revolution. We are in a new era right now. And that's the very much, you know, gives us shorter lead time, increased flexibility, and increase or higher efficiency.
That's what was pictured last year, when, or a year and a half ago, and this is what now we see happening in the factory. What is, what is it about this factory? What you'll see today is a low cost, high output, highly flexible manufacturing setup. It's running. We've made, I don't know, yesterday was 223,000 bearings already. So that's, that's in place. This is functioning, we're delivering. There are-- We talk about flexibility. There are some machines with zero reset. I mean, zero. Not all machine, that's true, but we have some equipment with zero reset.
Basically, digital machine reading the RFID code on the pallet, with that, identifying the type of ring or type of bearing we're making, pulling in the digital program, doing automated resetting, producing, and then the parts are ready to go for the next step. So this is how we're running this operation. We have automated assembly, and you will probably see in the afternoon, the old assembly lines with a lot of manual work, with people finishing the assembly by hand. Now, you see that completely smooth and automated. So this is really a step up. This is really cutting-edge technology. And we do not believe this is anywhere else in the world, that you can find that technology on this type of product. We have, of course, worked on efficiencies.
We have a lot of AGVs, automated guided vehicles, so forklifts, you know, automatically guided, feeding the lines and removing the material to the warehouse, up to the warehouse. We have a lot of robots doing the loading, unloading, and handling of components. We have worked a lot on quality. We have 100% automated measurements on all key parameters on all the bearings, and measurement recorded. Every ring is recorded, so we have full traceability per bearing and per component of all the measurements that we are keeping for quality purpose. So very stable process as well. From a quality perspective, very stable, very high performance.
We have also worked a lot on connectivity, where we have more now coworkers, I would say, interaction, remote connection, real data connection. So people can be remote from the operation and can interact and follow, and also correct the equipment. We already presented that a few times with the MOST operating system , which is in place now in this factory, and we are also working in the second generation, so we can even step up the capabilities of our mobile system. In terms of hard facts, you know, we can just one thing I want to talk about, also environment. We talked about environment earlier and how to reach our climate targets.
This type of equipment, this type of investment is helping us in terms of environment with two main reasons or three main reasons. But main is that we have been working on the technology, where we have low consumption machinery. We have automatic switch off machine when they idle, so we don't consume when there's no need. And we have worked on the lighting. You'll see LED lighting in the factories. And on the other side, we have also worked on shorter resetting, which mean we can do much smaller batches, and we can be a lot more flexible to deliver faster to our customers. All in all, a few hard facts, which you probably already know. We have reduced then from four lines or four channels, as we call it, into two with a higher capacity.
So that is basically what has been achieved in this investment. Investment was 200 million SEK or 190 million SEK, fully effective, and we have an efficiency on manning of some 80% confirmed today. So the project team did a fantastic job, delivered on time, on budget, and on target. This is not the end. This is actually the start. You know, this is now the proof of concept. It's running, we're producing, and as Alrik and Christian already mentioned, we are going forward. We have a number of other projects which are approved and are starting up now. Gothenburg was the first one. That was unique. Now we replicate, and of course, we replicate faster, and we also replicate with a low cost.
So we have two key programs in Schweinfurt, one on cylindrical roller bearing, one on large-size bearing, where we even go further in term of flexibility when we go into really very flexible equipment there, due to the type of product line we're addressing. As I said earlier, in our footprint activity in North America, where we're consolidating those three sites, Hanover, Flowery Branch, and Baltimore, we're taking advantage of that to install the right technology first. So we don't transfer older equipment from one unit to another one, but we take advantage of this consolidation, so we can really install the right equipment first. And here we are an investment of some SEK 150 million, which is in progress at this point of time.
Logistics, I mentioned that we have upgraded our EDC center, logistics center, European logistics center in Belgium, and this is important that also digitalization, of course, is helping in manufacturing. It's helping the supply chain, it's helping, changing also our customer connection. But it's also the logistic, which is going through a major transformation, where with the power we have now, with the new technologies, we're completely reversing the processes where we used to have people go and get parts in a warehouse, and so basically, it's a goods-to-man, where we reverse that to a man-to-goods. So the goods are coming directly automated to the workers doing the packing and the deliveries.
And this we have done, in our center in, Tongeren, in Belgium, and we have a few more program of these kinds, which are, in progress in Europe. So this is a big change, and it really fits perfectly with the rest of the digitalization, transformation we're having right now. That's, basically the step up on the left side. We are also looking into smart refurbishing. As I mentioned, we need to have a continuous improvement on one hand, and we need to have a step up on the other hand. And it's good we're stepping up. We have to do this step up, disruptive change, but we still have some units, some factories or some part of existing factories which are running today and will still be running for some time on existing equipment.
Those equipment will be replaced at some point of time, but until that point of time, they have to be the best in class, not, maybe not the world class, but the best in their class. We have launched a program here. I mentioned that last CMD, we have launched a program what we call Machine Centre of Excellence , where we actually refurbish our machines. But it's not a refurbishing to put them where they were when they were new. You know, maybe they were new five or 10 or whatever years ago. What we do is we smartify. We refurbish in a smart way, so we put them back in order, better than what they were initially, 10 or whatever years ago. And this is a very good program.
We have 15 machines, right now under smart refurbishing, where we put our latest technology in it, intelligent grinding, acoustic emission, and also those machines are ready or will be ready for, Industry 4.0, connectivity. So this is key programs. So we have the step-ups, and we have also the continuous improvements. And this is really, I would say, kind of a summary here. You know, we have clear activity, on, in the, in the continuous improvement short term. We have some step up. We have a vision for transforming, and, digitalizing our manufacturing or supply chain or activities. This is, the same picture than what Alrik was showing earlier. There are a few more bubbles. This is a bit more loaded.
I will not go through all of them, but it basically touches all the areas in manufacturing which are impacted. We have robotics, of course, we have automated guided vehicles there. We have mobility, where we connect our operators in a mobile way with remote possibilities. Then we have data security. We have digital twins that we need. We are working, of course, in skills development. We have some learning centers because those new technologies need new skills, and that we are preparing our people for that. This was great job being done here in Gothenburg for getting the people on board and prepared for this new technology that we have started now.
I mentioned in the last Capital Markets Day that we are putting those learning centers in each factory, so we can have a kind of a formal place to learn without taking any risk and having the right tools to learn, to teach, to coach. So this is in place, and this is really helping us in this transformation. I could go on for many of those points with, you know, real-time action taking, et cetera. But I think there's just one element where I want to touch upon a bit more here. This is 5G. Because it is clear, with all those connections happening and more connections to happen in the future, everyone talks to every machine or talks to each other.
There is, of course, a need for a higher power. And we are there. We are working, as you know, with some external partners. We're working with Ericsson, we're working with Chalmers on a 5G-enabled manufacturing. This is moving very well, and we have some demonstrators. You will see in the factories, if you-- I will help make sure the guide show you on the, on the roof, where we have some of the connection in place. So we are really working on connectivity, stationary connectivity, mobile connectivity for the people. We are working on network and cloud solution, and we're of course, working very much on the radio signals and how to make sure the radio signals are fitting in our factory environment, in the manufacturing environment.
So those are some very clear programs or demonstrator on which we're working right now with Chalmers and with Ericsson. And the factory here in Gothenburg has been selected, of course, as basically the starting point. So this is not for tomorrow. This is probably 3-4 years down the road. But this is coming, and we are directly involved. We are in the forefront of that research and activities. One other element, and Alrik touched upon that, touched on it already, and as well as Christian. We talked about... Well, no, we talked about Logistics 4.0, I think you mentioned that, and the program we're running out of our entire factories and now replicating to other factories for having end-to-end logistics and supply chain connection.
So that's one area where big data and transparency of data will really help us to make the right decision at the right time from a supply chain perspective. And that's what you see on the bottom of the graph here. That's a smart supply chain that will allow to push the ordering point of from a customer perspective. At the same time, we are working on our manufacturing lead time, and this is basically the top graph, where you see that with smart manufacturing, with higher flexibility, zero reset, shorter lead time, we basically push the lead time to the right-hand side. So I have to recognize, you know, this is very conceptual on that picture, but if you put those two together, basically, we clearly go into a stock reduction over time.
And this is what digitalization is really bringing us. So that is probably topic for the next Capital Markets Day, but we are working on this one, certainly with very clear program on the bottom part and on the top part as well. So this basically takes me to my wrap-up slide. And the key message is, we are now in reality. Fourth Industrial Revolution, digitalization is reality. It is not a strategy anymore for us in SKF. We have operating system, which support basically our operation, how we work in our manufacturing. We have our integrated cost reduction for continuous improvement on input costs, working on the design, on the spec, on the sourcing. Then we have our technology step-up, very clear. You know, we have- we need to have a standard. We have defined a standard....
We need to maintain this standard, and then we need to step up. We need to digitalize, which we're doing. We've done it. We've done it, and then we now accelerate, and we replicate. And then we have our footprint activities, and make sure we are producing the right things at the right place, in the right way. You've seen there have been some 10+ projects already completed recently, and of course, we are continuing to work on that. We have simplified the organization. We have much more leaner organization, with faster decision-taking. So I would say we have entered the Fourth Industrial Revolution. This is reality, and we are really on the way to world-class. Thank you. So I must say, maybe this afternoon, you will be, all of you, of course, very welcome for a factory tour.
You already gave a little bit of the detail on the logistics. I think it's important you understand we are working... It's a working environment. It is not a lab, it is not a demo. So there will be some clear safety rules that you will need to follow. Safety shoes, not touching anything, of course, no cell phone for avoiding disturbance, I would say, with the connectivity we have between machines, et cetera. But you'll get all the instruction by the guys later on today, and I hope we can maybe have some of your feedback after the visit later on in the afternoon. Thank you.
Thank you very much. Thank you, Luc. I forgot somebody before who is also here, of course, Rutger Barrdahl from our, who's running our aerospace. Please stand up, Rutger. I'm so sorry. You know, I am so sorry. I've known Rutger since we were children, huh? So I forgot you there. He will also be here, of course. We are a little bit ahead of schedule, so, I'll put on my virtual hat and, maybe I can take some questions if somebody wants to ask me a question. Do we have a mic, microphone? I'll do that. Then, you will have plenty of Q&A for the rest of the team, but if you... We start with me. You know? Yes, you start over there, and then over here. Huh?
Thanks. It's Lars from Barclays. It was perhaps more a question to Christian and to Luc. I had two, if I could.
Okay, come on. We'll make an exception for you.
Thank you. Christian, maybe starting with you and, and on the-
Christian, come, come.
I'm here, sitting down here, but in the corner.
You have to stand-
Ah.
You have to stand in the camera light.
Yes, I know. I'm ready.
Okay. So for Christian, just on the Unite program, you talked briefly about efficiencies and what we, that obviously we'll start to see some efficiencies come through now over the next few years. Can you talk a little about what the scope of those efficiencies from Unite might be? How should we think about the cost efficiencies coming through there and the timing of those? If you could put some numbers around that. And maybe just secondly, to Luc, on the Gothenburg plant, I was hoping to get a little more detail around the numbers on what this means from a cost-benefit standpoint.
If you invest SEK 190 million, can you talk a little about the actual cost savings you are getting and the efficiency improvements, and what that means from a payback standpoint? Thanks.
Yeah.
I'll actually take the first part there.
You don't dare.
Come here.
We're increasing prices, you know, so we in no way will I let Luc tell you what type of targets we are in absolute numbers. It's not possible. We can't do that. But what we're doing is, you can understand conceptually, we become very, very competitive, and we become competitive in a high, relatively high-cost country. So this is a game changer, but I would not allow Luc to tell you any absolute number. I'm sorry. And on the Unite, a similar kind of thing. Of course, we can talk about... You can imagine that once we have, and I'll allow you to comment, elaborate on that.
But you can imagine that when this comes out, this is as an important revolution in the end as in the manufacturing, where a lot of the traditional processes of what we're doing with all kinds of in the internal processes we have, the same kind of automation change that you see in the manufacturing. But also here, I will be reluctant to give you an absolute figure. I know you want them, but it would be very imprudent of me to give you this. But I tell you, it's more of telling you where we are going to be as efficient as can be, both in manufacturing and in our internal processes. This is what we're saying.
Yeah, I mean, if I elaborate on your first question on Unite, then, I mean, where we come from, I mean, just as an example, we have a system environment for manufacturing, we have one for distribution, and we have a third one for sales. Which means, I mean, practically, you know that there are information flowing in between here. We handle these islands separate with manual interfaces, different interfaces, which, of course, is inefficient way. If you take it practically, let's say we have a customer order that is replanned, and with an integrated system that hits through the whole value chain, it means that delivery times are changing, delivery schedules are changing. Maybe the customer want 10 instead of five.
I mean, it kicks out, different, you know, information to purchasing, to production planning, and so on. That type of efficiencies we will see going forward.
I mean, what that means in terms of numbers and how quickly we can realize that in the bottom line, I cannot say, and you can imagine that. But the—we will have a different environment of working, and I mean, that will give efficiencies. I'm certain about that, but I mean, the pace of it. Some of the efficiencies will only come when we are, you know, having the broader base, where we can start to do things and do planning more multi-sites. But we will see some efficiencies also on the Gothenburg site or in Sweden now with this. I think also information-wise, we will have a completely other transparency when we take decisions for planning, for example.
We can say that we have, and you can confirm that, 'cause you are the expert, we have a roller plant, and we have a bearing plant. Today, they are planned individually. If you get an order on a bearing, a roller bearing, that's planned twice. In an integrated system, you can do this. Of course, it hits through the whole system, and you can do that instantly for your operations. So just to get a flavor, this is what we talk about in practice, and what it means in numbers. We have estimates in our Unite business case, but I mean, I cannot share that with you, but I mean, there will be efficiencies.
Well, what should I say?
I don't know.
You already answered, right? That's what I thought.
Okay.
Yes, thank you. Klas from Citi. I just want to come back a little bit to CapEx and numbers. Sorry. So you talk about the SEK 900 million investment in total. You've done SEK 190 million in Gothenburg. You did SEK 150 million last year in North America, so that's SEK 560 million, SEK 560 million of incremental CapEx. Does that mean, Christian, that CapEx goes up to... If you do 2-3 upgrades per year, the CapEx goes up to SEK 2.5 billion-SEK 2.6 billion. Is that how we should think of it?
I mean, you have a guidance from us valid for this year, and I mean, we have, of course, the whole mathematics to fit together with when it comes to, you know, our financial position, what cash flows allows. We have dividends and the whole mechanics around that that give us certain. Of course, if we could increase efficiencies on other areas, we could eventually do more on property, plant, and equipment. But as you have seen now, I mean, we are changing the content of the SEK 2 billion or SEK 2+ billion that we use, which is clearly supporting the direction we are at. And in practice, we need also to be able to execute on these things. Like Luc says, we want to have a tick in the box when we start things.
We don't want to overload systems, so there is also a capacity limitation in how many of these type of projects we can run. But I think we are quite okay in balance, both financially and in practice right now, at least how we see it.
So CapEx in all should stay at SEK 2.2-SEK 2.3?
2.2 is the guidance, yes.
For this year, but if you look sort of beyond, if this is a rollout plan, we-
I mean, if it will be something else, we will update the guidance, obviously, yeah.
Okay. Coming back to cost savings, Alrik, I know that you want to sort of specify it, but is Gothenburg 80% reduction in employees, is that sort of representative of what we can see in other factories?
Well, you know, I think Luc put it eloquently of saying, "Thank God, you know, this is not going to go overnight." Because if you imagine that this revolution would hit the whole society, we're not only talking about manufacturing. You know, I was sitting beside one of our leading colleagues in the world of work, talking about normal retail, you know, shops, and how they look at how internet for normal, normal kind of cloud products, how this is changing the necessity of having open shops, et cetera, et cetera, and how that is changing. You can imagine if this would go overnight, how, what...
So, we are in for a transition in the world, and I'm actually arguing, and I say this: We need to work together, government, academia, and business, to change this way of working, and we need to educate, educate, educate. It's going to be a massive undertaking. I was just recently talking to representatives of the government of UAE and Saudi, and they were talking about the transformation they're trying to do now with the new oil prices at the new mean, and they're looking at, of course, trying to industrialize their countries. And of course, the basis is education. And the interesting thing is that with this kind of transformation, this education needs to come everywhere.
So it will take time, so we're doing both of it. We're upgrading. I call it Industry 4.0 Light, where we're taking the standardized sort of production lines onto a new level with a new level of automation and autonomy, but it is not really the full revolution. And then we're taking some of these where it makes more sense, where you can get more of this kind of producing against customer order, as opposed to producing towards an inventory. That's when we are really doing these kind of investments. So, going forward, these kind of things will gradually hit. In this case, all of the people that were working in these four lines were reassigned new duties.
But of course, one of the things we need to do collectively now is educate our people to make it possible for them to take the step and, of course, use people for other things. We, we have a plan, for instance, to allow factory workers who want to be out there working with services, because that's going to be a growing business, where you're out assisting your end user with changing bearings, putting in condition monitoring system or lubrication systems, that you can go from a manufacturing job to actually being out, doing a similar kind of where your skill sets are appropriate out in the marketplace. So this is a challenge, and I tell you, this is a challenge that you will hear a lot about going forward from all industries, in my mind.
This is not only SKF, this is a mega trend.
Just a very quick follow-up for you, Christian, on Unite. So, I understand that in the quarter, the SEK 150 million in P&L spend, incremental that you're guiding for, it seems like the further launches have gone according to plan. But when you think about the year, the SEK 180 million for the year, incremental, are there any big launches that we should be aware of outside of Finland and Sweden as we go through Europe, where you potentially can see further costs beyond the SEK 180 million? Or do you feel that the SEK 180 million is basically de-risked? What's just Finland and Sweden-
For this year?
Yeah.
Oh, that, that's the number I have for you for the moment. Yes.
But what I'm asking you-
I don't have any other. I mean, obviously, we've been front-loaded of the fact that we've had this, what we call hypercare support to the users. I mean, 1,700 users need to learn these new activities, a lot of consultants and others supporting this. That, I mean, it's as we said, it's a task now to take that down, and then we come into to another mode here in quarter two, quarter three. And then we go again with, you know, it will go in waves, but what I can see now, I mean, that's the guidance we have.
Thank you.
You know, my experience, having done this before, is that the first one is the tougher one, and then it becomes sort of, better and better and better. In the beginning, you are sweating, and in the end, you are smiling.
Hi, Daniel from SEB. Alrik, just want to ask, because you mentioned during your presentation that you've been... and everybody's been very clear that you've been trading below the market in the US, you said, and now, and then you said that now we're growing. Could you shed some more light on that? Are you sort of regaining market shares, or are you growing in line with the market now, or where are you?
Yeah, well, you know, it's basically what we said from the beginning. Due to... You know how the automotive chain works, in the sense that you awarded a program or you're not rewarded, take some time, and then it starts actually to kicking or not kicking in. And for whatever reasons, at the time, we were not on all of the high sellers in the US, and for that reason, we were trading below the market development. Now, we've been working for many, many years to get back into that, and now we see this sort of leveling out, and we're starting to grow with, and as we see it, but we'll come back to that more in detail later, you will see.
This was one of the reasons that we were not supposed to have Q&As now, because many, some of these issues will be answered before, but now we will be sort of trading with the market and I argue, even above the market. So it's basically what we said before, that we will see now it's coming through. This is what you will see.
Thank you.
Are we? Yeah, is that okay? That we... One more from... Or two more, two more. Last two, and then you kill us after, in the afternoon with your questions.
Here, Martin Lindgren , Direkt. With this new production line in Gothenburg, I get the impression that you feel that you're ahead of your competitors, but how much ahead, and what type of similar investments do the competitors undertake? How long will this last, that you're ahead of your competitors, if that's the case? Is it a matter of a few years? What do you see that competition does?
You know, you should never underestimate anybody, so I don't dare to speculate on that. We believe on this particular, this is SKF technology. So we've taken the technology that is available, and we've made it to something new, huh? So this is SKF technology. I would not want to be so self-assured to say that, give you any estimate on that. We think we are now the first one. How quickly somebody, somebody else will do this, I don't want to speculate on. Because one of the dangerous things is when you start underestimate your, your competitors. I think they are very good, and they will, of course. Technology, I used to say internally, maximum, you have about five years, and then people are catching up, and then you need to be five years somewhere else.
In this case, I don't know. But it's not really the most important thing. The most important thing is that you are actually in the forefront and that you are able to diligently use the technologies that are available to upgrade your operations diligently throughout time. Because, of course, what's good enough today will not be good enough tomorrow, you can rest assured.
A follow-up to that, if I may. You say it's SKF technology, but I suppose there are suppliers, and who are the chief suppliers for this new plant? I guess they are able to supply that to your competitors as well.
Yeah, but, you know, there are always in these kind of... This is normal. NDAs, you know, non-disclosure agreements-
... we are the one who have the full picture of what we're doing. There's some of the key elements of this, which actually we develop ourselves. So this is standard, standard. It's always there will always be sub-suppliers in all innovation.
Thanks.
Yes, I had two questions as well. First of all, sorry for coming back to the factory. We will see it soon, but nevertheless, when you talk about 80% reduction of people, even though digitalization will bring many benefits to many parts of the organization, we're still talking about roller bearings, and they have a ball, a cage, inner ring, outer ring, and so on. So physically, what is really doing the job instead of the people? I mean, are you basically buying robots to replace the personnel that previously did manual tasks in the product line? That's my first question.
The second question I have, with the Unite project, with SAP, if I recall a couple of years back, SAP were a little bit criticized by being late into the cloud-based solutions, and they were heavily stuck into the server-based solutions, where it took many years to get upgrades and so on and so forth. You initiated this project and took it through 2013 to 2020 or 2022. I understand this is a huge task, at least it's very costly, and... But it's a huge organization as well. But why is the duration nine years for this project? That's one question.
The second question is, are you sure that you are on top of the digitalization, when you introduce this, when you choose the version of the SAP system, that's now going to be implemented?
Wanna take the first?
Yeah. Yeah, I would say from a technology perspective, you will see it in the afternoon. Basically, you know, there are automated guided vehicles, you know, that's fully automated. There's no driver on the forklift, you know. There are robots doing the feeding, loading, unloading. So yes, that's automated. And it's even beyond that, it's also technology developed internally for doing some of the critical bearing assembly operation that, you know, this is IP that we have developed, which is internal, and that we protect very much, of course. And then that, those type of things together, then we are integrating and reaching those numbers that you just mentioned.
On the SAP and Unite, I mean, what you said then in terms of on-premise solutions and cloud solutions, I mean, SAP are in both worlds now, huh? And we have set up an agreement with them that we, in fact, in what we are setting up now and what we have set up for Sweden and Finland, we have some of the modules based on cloud solutions, so that's not an issue. If SAP will be digitalized. I mean, they are doing well on stock exchange. I guess you know SAP is a winner here last year, so something they must do right. But I mean, if they are a long-term winner in that business, we cannot say.
But I mean, the worst thing that can happen to us is that we conclude that some of the things that we have is not the absolute front end. Then we can decide, is it good enough to live with, or should we replace that part of SAP and, you know, hook up to something else, which in worst case means that we have some sunk cost somewhere. At the moment, we don't feel that, because you can also say that you have a big customer base for SAP on the on-premise solutions that ask SAP in the same question. And I would say that we are, since we are, let's say, into the process, what we get is the latest that we can supply. Then we the rest of the questions afternoon, okay? One more over here, microphone. One last.
You were waving so kindly, so.
Yeah.
So it was a question to Luc, really, on factories. I mean, you've got 56 factories. I think Capital Markets Day last year, there was 58 or something, 59. I mean, what when you look at and you talk about digitization, standardization, the Unite technology benefits, and so on, do we need 56? Does it just go down a couple each year, or is there at some point you can actually sort of talk about a, you know, an optimal level, I don't know, much lower?
Yeah. No, you've seen what we've done in a year, a year and a half. We have a number of programs that have been launched, and we have consolidated, we have optimized, we have upgraded. So this is clearly what we are doing, and it's a rolling activity, starting from the customer, I mean, the customer being the best position to support our customers around the world. So that's part of our global footprint activities.
Okay. We will be serving a lunch, and then under Patrik's command, maybe you wanna say some last words on how to—what we should do now and not do?
Thank you. Lunchtime, everyone. As mentioned, after lunch, we will split into the three groups: blue, red, and green. Take a look at your lanyard, and you'll notice-... The blue group is the ones that will start with the plant tour. They will actually start downstairs with the choice of safety shoes at 12:30 P.M. The other two groups, green and red, will start presentations at 12:45 P.M. One group here and the other group downstairs. Please, enjoy the lunch.
Okay. Good afternoon. Is the mic working, yeah? Good afternoon. My name is Bernd Stephan. I am responsible for Automotive and Aerospace, and my colleague is also here, Rutger Barrdahl . He is responsible for the aerospace, and we both will guide you a little bit through our business, what we are doing and why we are doing it. You see maybe a new company car, yeah? So that is the first, or let's say an actual flying car. You can drive with it on the road, and you can also fly with it, with it. It's a combination, so it's foldable wings, and people say that will be the future of transport. I don't believe it fully.
Even if I am doing private flying on a Cessna, I think it would be a nice toy, but I don't think that will be mass production. So let's go on. Automotive and Aerospace. Here you see a picture about our market by region. On the upper left side, you see that with West Europe, still the strongest part. Then you see North America and a lot of Asia in, where we are also have grown into that market. The smaller part still is Latin America and East Europe here... If you see it by product portfolio, when you can say our automotive special bearings, like wheel hubs, for example, is the majority of the business. We have also a quite big automotive seals part. We have also the seal factories, and we see also here on that picture, the aero part, yeah?
And the standard bearings is that we are also taking from the industrial side, from Luc Graux factories, a lot of bearings which we are selling in the automotive market, which are not producing our factories. If you take the picture on the right side, when you see that automotive bearing, we are number three, after Schaeffler, with number one in the automotive bearing market, and then the key Chinese, number two now, and SKF is then number three. The Chinese is not one company, but is some companies from China which are having that position. And you see the others. If you see the aero bearing side, SKF is number one here, and Rutger will speak about that later.
If you see our, our footprint, that means there are the factories which are not belonging to Luc Graux, which are especially in the automotive world. We have 30 factories worldwide, using the same standard as bearing operations, and you see them in aero, we have 11. In the automotive bearings, we have 9 factories, plus 5 vehicle parts center, and we have in the seals business, 10 factories, which we are operating there. On the customer side, you find on the, on the left side, all key automotive OEs and also Tier 1s, where we are supplying. And you find on the right side, the key aero customers, also the big ones like Boeing and Airbus there. So we have, a revenue of SEK 26 billion in last year, and around 10,000 employees worldwide. That is the automotive and aero business.
So if you go then into our turnaround plan, which started in 2015, what was it about? The plan was that we are focusing on the right market requirements with the right cost and performance in the product, yeah, to have the right positioning here. And then we were also refocusing from the product portfolio, that we were not doing everything, that we were aligning our products and say, "What is our focus area?" And then we had these five priorities here, and one was productivity in our factories, manufacturing footprint, where we locate the production. Application-specific performance, that means very clear, based on the customer requirements, to say, "This is the product I want to have for my vehicle," and the related cost to that. Then we looked for the supply base optimization.
A big part of our bearing is for sure supply from, from the outside, and therefore, we have to manage that part also from the cost side. And the manufacturing technology, what also Luc was talking about, is the same in automotive, that we are investing in, in our manufacturing technology. So what is the outcome of that? The plan has given us, so far, more than SEK 500 million in savings, yeah, and you can see that had to do with, let's say, staff reduction, that we made it simpler. Leaner organization was one big part of it. When we changed also the manufacturing footprint, you see that we have changed some facilities. Component factory in France was taken out, then we have kit operation in Sweden transferred, and also we closed a seal factory in the U.S., that was in that frame, yeah?
Is also ongoing, further restructuring is under development there. When we went for application-specific performance of a product, what I explained before, different materials, so we opened up for new materials, which we could use in different areas also. And we meant for there also from a pure SKF-specified material to a supplier-specified material. So that we tested, which is a standard material from the supplier, and can that be used for that application? And also for the aftermarket, we made special products then. So it was then also, if you have a car which is 10 years old, maybe you don't need to have a wheel hub, which runs another 300,000 kilometer. It was not the request from the customer.
So supplier optimization, we also selected the right supply base, and we are running what we name ICR, Integrated Cost Reduction programs with our suppliers, where we take costs out in their processes, and also maybe make design changes, which can give cost out. So we are working close with the suppliers on that. And when the manufacturing technologies came in, for example, cold rolling as a process where you can have a better utilization of material. Intelligent grinding means that you can faster machine, yeah, and for sure, operational improvements. So it has given us a quite good ramp-up in the operating margin. We came up to the 6.5% here in 2016, and you see also our target, which is ongoing, that we want to improve further. New programs coming in?...
If you see for the car and truck wheel hubs here, then we have new programs under contract, which are ramping up then over these years. So that is good business. You see here our position in the market with these products. For the car hub or car wheel bearings, you can say we are number one globally, and that is also a key product for us, where we focus a lot on it. On the chassis bearings also, MacPherson strut bearings, we are the number one worldwide. And on the truck bearings, you see that we also number one, but only in Europe. We have not, let's say, the number one position worldwide. That is different in different markets. So going to the next steps, what is our focus?
Our focus is further cost reduction, so we are working with teams, expert teams, to take further costs out, and that is on the supply side, as well as in the value added of a factory. On both sides, we are working on cost reduction programs with manufacturing technology, but also with the supplier to see how we can take purchasing costs down. We are also taking pricing activities. We see that raw material prices are coming up in the market. We see that inflation is coming up, and we have in a lot of customers, let's say, an automatic raw material process and raw material Klase, where we get an automatic adjustment. But we have also contracts where we don't have that and where we go for negotiation of material price increases.
Then there's the innovative part, that we say we want to be the leader in that, in this business, so we are making a lot of innovation in the design, incremental improvements, but also breakthrough. And that is mainly also for the next generation of powertrains, and I come to that. So what is it all about? Alrik also mentioned that. We see reducing emission, and emission doesn't mean the exhaust emission in a way, what we have seen with Dieselgate or so. We are talking here about CO2. CO2 reduction means fuel consumption reduction, and the CO2 of a new car is key for our customers.
They sell with that level, CO2 level, the car into the market, and therefore, they are asking us all the time about, "How can you reduce the weight of your product?" So that means weight reduction is key for them, but also, new materials that we say we give for light alloy, for thermoplastic materials, for composite materials, and so on. So that is lightweight. And when we go talk about mechanical system efficiency, and that is always friction reduction. So for us, a bearing is friction, a seal also, so therefore, we are working all the time how to reduce friction. So and we will never give up before we hit zero, yeah? So but it's really not so easy. And we have the trend, electrification of a vehicle, and therefore, we make application-specific solutions for that. I will show that.
System reliability, safety, and comfort is for sure also a thing. Condition monitoring, for example, if you see, wheel end monitoring in trucks, where you check is the wheel end, okay, or could you have a problem? I remember a case in Australia where the truck goes from left to right side. He wants to know that one of his 18 axles has not a problem during that trip, so therefore, we are also making these kind of devices. Wheel end monitor or tire pressure monitoring systems, better ABS sensors are belonging to that, so that is what we are doing there. And then the competitiveness, I discussed it, cost-effective solution, and that starts with Design to Cost, where we really start in the design process, how we get the cost out, and also then materials consumption end to end.
For sure, there's also solutions on the high end, where we want to see higher performance, and where we make special products for the high-end cars also. It goes up to our Formula One business, where we also have bearings in the Ferrari car, you know, and all the others. Going to the wheel end, which is the most important product, I said cost of innovation, that is, to get the competitiveness. So therefore, it is a combination here to be on the best possible design for cost, to having the right specification of the materials which we are using and not over-engineer it, and also that we have the right sourcing set up to get the best cost from the market. So that is the supply side.
Then we have, for sure, our manufacturing side, where we go for this Industry 4.0 technology, also in the automotive factories, and getting the cost out, and that is mainly productivity up and waste reduction, what we can get there. Incremental developments, I said it, performance features, don't over-engineer. Take, take the right design for the right application to get the optimum cost of that, and also agree with the customer what he really wants to have. And then we have game-changing developments, and that has more to do with future powertrains, electrification of the car, for example, battery electric vehicle, hybrid vehicles, and I come also to that. So if you see then friction reduction, Alrik also mentioned that in the beginning. I think friction is our key point.
The bearing and the seal is all based with performance on friction, and we have to work to get it down to zero, what I said. So we are not only working on the bearing, we are working, what I said, on seals, which is a major friction contributor in this solution, and we have our own seal development and seal business, so therefore, that makes it a little bit easier for us. We are also developing the lubrication system, the grease, what is used there, to come to the lowest possible, friction, but also the, the reliability that, that product is then lasting for long enough for the requirement of the customer. The weight reduction, we are working there with new materials also.
Standard is light alloy materials to use more and more, but also polymers and composite materials are coming into that so that we get down with the weight, yeah? And functional integration is to having that all, all together. Reliability and performance, for the product, we are making it right for the use of that customer, but also that could change. Today, a car wheel end is produced for 300,000 kilometers, and a truck wheel end is 1,000,000 kilometers, and that could change in the future, come to that. Why? When I said the seal is what we have, and we can differentiate with that, and you see the seal in a, in a car hub unit is the major friction contributor.
So therefore, we can improve quite a lot the friction of a car wheel, and if we have a optimum seal design. Same is with the truck, that is the Scotseal , what you see here, and there's not only the friction, it is also the lifetime. In the US, for example, a truck wheel end runs for 350,000 miles. That is the service life, and then we have a maintenance cycle, and that is going up 500,000 and above. In Europe, we have now 1 million kilometers for the truck wheel ends. It's a little bit different.
We have also things like magnetic encoders in the bearing, which is ABS system today, and that needs to be more exact in the future, because autonomous vehicles are coming, and then we want to have very precise wheel signals, and therefore, we are also improving the sensor side of it. Going into the new powertrain, what does that mean for us? You see, today's business is the internal combustion engine with a conventional powertrain, and the main parts which we have there is the engine of a car or truck and the gearbox. So and we have, for sure, also here, a lot of products for improving friction and weight.
You see here some of them, what we have for the mild hybrid, the right, bearings for the engine shafts, which will go from plain bearings to roller bearings, that we giving new products for the, for the engine. When, especially on the turbocharger, there is developments that a turbocharger should be more agile, also in cold temperature, also to meet the emission legislation. And there, if you go from a plain bearing of a turbocharger to hybrid bearing, when you can achieve that. So customers are very keen now to get these kind of bearings into a turbocharger. And then the injection system is also mainly weight and friction reduction, what we do. And the same you see here also for our seal portfolio, what we are giving to the customer, the right engine seals, and also the friction reduction there.
In the transmission, automatic or manual transmission, we have a full bearing range wherein, from a DGBB ball bearing up to a needle roller bearing, everything is used there. And also, we have other components, like hybrid bearing is a bearing with a rolling element, which is out of ceramics. There's no steel rolling element, it's a ceramic part, and that is very important, especially if you have it in an electric vehicle. We have bearing carriers and bonded pistons, for example, for shifting the gears, so it's a lot of gearbox components. So it's all about power density, CO2 reduction, fuel consumption reduction, and at the end, also the cost of ownership. That will go on.
If you go then to the new developments, which we see with the electrification of a vehicle, there is a lot of forecasts in the market available, how that will develop. Here you see one from IHS, where how they see how the conventional powertrain will be replaced by plug-in hybrids and battery electric vehicles. And you see that it's quite stable up to 2023, then shrinking, and the growth is then covered more or less with hybrids and battery electric vehicles. We believe in 2030, that we should have half of the market, roughly, with hybrids or plug-in hybrids and battery electric vehicles. I cannot tell you where the share is, but also it's not important for us, because we have the right products for these, new vehicles.
So, therefore, this is a major change in the industry, and we see that coming, and we are preparing SKF to have the right products for these vehicles. So if you see that, today, what we have for these electric vehicles is that we have hybrid bearing, i said it before, and there we are also leading with hybrid bearings. and that is for low friction, extreme high speed, and let's say, critical lubrication, and very, very high performance bearing. So the traction motors today, what you see in the market, we are running 10,000, 15,000 RPM, but we see also a trend that could go up to 40,000 RPM, so that you don't have any shiftable gearbox anymore, so that you run the full range from zero to 250 in one gear.
It's only pushing the pedal and you go up, yeah? That is possible if the engine has that high RPM. That means this electric insulation of the bearing, that the electric current cannot flow through the bearing between the rotor and the stator, is key. In hybrid bearing, is because of the ceramic ball in the bearing, electric insulated, so therefore there's no electric flow there. For high speed, what I just explained, is for that bearing, no problem. We have that, the bearing available. We have also others, like this, rotor positioning bearing, where we have a sensor signal from there, which is also very interesting for the electric motor, and we have also the standard range of seals and bearings for that.
You see here the different developments of electric drives, and it starts from a mild hybrid, where you have a starter generator in the vehicle, which today a lot of vehicles have. And there we have the right bearings for this special alternator, that is, this rotor positioning bearing and the ball bearings. But when you see the upwards, you see the traction motors coming in different technologies, and where we have a lot of products ready for these solutions, including the final, maybe final version of a pure electric drive, where we have also the right products. But you find everywhere hybrid bearings are key for these applications, and we have them available. And you see then in the different areas how they could develop up to 2025.
So we prepared for that market, and here we see also how it develops. We see today a bearing value in the car of about SEK 60 billion, and that goes up even. Why is it going up? Because first, there's a growth, and second, there is the hybrid drive. The hybrid drive means you have on top of your normal combustion engine and transmission, you have an electric motor, an electric drive. So and that means you add more components in the car, so the value goes up here. But it goes also down again, and that means if you go to a pure electric vehicle, battery electric vehicle, when the number of bearings is going down again, so therefore, we see that it comes back, even with that growth rate, to the more or less same level.
So, but having the right products here is key to follow that market, but we are very clear a component partner. We are not making the traction motor or something like that. We are making the components for these applications. So that was the OE market. Some words about the aftermarket. It is for sure a little bit different. We are talking here about two different customers. One is the OE customer, who has an aftermarket business, what we name OES, Original Equipment Service parts. So where we deliver our spare parts to the OE, and we are selling that there. And then we have the free aftermarket, where, let's say, our bearings are sold through different channels, distribution channels or even e-commerce. So what has to happen here? First of all, key points are high availability of a product. That is key.
We need to be fast and flexible in our deliveries. The spare part needs has to be covered with that. We need to go with new products fast into the aftermarket to have the availability, and the customer wants to have also value for money, that that product is performing. What we have changed here is that we have now also a different production setup for aftermarket parts. I think as long as we have that product in series production, it is quite simple. You take the bearing from the series parts, you put it in a box, and you have it on shelf. But as soon as the product is no longer in series production, then you cannot pick it from a mass production channel.
Therefore, we have made special work cells, where you can really reduce the lot size down to 100 even, 100 pieces, to produce low volumes, reduce the stock levels, and having a broader range when also with that available. So it means there is a special production set up for aftermarket, yeah? And the parts are also sometimes at different designs, so that you also design it for the aftermarket requirements. If you have a 10-year-old car, maybe the customer is not interested for another 300,000 kilometer. Maybe he says 100,000 more is enough for my old car, yeah? So you can also do that. You can design the product for the aftermarket needs, yeah? So we have a broader supplier base, and first on shelf is key to get the market.... So that is the production setup.
If you see then the new business models, more and more is going also here into e-business, and we are selling these products also through the e-platforms, like Amazon, for example. And they have certain requirements that you can sell the product. So therefore, we have now built a product, a hub, you can say, which we also offer them with the e-platform, so that they have all the information available, which are needed for the installation of that bearing. There's YouTube videos for installation, for example, or how to select the right part and where to get it. Here's an example. This product hub is designed on web, which we can also then offer to the e-platform, and there you have the chance then to find the right product and to find where it's coming from.
I show you very short how it works here. So you can go on that page, and you select, for example, what you are looking for, which product, wheel end product or, clutch bearing or single taper bearing here as an example. You can then also say, "What car do I drive?" You put the car model in, what you are looking for, and when you select from a list your car model, and when you can select also which product from the car you want to have, here in this case. And when you select the right product for your car, they are all listed there. So and then you can say, "Okay, this is the product I want to have." So and then it goes on, that you also can select where to buy.
You can say we show you directly where the distributor is, who has an outlet of that. And you say, "Okay, I go there and pick it up," or you can even buy online then. If you're online, click on it, and the bearing will be brought to your place. So this is what we offer then as a technical platform for the e-business, so that you have all the information here available on that page, and you can install the bearing in your vehicle. So that is the rough overview about the automotive part, OE and aftermarket. And then I would like, Rutger, that you take the aero part.
Thank you, Bernd.
Later, we come to the questions.
Thank you, Bernd.
Thanks.
So I'd like to give you a little bit an overview on what we do on the aerospace side. And as you can see here, products are a little bit different from the standard assortment we have in SKF and also from automotive bearings. We have an offer with the unique materials that can be containing Inconel. It can be a lot of titanium. We have composite offerings, and of course, also, what Bernd mentioned on the automotive side, a lot of hybrid. I mean, special steel and ceramic components. We also have the elastomeric seals and also elastomeric bearings and so on. So just to give a little bit of a recap, how the 2016 was. We saw a growth in our business despite a downturn on the helicopter side.
We divested one business, that was the fly-by-wire business, which is not really core to us. It was a lot of joysticks, a lot of flight control equipment, lot of sensor-related, so we felt we didn't really get into that in the right way. We found a partner which is more core to him, so I think it was a win-win. And of course, with that money, part of it we took to invest it in our, current production equipment as well. Some years ago, we acquired Kaydon. Part of the Kaydon, portfolio was aerospace, and we see synergies here, especially on their mechanical seals offering. So we, with a bigger network of sales we had in SKF, we have been able to get prototype orders in India for Kaydon Seals, also prototype orders in major European engine manufacturers.
So that starts to pay off in a good way. We saw a strong growth in China again, double-digit growth in China, and we also signed quite a lot of contracts, not only with Airbus, but also with major engine manufacturers. We have a good position on the engine and gearbox side, I would say. And also, we are working a lot with innovation and product development, and we have signed contracts which will generate revenues of EUR 50 million in the future, and we are not stopping there. It's coming in more and more, so to say, as we speak. How do we see 2017? We believe we will outgrow the market. We estimate the market to grow some 3% per annum.
It depends a lot, of course, on the helicopter market, which has been in a decline. We see that the helicopter market has hit the trough for the time being. We see a strong demand with new aircraft programs, engine programs, where we are well positioned. And we also see a strong growth in government, so to say. What's happening now in the U.S. is driving the aerospace industry. So that's a short summary, last year and how we see this year. The customers we are serving, as Bernd showed early on, are basically all big aerospace customers in the world. And the business we are doing, if we... We can say we are into four segments. If we start with the first segment, which is engine and gearbox, aero engine gearbox manufacturing, those jet engines, they are either going to the aircraft-...
customers or to the helicopter customers. Then we are also serving the aircraft and helicopter customers with other parts than the engine products, such as landing gear products, such as products for the wing, flaps, and tail rotor, everything which is moving, engine attachments, and so on. On the helicopter side, it's a pitch product, it's gearbox products, and so on. And then the fourth segment is the aftermarket, our repair operation. So we have a pretty good presence in all the industries where bearings are used and in all levels of value add, so to say, all the way down to the final user. If we look at the trends in the industry, what is good for the aerospace industry is, of course, that the population is growing, and that we also see more traveling. Energy, CO2, plays an important role.
The drive is, of course, to reduce weight, to reduce fuel emissions and so on, and then that is driving the technology. So we see much more light, lightweight constructions. If we look at the Airbus A350 now and the Dreamliner from Boeing, a lot of components are in composite. We are also contributing there by having composite rods into the wing box of the Airbus A350. We see hydraulic systems being replaced by electrical systems, giving better efficiency, much lighter weight as well. And we also see customers interested in health management, prognosis, what is the status of this part in the landing gear or in the engine or whatever. So health management is important. So overall, long term, it's a pretty solid business, and it's gonna continue to grow. That's our belief.
Our strategy is to outgrow the market. We have been pretty successful in the new programs. We have also been able to expand the Kaydon offering, as we said. However, we divested the fly-by-wire, so that is out. We work very closely with our customers when it comes to innovation product. We do a lot of testing for our customers. Not only that, when we work with our customers, we're also backed up by mainly two universities. We work with Penn State University in Erie. We also work with INSA in Lyon. And together, we have very closely related projects with the customer. From an operational excellence point of view, very much is similar to what Luc Graux presented. It's about Industry 4.0. It's about ramping up the new programs, implementing new technology.
But not only that, we're also having a cost reduction footprint project. We are restructuring the way we make components in Europe, which gonna give us cost savings. We have also closed some heat treatment facility outside our Falconer plant in New York State, and we're gonna continue that journey as well. And of course, we cannot do this without competent people, fully engaged people, so we focus a lot also on developing the organization. I'm gonna give you some examples of these four directions here. First of all, how does the program look for the, for the aircraft? What you see here is, is Airbus and Boeing, of course, plus the two smaller guys. And the combined order book of these guys is something like 8 years, whether it's 7 or 9, I mean, it's big order books they have.
The A320 is now being replaced by the A320neo, which has new, new engines. It's the LEAP engine, or it's the Pratt & Whitney Geared Turbofan . The Boeing 737 is being converted to the 737 MAX, which gonna run on the LEAP engine. So solid performance on these. What we see then on the helicopter side is that there has been a decline, hit the trough. With the government spending, we start to see some growth in that business as well. A big part, I have to say, on the helicopter market is replacement parts. So it's not only the OE build lines in the different helicopter manufacturing sites, it's a lot of replacement parts there as well. So as long as the helicopters are flying, it's a lot of demand on the products.
So talking about the new programs, here is one example from CFM, how fast they will ramp up the new engine, the LEAP. The black curve and the brownish curve here is showing the current engine, the CFM56. It took some 25-30 years to ramp up that engine to the same level as the LEAP gonna ramp up in just 5 years. And that puts, of course, a tremendous constraint on the whole supply chain. So CFM partner GE and Safran are working closely with us and all partners in the industry to make sure that it's gonna happen. The red curve here is the ramp-up for Airbus, LEAP-1A for Airbus, and the green one is B for Boeing, so to say.... And Boeing going to have 100% LEAP, and Airbus, roughly 50%.
That's why it differs a bit in shape here. And there are all the other engine manufacturers also who have the new programs where we are pretty well-positioned. This is just to illustrate what I mentioned earlier on. When we work with innovation programs, we work closely to customers, and we utilize Penn State University. What they are able to do, they are able to get technology testing equipment, which is very, very expensive, which we would have problem to justify ourselves to buy into our own testing facilities. They also work on a pretty high level of technology readiness level, so pretty close to sorting out the problem of the customers, not very basic research, so to say. And with INSA in Lyon, we have a close partnership.
They help us a lot when it comes to developing of, composite material and how to design that in a way so it lasts and can take the different loads from the different applications we have. Here's one example of a development that we have done, which is actually going into Airbus A320 to start with, the A320neo. It's an engine mount fitting, so it is safety part. It's holding the engine to the pylon under the wing, and it needs to withstand temperatures up to 500 degrees centigrade. So you can imagine the material here, we are talking about nickel alloys, we are talking about cobalt alloys, and we have been able to come up with a design which is reducing the size in order to fit into this application here. And, this is just one example what we can do.
We are working, as I said, on the composite side. We have R&D projects with some of the major customers. Some of these projects are funded by the European Commission in projects like Blue Sky. We are working with a composite development and health management and many other innovations that we are looking at. We acquired Kaydon some years ago. One part of the Kaydon was mechanical seals with carbon as the sealing surface, so to say. That facility is now being relocated, as Luc Graux mentioned, to Hanover, which is a much more modern facility, and we are at the same time upgrading the technology, the equipment, which is producing these seals. What we are also looking at, and which we are now patenting, is can we combine the seal and the bearing in one piece, so to say?
When we're gonna do that, we're gonna be unique in the market. No one will be able to do that in a way that we do it. That's really good synergy with the acquisition we see from Kaydon, so we get quite interesting customer feedback on this product we are developing. I also like to end the presentation with what we are doing in our factories. As I mentioned, we have a steep ramp up ahead of us. We are low volume, high-mix production, so we need much more flexible manufacturing equipment than we are used to have. Here is one example of a cell that we are implementing in our facility in France, in Valenciennes. It is being installed now and gonna be ready 2018. It's a one-piece flow channel.
It's full traceability, it's zero setup time, and very flexible from a flow point of view. That is really what we need in the aerospace, with one piece can look completely different from the other. It's not like automotive, where you have high volume, low mix. We are talking low, low, volume, high mix here. This is just one example on what we do on the production side, being more flexible and meeting the future needs. Just to conclude this short session here, as I said, we see the market growing roughly 3%, depending on the helicopter market. We are well-positioned here with the new programs that we have signed the year before. We are also making the right investment.
We are also doing the right thing with our footprint in order to be competitive and to ramp up for the new demand in the industry. So by that, I'd like to end. Thank you very much. And, Bernd, maybe we should take some questions? Yep. Thank you.
Okay, can I just ask you on, on the profitability target of 8%, and, you have improved in the past years at the same time as you've been reducing staff, and it looks to be sort of the program ended last year. What's gonna drive you from 6.5%- 8% now as you look forward? Is that sort of a, volumes then and, and the leverage coming from that, or could you shed some more light on this journey and how long it will take?
I think we will still have carry-over effect.
... oh, also this year, you will see. The volume helps for sure a lot, that is clear. Volume productivity is that you get free of charge, let's say. But we have more, what I showed before, cost improvement programs running. We are also having price activities for not getting a negative impact from raw material, huh? So and we have also Design to Cost activities where we say, "Okay, how can we be even more competitive on certain products where we are focusing on?" So it's ongoing. And for sure, we go with our manufacturing footprint further to optimize this. This shows only a part of it, yeah. So there's more activities coming on all angles, which will give us cost and price improvements.
If you look at sort of where you are right now and with the initiatives you have, how much sort of volume increase do you need, and how much price increase do you need in order to get to where you want to be and-
You can say from a total productivity, roughly half at the moment comes easily from volume improvements, so that you get that benefit. But the other things are then really where we are working on real productivity, to get to that level. So I see-
Time-
We are well on track there.
Yeah. And time-wise?
Yeah, I cannot tell you when we have exactly the 8, that is the target, but with the volumes which we're seeing now, it should be faster now than estimated before. It makes it easier. But we don't want to be volume based productivity. We want to be also that the baseline is on the right level, because volumes go up and down, huh? At the moment, luckily up, huh.
On price, have you already made price adjustments, or is that still yet to come?
No, you know, we have with some customers automatic price Klases for raw material. So that has been easy when we don't need to do anything, that adjusts automatically. So there, that happens for sure, directly, and for the other activities, we are talking with the customers, and that has started. That is not coming, that is ongoing.
That's something that's gonna happen before the summer, basically, or?
It depends also how the raw material and inflation will further develop. That doesn't mean that it stops. There is a question, what happens in the market, and how do we adjust it?
Okay, thank you.
Yes, thank you. Electric vehicles, I'm sure you get this question a lot, but... And I appreciate your offering and that you're, you're developing and have developed for, for EVs and hybrids. But if you look at the car today, the new product portfolio, how much of that would disappear if we go to full EV? Just to get a sense for what's dependent, what, what is hub units and I guess some, some of the chassis bearings still will be there.
I think what I showed before, our chassis part is the majority of our business-
Yeah.
which will continue. There's no real change. You can say-
Just hubs and chassis.
Hubs and chassis parts-
Yeah
will remain. That is independent from the powertrain.
Yeah.
There's only maybe a reason for different mileage or so, that you want to have a higher mileage. If an autonomous car has higher mileage than a normal car, it could happen, but we are well prepared for that. So therefore, the chassis part is more or less not influenced from the drivetrain. And for the drivetrain, I said we want to be the key component supplier in this electric drivetrain, and therefore, we have developed in the last years, these special bearings, like hybrid bearing, yeah? Where we have today when all the components needed for the electric powertrain. And I think there we are maybe even better positioned than we are today with the combustion engine, huh.
Okay. And when you say the majority, you're talking about 70%-80%, or you have to get a sense for it, which is today the-
Yeah, more than half, for sure, I guess.
Okay.
Yeah, it's clear. But I think there is also dependent on what kind of powertrain is coming, we are well prepared. Doesn't matter if it is a plug-in hybrid or it is a battery electric vehicle, I think from the components we have prepared for the electric drive, I think we are well positioned.
And secondly, on the market graph that you showed us, the market value, SEK 60 billion, SEK 90 billion, SEK 60 billion. The sixty billion when potentially fully EV, is that volume independent? Are you measuring-
No
the same market size then?
No, that, that is, the name, more or less the name, the same market size. What the difference is, if you go from a conventional powertrain to an hybrid powertrain, you normally extend the volume of bearings.
Sure.
Because you have more or less a double powertrain-
I see
in the car. But if you go back then to a pure electric vehicle, you have much less bearing content in that powertrain.
But you see them in the same market size, car market size?
Right.
Yeah.
But I think we can also position ourselves better in this new powertrain-
Okay
with the components there, yeah.
Very clear. Thank you.
Could you again, on that issue, could you say today, 'cause you said it depends on how the technology develops, and nobody knows that for sure, of course, but if you compare today, can you say anything about the value of your components that go into a conventional car compared to a Tesla or an i3 or whatever? What's the ratio here and now, versus a Volvo or-
First of all-
-comparable car?
First of all, I think it is important to understand that a wheel bearing unit has a much higher content than a single needle roller bearing or DGBB in a gearbox. It's very big differences. A wheel bearing is a complete unit, yeah, maybe with ABS sensor and so on. It's a complete different value? And that is independent, you can say, if it is electric or conventional, that is not changing. So if you see when the powertrain, then it depends what we are talking about, yeah? So today, in the conventional powertrain, we are mainly, let's say, in the auxiliary drive of an engine or in the gearbox with standard bearings and some special bearings, yeah? And I showed also where bearing carrier, uh, bonded pistons and seals and so on.
So I think the electric powertrain will have hybrid bearings, for example, in there, which have a complete different value also against that, because it is ceramic rolling elements in which are for sure, from a value, much higher. So there's a lot of new special products needed for that, which are also of higher value compared with the today's powertrain.
Okay, it's hard to make the comparison, basically.
You cannot say even it's also the question, what kind of product you are talking about? Today, you can say, do I have a city car, a luxury car, two-wheel drive, four-wheel drive? It is a bit complete different content in the car, and that will be also the same if you go for a Tesla, for example, with four-wheel drive and two traction motors against maybe an i3 with one traction motor, yeah. So it is the same that you say, what is really in that car?
I think you also alluded to your market position. Were you saying that you feel that your market position on among sort of the EVs is more competitive than your average market position in automotive, given what you've done in the past couple of years in trying to position yourself for this growing market?
We have positioned ourself in the past very much on the chassis side, which is also the high-value content in the bearing, and where we were focusing to be the number one in the market. That is clear. But with the electric vehicle, it opens for us now up a new range of products, and especially for these special hybrid bearings, for high speed, low friction, high electric insulation, and so on. So it opens a new market up where we can step in, depending how it develops, that market.
Thank you.
Hi, it's Andre from Credit Suisse. Ben, since you've taken over the Automotive and Aerospace, in automotive, are you planning to do anything differently within the vehicle service segment, in particular? And well, actually, I'll follow up.
Yeah, what I showed in the vehicle service market, where I say we have two legs there. One is the OES business, which we normally fulfill with our OE demand, that we deliver through that chain, through our OE customers, yeah. And the other part is the free vehicle service market, and where I see that there, the market is changing. For us, important was that we have special manufacturing technology for that, that we can produce lower lot sizes for older cars, let's say, that we are competitive with that and don't need these big volume production. And the other is the business model is changing. There's much more e-business coming into that, and therefore, we are also preparing to support the e-business in the right way.
Thank you. And on aerospace, just to double-check, that, that business is all to the customer spec, right? You wouldn't say there is much of a standard size product in there. You develop your products to the customer spec.
Basically, all customer specified, yeah.
Right. Great. Thank you.
Thanks. Continuing on the aerospace.
Okay.
On the helicopter business, can you tell us how big is that in terms of your business? And also, are you seeing the volumes coming back already? I mean, you sound quite upbeat on the government side, and I guess a lot of it has been depressed with oil and gas as well.
Government is not only helicopter, government is other things as well.
Okay.
But helicopter business... It's difficult to say. I think far less than half of our business, for sure.
Okay.
But I cannot give you that in detail.
I guess that sounds good.
It's much less. The big part is the aero engine side, which goes both to airplanes and helicopters. So that's why it's difficult to say how much is helicopter, how much is fixed wing. You don't really know always where the jet engine goes.
Sure. But would you agree that big part of the swings in your business has been helicopter-driven, I mean, demand-wise, volume-wise?
The downswing is mainly on the helicopter side, yes.
Okay. And, and again, are you seeing that already now coming back or whatever?
But there are some specifics I need to add there, because maybe you noticed there has been some accidents. There was one in Norway, and that helicopter had then been grounded. And depending on if you have high market share or low market share on such a platform, you are more or less effective, so to say. There has also been in the U.S., some new programs with some fatal accidents, which have been stalling some programs. So you know, there are many things that can happen. It's not just, up and down from a business cycle point of view.
Okay.
There can also be other incidents which is influencing how the business develops, yeah.
All right. Thank you. Okay.
Can I also ask you that? Because, as you say, you will outgrow the market, and you sound, when you sort of are looking at the slides and what you said, it's been sort of very well positioned for new programs. Is that a big change compared to the sort of the outlook that you had for 2016 or 2015? The sort of the wins that you've had in terms of new programs.
Some of the programs were taken a couple of years back. Then, of course, there have been new programs signed on to as well. And I think what we see now is a ramp-up, which is steeper. Of course, there's gonna be a down ramp on the other programs as well. And on some you're winning, some you're losing. But I think what is good is that there is still a fleet out there which need a lot of maintenance and replacement as well, which is not peaking yet.
But if you see that, and at the same time, you see the helicopter part dropping out, and you're happy with your, sort of, your new wins, could this business grow by double-digit in 2017, or is that sort of far too optimistic?
I cannot comment on that, no.
All right.
I think we talked, you talked a lot about the car models and the market share losses that you had in the US that are coming back now. But what about Europe and China? Is that more stable in terms of market share, or what do you see there going forward on the car side, passenger car side?
I think we are well positioned in China from our footprint, and that is for sure a fast-growing car market also. And I think that is also important, we have a quality brand. So therefore, I think we have a very good positioning there. So therefore, I think we are growing in that market also quite nicely, yeah. So that means the Asian market is very important for automotive, and we are well positioned there.
Will you outgrow the market? I mean, Chinese market has been growing very fast.
I think we are for sure in all the transplant models, you can say, which are also more or less European designs, but we are also more and more coming into Chinese brands. Yeah. So that is an important thing for us. The transplant business was always strong, but now also entering the Chinese side makes also a good development, yeah. Is that outperforming? I hope, yes, you know.
What kind of position do you have on the automotive aftermarket in China, if you compare that to what you have in Europe and the U.S.?
Yeah, I would say we have a much better setup still in Europe and U.S. than we have in China. But therefore, I think also what I showed on the VSM side, new business models could help a lot there to go to a faster growth in that market. It is more how you deliver to that market. E-business is in China, I think, key.
Yeah.
I guess slightly more cautious on your year-on-year growth in Asia, but last year, you started to come up against especially difficult comps versus last year. I think you saw sort of significant growth at the back end of last year.
No, I think also the last year, we had a quite good growth there, and I see that ongoing at the moment, also there. It's, it's good growing market, and you can say it is broad-based at the moment.
Thank you very much.
Thank you very much.
Thank you.
We have a break, so we are now not here anymore, right?
You tell me when we're live. All right. Well, welcome to this last, I guess it is, presentation, but of course, the most interesting one, about yes, connectivity and innovation, innovation and business development. You will see also something about business models in this presentation, which is the reason why we work with connectivity and digitalization. We want to find a way to find revenue streams, and that's what I'm gonna tell you about. My name is Victoria Van Camp, and I'm since two weeks, the CTO of SKF. I have with me, Robert Wiktorin, who is the director of product management, so that means product marketing and roadmaps. And also, somewhere in the room is Bernie van Leeuwen, who is the product manager for industrial digitalization.
So I have some backup here. Today, I will actually talk about steel and silicon. In the old days, when somebody from SKF said that, they usually started talking about alloys and how much fatigue life you would get out of your bearings. In this case, the silicon represents hardware and software development, and I hope to show you how these two things go together and why they belong together. The SKF vision and mission, you saw the mission this morning, the undisputed leader in the bearing business, and that is something we have to be in order to provide reliable rotation to our customers. Reliable rotation means keep machinery running, and of course, get paid for keeping machinery running.
To do that, we have to be the best in the bearing business. At the same time, as we're saying that, the world is changing. We can see our original equipment manufacturers, the OEMs, that could be electric motor manufacturer or a robot manufacturer, changing the way they do business. They, just like we, speak about moving from just building machines to moving into services. That, for us, is or could be a bit tricky, because if you remember the old days of SKF, we spoke about services as basically almost a standalone business. If you are in a standalone service business, then you actually would suddenly compete with your customers, with your machine builders, and that's not a really good situation to be in.
At least it's a new situation for us in SKF, and we have to act so that we fit in to this new world, because we're not gonna stop our customers to go into services. In the middle part, we have the distribution and dealer business, a very important channel to market for us and our customers in distribution and dealing. They also, of course, see that to only be a logistics partner or only provide bearings out in the bush when they are needed, that is not a long-term business model for them. They wanna expand and move up the value chain and go into services as well. At the same time, they also see digitalization both as an opportunity, but also certainly as a threat.
If you are in the distribution business today, you meet new entrants like Amazon, like Alibaba in China, and now everywhere, actually. You might meet Souq in the Middle East. That is a different kind of competition that our distributors and dealers are facing, and we need to help them. We need to help them to move up the value chain so that we maintain this key channel to market for us. And then the end users. I mean, an end user, you have now all been out to our plants, and you have seen how we improve efficiency. Well, that, of course, you go to any other plant in the world, the same is happening.
There is automation, there is digitalization, there is productivity increases, and this comes back to us in SKF as well. And it comes back, all of these things, they were already happening for some time, but digitalization and the internet is speeding it up to a much higher speed. So what are we doing to meet this world? Well, you saw this morning, you saw from Alrik, a picture, pictogram with a bearing, and then in the middle were two guys with hats, hard hats, and then some orange balls around. This picture shows kind of the same actually in a bit different way. In the middle is the competitive bearing offering, and that is absolutely crucial if we want to be the undisputed leader in the bearing business.
Even if we are in the performance-based selling world, we have to have competitive bearing offerings, otherwise, we are really nobody here. Then, yes, we have the other technologies, condition monitoring, remanufacturing, lubrication systems, seals that we have, as possibilities to offer solutions. Yes, it is possible, as this picture also shows, it's possible to sell those technologies separately, but that is also an area where you suddenly compete directly with other providers of condition monitoring system or other providers of lubrication systems. So wouldn't it be great if you could step away from that competition and offer the customers something completely different, something that they really value? And that's what we will talk about later. But first, I'm gonna hand over to Robert Wiktorin here, who will talk about what do we mean with the competitive bearing offering? How are we thinking around that today?
Okay. So hello, everyone. My name is Robert Wiktorin. I'm heading the product management department. Meaning basically, I'm ensuring a competitive offer, bearing offer, and by then supporting growth and profitability of the bearing product lines. If talking a little about the product value proposition, let's start in the application, because machines tend to be different, and they have different needs, and they set different requirements on bearing performance. Some machines require, I mean, some customers require long service life, some needs bearings that can sustain a very high speeds or high loads or low noise. But it's different.
We also see that customer tend to be willing to pay for what is actually helping them in the application, what is solving their problems, and addressing the main failure modes in the application. They are, however, a little less willing to pay for the rest, the stuff that is not important for them. So by understanding the application, we can, instead of going to the market with the universal bearing solution designed for top performance on every single parameter, we can work with offers that are designed to meet the more specific needs in the applications and focus on that. This is pretty much what delivering the right product to the right cost at the right time is about.
Since needs tends to be different between industries and geographies and segments and even philosophies, we don't believe that one size fits all. With application knowledge and expertise in bearing design, you can do quite a lot. I mean, we are quite used to drive value in the offer to address what is challenging, the failure modes, the tricky stuff. And that we have done successfully for 100 years or a little more. But what we also need to do in the applications, and where you also can use strong knowledge about the application and knowledge in bearing design, is to try to drive out the rest.
If we have parameters that does not provide any value to any customer, and he's not willing to pay for, but only drives cost, if you understand the application, you can offer an application-specific offer, where you try to take out that to achieve both technical and commercial competitiveness. This we're doing today, and we have a couple of examples, and I would like to share two examples of that with you. Addressing two business areas where we, until recently, practically have been out. The first example is from the metals industry. In the metal industry, you need four large cylindrical roller bearings in a couple of very demanding applications, especially in cold rolling mills that produces high quality automotive steel and also in high-speed aluminum foil mills.
These mills set very high demand on the bearing. You need increased output, increased output, you need very reduced maintenance costs, and you need unplanned production stops. And the ability to actually achieve that is pretty much very much up to bearing robustness and service life. So this is why we have developed a new solution for this industry that delivers increased service life and robustness. We have worked with the reduced friction by new designs, coating solutions for a number of specific problem areas. We have achieved high load ratings of the bearings, and we are offering lower maintenance costs for customers for better mounting, dismounting. However, in this case, it's not enough to do that. We also need to substantially reduce cost in this offer to be able to be attractive for the customer.
So this we have addressed by using the SKF global footprint. Using new manufacturing technologies, but also to try to eliminate features in the product that is just driving cost. So design to application specific, to the application specification to take out cost in the total offer. So this we launched a number of months ago, and it's been a very good success, both in China and in Europe so far, actually. Another example is from the oil and gas industry, fracking. Fracking means basically that you release oil and gas by putting in high pressure fluids in the ground. That is done through frack pumps. Frack pumps requires bearings that is operating under very tough conditions. Very high loads, very contaminated environment, and poor lubrication conditions.
So here you have quite a big bearing consumption, and you have customers that requires, of course, reduced maintenance cost and no unplanned production stop to get efficiency in their operations. So in this case, it's also cylindrical bearing, this time a one-row cylindrical bearing, and we developed a new bearing that offers increased service lives and robustness. Better steel, optimized internal design, and also managed to increase the high load ratings. But also in this case, the requirements in terms of price competitiveness required us to take it a little further, not only drive in value, but also drive out costs. So also in this case, we could use our global footprint to reduce cost, but we could also design this bearing to fit the application needs.
So if I take, for example, the service intervals. Yeah, the customer has a certain service interval requirement. This bearing meets these requirements. And if the customer requirements change and the service interval becomes longer, we have solutions for it. But it also, that also implies an increased cost, and we shouldn't do it unless it provides value to the customer. So these are two examples of how we can go for application-specific solutions by not only driving value in the offer, but also drive out costs where possible.
Yeah. And, yeah, I mean, we got the question in the last session about exactly what did we do. In both of these things that you saw here, especially in the previous one, that's a bearing of about that size, about my height, that contained a lot of rollers. In that one, we could reduce the cost of those rollers, and that took down the cost of the entire product with substantial amount. We could also do small design changes, like, several of them are covered by patents that we can't disclose them, but you could find a little radius somewhere on that cage that perhaps in Lutsk factory require special tooling, very, yeah, a special machine.
If that radius is not needed because this particular bearing is rotating at slower speed, or it only lasts for six months, then you can take away that one, and that saves cost in production suddenly. Of course, you can't take that bearing and put it into a high-speed machine where you want longer, much longer life, then it's gonna fail. But that is the way we work, and that's that little—those two triangles up there, to know what you can take out that drives cost, that requires expertise. If you don't have expertise, don't try it, I can say that is, then you will go wrong. It will fail long before. Now, I will shift a bit towards now the data collection and digitalization. But funny enough, these two things belong, belong very much together.
If, in this case, we say that we know a lot about the applications and so on, we do that mainly through our application engineers that are out in the field. Now, when we start getting data in from sensors that are everywhere in the field, then we actually get information on how long do these bearings last? What exactly do they fail from? When do they fail? How does somebody assemble them back together again? That is information that will come in to us and help us design even better to cost. So there is actually a connection between being able to do application-specific and big data, if we call it like that. Now, before I talk about the data, I'll come back to this picture. Now it says hope on there.
In the past, with our five platforms, I would say that we were relying a bit on hope when it came to boosting the bearing sales to other technologies. Just because somebody buys a lubrication system from SKF doesn't mean that they automatically also will buy the bearings. Yeah, maybe they like the sales guy, so they buy it, as well, but there is no guarantee, and hope is, sort of a shaky ground to stand on when it comes to, business. So we want to go away from hope and more into solid business models for tying this together. So this line, that would have been what we said before, when we showed the five platforms. We sell services, monitoring, lube systems, and we sell you bearings. So come into our department store and shop.
That is, an orange line, not a red one, but almost. We, of course, again, yes, if somebody wants to buy one of these, we will sell it to you, but that is not what this company is about. What it is about is that we can provide you with services, monitoring, Internet of Things, lubrication systems, in order to provide reliable rotation, and in order, by that, to grow the bearing business. This is not hope. This is business models. So what is this reliable rotation, and how does digitalization help it? I mentioned now the name, the word business model several times. So on the left-hand side here, you see the more, well, that way where you sell things, piece by piece, transactional selling. We can sell you even services.
We used to talk a lot about that, but selling services as a standalone platform, that is still a transactional selling. If I say, I sell you eight hours of a service technician and you send me money, that is still a transactional selling. And by doing that, you will also compete with Joe's Garage somewhere on the street, who is also selling eight hours of a service technician. So that, and of course, you can sell bearings in that way, and you can sell lubrication systems or even condition monitoring. You can even sell software in that way. That is a business we are absolutely still in it, but it's not the business we want to be in because it's really hard to get paid for the value we deliver by getting paid for bearings, if we put it like that.
So when we go towards the right-hand side, that's where we see the new types of business models that we are driving the entire company towards. Performance-based, in there is the reason there is a graded scale here is because, yes, there are customers that are completely performance-based. We have contracts with customers, contracts that we call integrated maintenance service, which is basically we are paid on the meters of paper that comes out of a paper mill. Then we are responsible for performance throughout. That is perhaps not what every customer wants. You could focus on a part of a plant, let's say, a crusher or a conveyor belt, and you can say, "Ah, can SKF take care of delivering a number of tons up this conveyor belt?" Yes, we can, actually.
That is what we call Rotation For Life, which is a rotating equipment performance program, which is based on how well this machinery performs. For the customer, compare the gray bar here is you could buy stuff in pieces. That becomes an operational expense or a capital expense for the customer, sorry, and the customer needs to tie this all together and possibly have a consultant that does it for him. If SKF does that tying instead and names it Rotation For Life, and writes a contract that is based on performance instead, and also where we are perhaps getting paid per month or per quarter, then for the customer, they have now shifted a capital expense to an operational expense, and there is skin in the game, as Alrik says, for SKF as well to perform better.
To make this a little bit more real, I'll show you a real example from Zinkgruvan Mining in Sweden, where there you see the real conveyor belts, where we have a five-year Rotation For Life contract, where we are getting paid based on performance, has to do with number of tons delivered up. This kind of contract, now it is on us to equip that conveyor belt with the right technology to make it work.
So to show you even more in detail, here, it's for us a benefit to put in condition monitoring, because the alternative is that we send out a guy that checks the condition, or the alternative is that things start failing, and we're not getting paid on performance. For us, it's a benefit to put in a central lubrication system into this conveyor belt, because the alternative, well, maybe it's not lubricated, maybe we have to send a guy with a grease gun. So that is the beauty of it for us. And in addition, we put in sealed spherical roller bearings on the points where the lubrication system cannot reach anymore. Instead, the alternative, in the old way, we would have been competing against somebody sitting and arguing about the beauty of sealed spherical roller bearings versus open bearings.
Here, we know this is the best solution, so we build it in. In these contracts for the customer, what I have heard from both these customers and from others is that with, for example, the online condition monitoring system, we build in something now that makes this conveyor belt future-proof. The customers use the word future-proof. Now, they didn't buy a system, they actually bought a performance, and they are expecting SKF to be upgrading this when new technology comes in. So they feel future-proof because neither they or us can say exactly what should sit in there. So, digitalization and what we call it, industrial digitalization here, where does this come in this picture? Well, I want to make it very simple because digitalization can mean anything to anybody.
For us, it is about right now, today, two things. It's the sensing and the software part. Sensing is where you collect data, you put all those sensors on, you connect them by a cable or wireless, you detect what is going on. The software takes over, and you analyze what is happening, and you put a diagnosis in place. So what kind of fault is this? Or what is this signal meaning? Once you diagnose, you can actually start taking action. You might not be able to do it until you see the fault signal. So temperature goes up, okay, lubrication system now needs to get into gear. And of course, you can automate that, so you don't need a guy that goes and turns the knob. The really higher value comes in when you can do prognosis here.
So that means some months in advance, or weeks in advance, or half a year in advance, you can say, this machine will break down if we don't do something. So now we can start taking planned action. We can plan maintenance, we and the customer, we can put orders back into our completely flexible supply chain.
And look, I, I told people before that you actually have a 3D printer down in your factory, where when it's possible to make one-piece stuff, and these systems start knowing months in advance that we need this one-piece stuff, and we need it the first of August, then Luc's machinery knows this, or our supply chain knows it, and that part can be manufactured for a single end user, it can be shipped, and it can show up when the end user has their planned maintenance stop. That is really something. No in-between stocks. That was what Luc was trying to show with these two curves that went together. We can, of course, also rebuild and re-engineer, so something that fails every half year shouldn't do that. We can fix that.
To go away from the actual little drawing to real life, this is a picture from what we already do in Latin America. On the top here, you see things like data collection, you see what I had exactly on the previous screen. You see product machine health reports, you see action being taken and feedback and follow-up. Below that, in the sort of part with the dashboards, you can start seeing technology needed to make this possible. So these business models, it would be possible to do it without digitalization. You could have a lot of guys with Post-it notes and touching with their fingers, making a report, collecting this, and going back. It's possible, but it's really people-intensive. The technology takes out the people.
So digitalization, in this case, is a way of automating the collection and the analysis. So here again, it's about having the business models that you can fit in the technology and make your business models more efficient. Your technology, in this case, in the middle here, you see something that says Distributor Portal, for example. That is a view that our local distributors in Latin America have of what is going on in a paper plant, for example. So they can see that there is a pump over here that probably has about three weeks left to run. Then I need to stock up on some new cylindrical roller bearings, or maybe I need to make sure I have them, so that me, as a distributor, I can go out.
The beauty of that, to have these dashboards, is that in small distributors, they cannot read big condition monitoring systems, process control data. It's too complicated. So we create dashboards for them that gives them the information that they need, and that creates loyal distributors that actually provide the bearings. So here is the way to grow the bearing sales by having provided the end user with all this, technology and the distributor. It is not only in paper mills and mines, we can do this. Onboard a ship, we also have a lot of different machinery. It's a bit harder to communicate, but it's possible. But on a ship, it's even more clear that you have people with different needs.
You have somebody, the captain on the bridge, needs to know what to do, but he doesn't need to see the data, the details. You have the fleet manager onshore, who maybe does want to see a collection of what is going on on all of my different ships. You might have the propulsion system, designer, who needs to do a redesign or provide spare parts. So here is digitalization with a purpose, is to figure out first what adds value for what user, and then provide that technology or that data to that user. Not drown people in information, because that is not value.... So what do we need to do this digitalization with purpose? We need low-cost sensing, because the dream, of course, is to equip every machine everywhere with a sensor, and the best cost is zero here.
We're not really there yet, but you'll see in a few moments that we are getting there. We also need connections to customer maintenance planning systems, to ERP systems. It's the same in our factories. If there is a guy coming with a beautiful app that doesn't work with SAP, we're not really interested in that. That's the same for our customers. So we need connection between everything we do and customer process control system or planning systems. We need software with this user-tailored reporting and recommended actions. So what should you do as a maintenance technician? You have to know that. And we need automated diagnosis, so we don't need armies of people sitting and looking at squiggly lines.
Then, of course, we do need the supply chain optimization and a world-class manufacturing, so we can do this 3-D printing on demand. And fortunately, this is some of the product launches that we are doing this quarter. That supports exactly what we're where we are going with this. The first one of these is big data in your pocket. This little stick here, the blue blue thing on the right-hand side, it's called a Quick Collect. It is a vibration and temperature sensor that does basic filtering inside the sensor. It sends a package of information over Bluetooth to a smartphone. On the smartphone, you can see because this phone, the software actually knows what kind of machine you are measuring on, so in this case, some little electric motor. Then you get red, green, and yellow.
Is this dangerous or not dangerous for that particular machine? You also have a connection to the cloud through your phone now, in this case, because this software is connected to the cloud, and it's part of something called the Smart Supplier Program 4.0. That is a program that we are launching in two weeks' time to distributors in Southeast Asia. What is this program? Well, basically, in the old, old days, two, like, 2 years ago, we would have sold this magic stick and the app, and we would have made some money on that, and it's a unique product, so of course, yeah? Today, that's not what we're doing. We are actually giving this magic stick away to distributors, to loyal distributors, and what do we get in return?
Well, there is a contract that says that you, Mr. Distributor, need to grow the sales of SKF bearings with X%, and you have to do that within a period of six months, and if we don't see a change, we're gonna turn the app off, and we're gonna collect the sticks back, and the sticks don't work without the app. So, this is a different way of looking at things. So, we get a lot of questions the past couple of sessions on how much money, what, how big revenue do you have on these electronics part? Well, here, the revenue on that stick is zero, but the revenue comes in bearing sales through distributors, growing loyalty with distributors and getting them to promote SKF bearings.
Of course, this app is connected to the cloud, so SKF has suddenly access to lots of end users in Southeast Asia that we never saw before. And also, you can see that it's a very simple system. It is easy to use for somebody who is a bearing distributor who never used condition monitoring before in their life. And what you saw, by the way, on the HoloLens movie this morning, that was the actual data from this app shown on the HoloLens thing. The key to making this work, besides the actual stick and so on, is what we call the Enlight ecosystem . Enlight is the successor of SKF's previous condition monitoring software. We had two of them. We bought companies over the years. They were called Analyst and Observer.
Extremely good systems if you love watching squiggly lines from the vibration sensors. Unfortunately, that's not what people wanna watch anymore. They want to see the status of their machine, the health of the machines, or get recommendations, and they want easy connection between different pieces into the same ecosystem. So this is what we are developing and actually have launched into the marine industry, right now. So this is the replacement of our old software. With this software, it's a cloud-based software, so we have the connection to the cloud. We can easily connect different types of equipment, lubrication systems, online system sensors. We can connect in an easy way to customer operation system like SAP or other systems, depending on what the customer is using. This all has to do with the architecture of the software.
It's a completely new and different one. Now, why is that connection so very important? SKF is not a process control company, and we will probably never be. Honeywell is a process control company, and because of that, we collaborate with them. For Honeywell, the beauty of this is that they actually don't know very much of, about rotating shafts or why bearings fail. But in a mine like this is, in a copper mine, there are lots and lots of bearings, and they need to be not just seeing that something is going wrong over here, what is going wrong, and what can be done about it, and by the way, ship me a spare part.
So we have a cooperation with Honeywell in this largest copper producer in the world, where SKF people sit in the same room in the mission control center together with Honeywell. And basically, it looks like this. They have the process control and the process data. We provide the condition monitoring and rotating equipment-related data into something that can be used for decision analysis and planning maintenance. And Honeywell, by the way, is one company. There are, of course, many others, and we are also working with several others as well. This actually is very different from how we used to reason. We used to reason that we would expand into process control. We're not going to do that. What you see here is the way we think today.
We plug in our ecosystem with all those products plugged in. It plugs into a user control system. Could be Honeywell, could be GE, could be Siemens, could be Metso, perhaps, with SKF plugging into that, plugging, and Metso plugging into Siemens. This is the way, the way we work today, and it's actually very something that the customers like. Nobody wants one more IT system, I can tell you that. So on board ships, again, we did exactly this, but with a different... In the marine industry, there is a system called AMOS, which is the most, most used one. So on that one, we plug into AMOS, we give the customers different views, and we get access to see the data as well.
So you can see that, the same software gives now our guys a view on the very details, what is going on. It gives the fleet technical office an overview of all their ships, and it gives the onboard monitoring technician an instruction of, "Go here, lubricate that pump, do this." It also sends orders to the ship spare part ordering system, so that when the ship comes into Singapore or somewhere, the spare parts, if they are needed, are already there. And this, definitely, the customers really love it. We have it in operation on a number of ships already, and we have shown it. The first time we showed it was at a marine fair, Posidonia in May, I think it was last year. And, everybody who saw this were wondering, "But how?
This is amazing," that these old marine guys were saying, "How do you know that this is what we really needed?" Actually, the way, the way we knew it was because we took the software programmers out of the software office, and we put them together with people who had been marine chief engineers or still were that, so that we had the user view into what is the software needed. And this is really important to be able, instead of programming what is possible, you program what is needed. Actually, very much application-driven innovation. Also, the way we develop software, the old softwares we had were built on a structure where we have an army of developers, creating a big, well, actually, it says app, but it wasn't an app, I can tell you that.
It was a heavy software that was running and very hard to change. Once you build, you test, you release, and to make any change, you have to go back into the army again. Today, we develop in a very different way. We build the architecture of this Enlight Center in pieces so that we can make quick releases, we can test them with customers, we can do upgrades, push upgrades out to the cloud, in a really easy way, and we learn while we go, because I think nobody can tell, not us, we cannot tell, and the customers cannot tell exactly what would they like to have in a year or two years' time. So this is a fast development cycle, what people in software industry call Scrum or Agile development.
We have actually trained all our software and hardware developers in Agile, but we have also trained our bearing developers in the same methodology, more to create a mindset change that you can actually do small, frequent changes. With this flexible production, we can actually also integrate it into production. We just need to change the drawing or the digital twin , as people call it. I've been in software or in calculation for a long time, and we didn't, we called it a computer model. That's still what it is, but okay. Now it's connected to machines, and that's the difference. So with this way of working, we actually have speeded up the release of products a lot.
This magic stick that you see, the Quick Collect sensor, that one was developed in less than a year with the Scrum way of working and in a way that distributors just can't keep their hands off it. I can tell you when I presented. I actually ran a demo of that sensor at Dagens Industri conference in Stockholm in the fall. And there was a guy in the audience who said, "Well, but that's really ugly," he said. And I answered him in Swedish, and I said, "Well, bättre snabb än snygg," which means better fast than beautiful. And that's really... It's a core thing of acting agile. You come out with minimum viable products. You don't wait until you have the perfect product. It has to work, yes.
But here, for us, the key thing is to be present in as many places as possible and collect data. And then when there is an upgrade, when we have beautified that one or put more bells and whistles on it, then we just exchange it. These distributors with their program, they get a new one. Maybe X goes to X point times something then. But we can upgrade as well. The device in the middle, the Multilog online system, the IMx-8, is. It looks like a router, but it's not a router. It is a data collection point. It does analysis, filtering, it stores data until you can ship it away to something, and it's also application tailored development. So the cost of this device is a lot less.
For us, now that we want to run performance contracts, the benefit, we put the IMx-8, we can put that in a lot more places than we could with the old equipment that was a lot more expensive and actually didn't fit. And size, in this case, does matter. On the left-hand side, you actually see a real control room that you needed to do the same as you can do in this router thing. So of course, technology will just expand. And what is—why is size, in this case, so important? Here you actually see a bit the existing, the IMx-8 or 16, sorry, the WindCon system. It's like a fridge, a small fridge, but it's a big thing. Customers use it.
It's in windmills, it's in lots of places, but it's very big, and it's also quite costly. When you start shrinking these things, IMx-8 is the first step. What you see on the right-hand side is the next generation, what we are working on, using MEMS, so a little chip that can be both a sensor and do analysis. So now suddenly, my sensing and software that I showed in the drawing, they actually float together. So you start doing both of that in that chip on-site, which is very nice because, well, also it's a lot cheaper to do that. You don't have to rely as much on great connectivity, and before we have 5G in every corner of the world, it's gonna take some time.
With a smaller size and a lower cost, you can equip the windmill, you can equip with a number of these small devices. You might still wanna use one of those IMx-8s to collect the data and store it before you ship it away. Certainly, on a ship, that's actually what you want. You want a local cloud over the boat until you come to a satellite connection. But you can also start going towards, on the left-hand side, smaller machinery. Machinery that in the past, nobody would have made the expense to put sensors on that kind of machine unless it was critical. Now, we can do that with this new technology. The IMx-8, the little router box, is taking us in this direction.
To do this, of course, it is a technology change, and it's something that we are working on. Looking at the roadmap, which, Bernd over here is in charge of, he has a lot of products to think about today. On the left-hand side, his predecessor actually had even more. We had an enormous amount of condition monitoring and data processing and software devices because we wanted to compete in that market, so we needed something for everything. Last year in June, we closed down our development center in San Diego and moved it to Gothenburg. That gave us the opportunity to kill a lot of these products. Some customers were not so happy, but we did this in a gradual way.
So we have trimmed down our portfolio, and we are going to trim it down even further so that we actually have... Now you start seeing the software and this little sensor chip, and at some point, maybe we don't even need a software, who knows? But I think we wanna see, we wanna see it in some way, form, or other. The agile approach here with quick releases, that's the red dots here. I cannot say, Bernie cannot say exactly what will be in each of these releases, and we shouldn't, actually, because this is something we should do together with customers and upgrade as time goes. Into these equipments, we also need to build diagnostics or artificial intelligence, or automated diagnostics, or whatever you wanna call it, machine learning. It's something we are working on already today to build it into the software.
There is basic functionality for this already today, but the most part of it is done by people. When we optimize it, we will have the people will be there, but they will focus on more important things and the more difficult cases. At some point, we will be able to implant this also into that little chippy thing. So let's see what, where that takes us. And don't hold me to the fall of 2019. It might take longer. Maybe it goes faster, who knows? This bearing diagnostics, well, why that is so important? It gives you... I said that before, it gives you longer visibility. The more, when today, when you see a failure coming, something has already happened. With prognosis, you can actually say, these kinds of machines usually fail after 8 months. This is one of those machines.
How are the data looking? Is it likely that it will fail? How long did it run before that? How often was it lubricated? Now, I can start looking into my crystal ball and say, "When is it gonna fail?" So here, I might have, I might have three months, maybe I even have six months horizon before then, when I know that this thing needs to be replaced. So that's where my planning can come in, both back to manufacturing, but also for service. And for the customer, this is plant maintenance. That's what this builds on.
So to round off, this is the Fourth Industrial Revolution, and the industrial revolutions, or any revolution creates big changes. The pictures on the right come from the Gothenburg newspapers, and for those of you who don't speak Swedish, the lower one says: SKF lays off 160 people in Gothenburg. The upper one says: SKF is employing 50 people to a development center. These were in the newspaper in the same period of time. Also, well, it's very nice that they are illustrating the new employment with a bearing. These were software developers that we employed, but they didn't have a picture at the time. Teuvo has fixed that now. So, yes, the new business models and the new technology does require a shift of the competence base. It is a tough time.
We are working on it. We are also succeeding. We have a very good relation with the unions in discussing where we are going so that they understand why we are doing it, why it's necessary. It requires cross-functional ways of working. Digitalization is not just in one department. That's why we don't have a CDO, a Chief Data Officer in SKF, because we see that this is not one guy's or one department's responsibility. It's all of us, and we need a strategy that keeps it together. We also need collaboration and partnerships. The one with Honeywell, what I showed you, is one example, but we have a number of other, where in the past, SKF was kind of, well, we better do this ourselves because we're so good at everything. With fast-moving technology, we need partners to move fast.
And sometimes we can acquire them, sometimes it's better to partner because it changes so quickly. We do need a new approach in development, not just in software development, but also in the bearing development, which, Robert was showing you. We need to maintain obsession with quality, and that goes also for software. SKF, I mean, we are not-- this is not app development for gaming or for some fun things. It's really for telling a ship captain, should I go into port or not? So this cannot fail. We have to be obsessed with quality. And fortunately, that's something that's built into our genes, and we have that also in the software department. And then the final point, cybersecurity, or security against hacking.
If we send data from ships to clouds or from machines to a computer somewhere, that cannot be compromised, and that is something we put a lot of effort into the communication protocols between all these different devices and where they are collected. So of course, we need the new competencies and partnerships. So thank you, very much. We had, when we were downstairs, we had a lot more—because of the webcast, we couldn't have questions during. I can tell you, your colleagues were asking questions throughout, so let's see if we have any. Could be.
Hi, it's Andre Kukhnin from Credit Suisse. Can I just ask, firstly on what you described as condition monitoring and how that links into a DCS-type system. You are keeping your original equipment manufacturer customer with that, and the people who make pumps or compressors or other equipment, they also, I think, are after the same kind of thing. So how do you deal with that potential conflict?
We deal with it by, this IMx-8 is exactly an answer to that. It is small, it is, cost-efficient, and it's something that original equipment manufacturers can build into their equipment. So we get a kind of a Trojan horse into, the OEM's machinery. And when we come to that, the chip thing, then, then it can be everywhere.
Your business model is ultimately to sell the replacement bearing, right?
Get paid on that. You're not trying to get customers subscribed on some kind of a recurring, condition monitoring?
No, yeah, no. Yeah, you can put, you can put it like that. Of course, what I said with we would like to get paid on performance, which means selling, selling bearings in some way. But, so you're right in that. That is our business model. We don't see a model where we're gonna get, start getting paid for data streaming up and down somewhere.
Can I just bring up the Solution Factories, given we are in one of them?
I think it's the second Capital Markets Day, and they don't seem to feature as much. How do you, what, what role do they play now in the new strategy, and how do you monetize them?
Well, there was a Solution Factory in one of the pictures, and it is actually a crucial thing. We don't talk about them so much, but if we want to do remanufacturing, for example, when we have these performance contracts, large-sized bearings, like those that Robert showed, those you would preferably not want to scrap when they run out of juice. You would like to take them somewhere and do a remanufacturing, polishing, and then put back that same bearing. And with a performance contract, that makes a lot of sense for us as well. The Solution Factory is the local factory that does that. So that is one thing. Then to equip people's equipment with condition monitoring, you need technicians, service technicians to have a home, so that's what the Solution Factories do.
When we do re-engineering, so a bad actor pump needs a new bearing arrangement somewhere out in the forest, then the Solution Factories are the local engineering office for that.
Thank you. And just the last one on the two product examples that you showed for steel mill and-
frac pump.
How do you make sure that the customers who currently do pay up for all the bells and whistles, but maybe don't actually need them, do not then go to you and say, "Okay, I see you've got a product that is actually much lower cost. I know there's no probably margin implication in that, that you're probably making as good margins in those kind of fit-for-purpose products that you've shown us, but there's a revenue implication, potentially.
Yeah, but remember what Robert said, we were actually, I think you said, we were out of those markets. So that was not even. If we were priced here with the bells and whistles, and the market price is here, and they don't value those additional features, we're not even in. So now we come, we actually grow our market by doing this.
Yeah, those were clear examples of growth, but I'm just thinking about the existing customers who do buy, who you're already in with, who potentially are paying up for stuff that they don't need. I mean, is there a kind of way to segregate it, like that profile that you mentioned, so you wouldn't fit that bearing in something that you do want to last, or how'd you protect yourself?
Well, you could think about different application-specific offers are made for that application. And of course, I think it's not a sustainable business model. If we sell something that is, the customer is buying it, it's it has all these bells and whistles, as soon as a competitor comes in with something else, we're out of there. So it's not a sustainable model. It's very nice as long as we have it, but when we don't have it, we would like to be the one first with that replacement bearing-
Great. Thank you very much.
The fit-for-purpose one.
Thank you.
Yes?
Yeah, can I ask you, on sort of, competition, how do you differentiate yourself? If you look at what you have now in terms of, condition monitoring and remote diagnostics and what you've talked about now for, for this session, how does that sort of stack up to versus, Western competitors, and also if you look at emerging market competition, are they even there at all, or, or sort of how, how do you view it?
Well, I mean, you can read their press releases to see what they're saying. What we see in the marketplace is that we are, we are the absolute leaders. That's what our customers tell us. They have, certainly, they have certain, certain things, but I don't think anybody has this full combination. There might be somebody with the bearing and the condition monitoring, but they don't have the lube system, they don't have the seals, they don't have the application engineering or the global presence. So I, I find it... Yes, of course, there is some kind of competition, but in many cases, we, we see that so far, we really-- I wouldn't say we don't have competition, but it's a lot-- it's less.
Is there any possibility at all to try to quantify how much sort of getting paid for performance is today of SKF, or could you relate it to the last time we met a year and a half ago?
It seems like a lot of things have changed since then in terms of product development and, of course, in terms of customer need and acceptance and all that.
Yeah, it is... Of course, I got that question, like, 10 times downstairs as well. If you, if you look at those examples from Latin America, some of the revenue comes from, the distribution channel, some of it comes from the performance contracts. What is performance contract and what is bearing sales? It's kind of manually we can dig into and find it out, but it's, actually a lot of, a lot of work. So it is. I don't wanna... I would actually speculate if I said what it is. We are trying to track it manually, but today, it is, it's such a mix. And when you start, you start seeing things like with these, distributors and the, and the device we give away, so no revenue for the device, but revenue comes in bearing sales.
Is that performance contract or is that bearing sales, and how would you distinguish between those? I think it's important to look at growth in the marketplace and compare that to what's happening with competition to see if we're successful with this.
Could you answer this then? If you look at the remote diagnostic centers that you talked about in collaboration with Honeywell-
When it came to Chile and so on, how many people are working with sort of, analyzing data 5, you know, 3 years ago compared to today?
Yeah, actually, I could answer that one because I know in Brazil, when we installed the new software, we could reduce the number of people with 40%. We didn't fire them. Instead, we actually expanded the customer base, and they could start working with the more difficult problems. What we did was actually we installed a filtering function, taking away all the stupid faults that came in, and that meant we could go down in number of people. But it's really hard to say. I don't think we will have zero people and complete AI. That might take 15 years before we have that. But, absolutely, there is an efficiency gain. I still think that those people will be needed, but their brains should be used on the really hard cases. Yeah?
Yeah, I guess we have the real Q&A or something like that comes now. Thank you very much for well sustaining the entire day. It was really great having you here.
Thank you.
Thanks.
Okay, ladies and gentlemen, I hope you liked interacting with the people. I've been grilled by several of you. You are very difficult, but that's the way it's supposed to be, of course, you shouldn't ask us these easy questions. So I will just very quickly summarize, and then we will continue with the questions and answer, but I'm sure that you've already had the opportunity to interact with the people, and probably many of your questions have been answered. But, you know, I think we all see it.
It's the way we are preparing both to interact with customers in the future and also to run our own internal operations, to try to create that difference between what we sell and what we cost, and what kind of money we need to make that happen. And I think I hope that you have understood a little bit how we think and how we've been developing the thoughts that we already presented half a year ago, and one and a half years ago. And if you remember, I...
When you who were here, Bob, from New York, asked me in the end of the session, he said: "So, Alrik, what is this really about?" And, you know, I said, "Well, you know, in two years, I hope to be able to stand here and say, you know, we've been doing what we said we were going to do. We've made advancements and come far in all of these issues that we have presented, and we're growing again." This was the sort of, if you remember, that's what I was pushed by Bob to say, and I'm so sorry, Bob, if you're listening, you know, I would have said, "Bob, you know, we did it!" And by no means do I mean that that is over.
This is going to, there's still a lot to do, and we are in a business where it takes time to change. But I think that you've seen here also with the people here, we're passionate about what we're trying to do, we're committed, and this is more than just a job for us. And as I say, we will make everybody who is betting on being short in the SKF share, we will do our utmost to make them lose money. And that, you have my commitment on that. With those words, I open for questions, if there's any questions left. There's two.
Hi, Klas from Citi . So the last capital markets day was focused on cash generation, capital efficiency, and obviously, that focus hasn't changed. That time you hyped CapEx from SEK 1.7 billion to SEK 2 billion, and now you indicate that CapEx might trend higher again. I obviously totally get why you're doing this, but it puts more pressure on you to deliver on your working capital to sales target of 25%. Can we get some more concrete update on where we're going in terms of getting to 25%?
You know, one thing is clear: without changing anything, you won't have a different result. So you need to do something different than you did before in order to have a different result. And we're pointing out on three things, basically, that we're doing differently. We increase our flexibility in our manufacturing. We do one integrated planning for inventories, and we try to massively improve our possibility to predict when the demand is going to occur through in the value chain. These three things will enable us to work differently in the value chain going forward. At the same time, as we're trying to be flexible in our manufacturing footprints closer to the customer, before, we used to look at how do we reduce the cost of a movement?
Now we're looking for how do we reduce movements as well as the cost of the movements. These kind of focus activities will help us improve those KPIs.
Just to follow up to Christian, maybe. So if growth picks up, that obviously, typically, always, well, always consumes more working capital-
Yes.
Thinking about Unite and the efficiency you can get out from this, Christian, do you think that a growth pickup will considerably delay your ambition to get to 25%, or just by a couple of quarters? If you could just get a feeling for that.
I mean, the target we've set is on turnover, huh? It's on coverage. As I said, I think the slowdown, the downturn has been negative in terms of the turnover. So from that point of view, I mean, turnover-wise, the pickup should help, huh? Obviously, in absolute numbers, you're right, that means it will be an impact from that. So I think... the target is a coverage, huh, in that perspective. I mean, as we also discussed out here, I mean, in a strong market, if you would see-... We don't know. If you would see a strong market, I mean, availability is also key, yeah?
So in that whole equation about, you know, where to optimize, how to optimize working cap versus, you know, capture some of this marginal business, it's clear for us what we should do. And if you take it from that point of view, that a possible pickup in the market, I would say, in that balance, we will most likely not prioritize the working cap optimization in that. That's clear from pure from numbers. Yeah, if it would be an extremely strong market, that might be the case that we get a little bit delayed. But again, I mean, in order to reach these levels, we have the underlying things we are working with, the three areas that Alrik talks about, the different pictures I showed also on the different activities, and that's where things has to happen.
We have to execute on those things that we are working with, and because in the end, that's what's going to bring it, and some of the Unite systems and the things we are building to be able to work in that way. So, yeah, you know what we try to do, huh?
Yeah, Daniel from SEB again. Last time we met here was a year and a half ago, and there was a lot of focus from you guys on sort of also taking down debt, and you had a different balance sheet back then, and you've had a fairly good cash flow since then. You've sold some stuff, and now this morning, you mentioned sort of M&A as a possibility rather than a defensive move. Where's the balance going forward in terms of sort of continuing to take down debt, or are you sort of ready to be a bit more aggressive in 2017 when it comes to acquiring companies?
Well, you know, to reinvest the money in the cash flow that we have in our business and give you better returns than just giving you extraordinary dividend, that's definitely my objective as CEO to do that. And there is a lot of interesting opportunities that we can do that from maybe from an organic point of view, and then we can do it, of course, with acquisitions. But the acquisitions have to be relevant to what we're doing, and I think Christian, in a good way, talked about the kind of different areas that we could be looking in technology or if there's some gap in what we're doing and if it's around the rotating shaft. But of course, again, then there will must be relevant companies to acquire as well.
They, of course, some of them can be in a technology where you go for a smaller acquisition, and you try to leverage on that, or you're looking for some bigger company that gives you an angle on a product line or something that you don't have today. But again, we are on the same, in the same time working in this change in the value chain. So I was looking at one company just leisurely the other day and realized that the manufacturing footprint was like, it was a big restructuring candidate. So from that point of view, of course, it's not so interesting to make that kind of acquisition.
So from just buying assets today, it's not as interesting in with this kind of technology change that we're up to as well, and that has to be realized, so. But I don't know. Of course, as we are coming down to where we have, we can change our chip, huh? And I think we have done. I think it's quite obvious the kind of divestments we have done and why we've done them. And now we are coming to the end of that, and it puts us in a new opportunity. We have Jonas, please stand up. Here we have Mr. M&A, and he has done a fantastic job, both acquiring and now divesting, and you're ready to change the chip again, right, Jonas? Thank you.
Thanks. Yeah, Ben from Morgan Stanley. Alrik, since you came in, you've done a lot of restructuring, taken quite a few charges. As you say, we're now going back to hopefully in more of a growth environment. So do you think the need to restructure diminishes from here, or should we still assume, you know, SEK a few hundred million of charges and the, you know, following on savings from that on an annual basis? What do you need to do?
Yeah, I think that over time, of course, there is a need to continue to prune our footprint. I think we've said that there will be. I cannot give you the exact figures on it. I can not give you the exact plan, but there will still be need to consolidate some of our manufacturing operations, I'm absolutely sure. On the other hand, I think the payback are quick, they're good, and the only thing that, of course, happens if the upturn is steep, is that it's more difficult because actually you need the assets that you want to restructure to cope with the change in demand, and that can, of course, delay some of these activities. But I would argue, yes, we still need to work with our footprint.
You know, if you look at our annual report, you can see that we have still a quite widespread footprint, and I think we've been clear about that all the way through.
Thanks.
Sorry. Um-
Yeah, now, now you're really getting boring, huh?
Just a quick follow-up to Ben's question. So-
If you're saying three factory upgrades every year, and if we have, what is it, 54 or 56 factories currently, is this a 5-year sort of program? Or are we looking at 15 factories, or what - how many factories can we think of-
Yeah.
-when we look a bit further out?
But look, isn't it fair to say that we're doing more upgrades than you actually see? I mean, there's a constant kind of activity in all our factories to sort of make minor upgrades and improvements. So there are actually a few upgrades that we have done in some factories. One that you haven't even mentioned yet, what we did in Haridwar, India, for instance, during the last years and so forth. So these are the major ones that you see, but there's always a sort of a possibility to upgrade machines and improve your ability to reset quicker and-
This is sort of in a general overall. So what we're talking about here are these big ones that you will see released, maybe press released, and like we have done now, we have shown you the list of the first ones here. And then let's see. Let's see what we can invent, you know. Luc is now running MDC. It's here in Gothenburg, where we work on our next manufacturing technology, and of course, we are not giving up. This is not the end, you know? This will continue, and there are a lot of interesting ideas that we're cooking for the future, and as we make them come true, we will tell you. So this is never going to end.
As, like we said in the video, this is like a never-ending story, fortunately.
Thanks, Ulrich. It's Lars from Barclays. I'm gonna ask in a second about additive manufacturing, so a slightly bigger picture question. But before we get there, I'm gonna try my luck with the numbers just one final time. Just so if I understand things right, SEK 200 million have been invested in Gothenburg. That's about 10% of your annual CapEx budget, over a couple of years, obviously, to generate about SEK 50 million of cost savings annually, if you take out 100 full-time employees. That's automating 4 production channels out of an existing 52 channels. Now, you've got about 100 sites across the group, 56 or so in bearings, but you can see obviously this is a bigger site. It's obviously slightly more manual, that there will be a limited element to how addressable op...
or what the addressable opportunity is for you to automate across the group. But maybe you could share some light on some of those concerns people have that not just SKF, but indeed the industry, which has been a late adopter of automation, is moving into a phase where we need to meaningfully step up efforts to automate our production plans.
Well, I don't know if we are late adapters of automation. What do you mean by that? Where, how... That the industry is a late adapter?
If I go to the other 48 production channels-
Yeah.
-in Gothenburg, I'll see a lot of manual labor on the bigger bearings, arguably, and-
Yeah, yeah.
to a large extent, that-
Uh, the-
They may not be an addressable opportunity for automation.
Yeah, yeah, but if you go to where we make the hub units, for instance, you know, today, you will not see... It's Industry 2.0, but it's an automated production line. There's still things we can do as far as changing tools and rapid resetting, et cetera, but you would already see a high amount of automation in these factories. Have you been to Tudela, for instance?
No.
It's a nice place, and Spain is the second biggest producer of cars in Europe, after Germany. I suggest you go to Tudela, and then you will see sort of what you can do with this steel Industry 2.0. It's a good one to do. It's not that far away. It's a nice place.
Just on additive. Now, for an event that was very much labeled around Fourth Industrial Revolution, I heard nothing, perhaps surprisingly, on additive manufacturing, specifically in metal.
I was interested, particularly, how you see that if you look a little further out. I mean, you've seen some big moves, particularly in aerospace.
You yourself are doing some things around additive in aerospace. Can you give us a sense of what, how important additive is for you if you look 5-10 years out on the metal side?
We are participating in several initiatives as far as additive manufacturing. Personally, in my previous job, when I was heading up Höganäs, I actually started a unit, and these were based on the technology of actually printing, truly printing, with gluing, let's say, the powder, and by that, making incredibly integrated parts that were basically impossible to produce in any other way, not even investment casting could do it. Sometimes what you see as additive manufacturing today, I would like, I would argue it's laser cladding, actually, and then you're machining laser cladding. For additive manufacturing to be competitive in making, for instance, a ring today, you know, the material is too expensive, and the machines are too slow.
So, it will take quite some time before you would have a ring manufacturing that could be competitively made in additive manufacturing. There are other manufacturing routes that you will see coming in before that, that will make that happen and make give the cost kind of cost benefits and flexibilities that you can get out of other manufacturing methods. I think that additive manufacturing as making prototypes, making integrated parts is going to be relevant. For it to be a mass production kind of, you know, it's still some way off. It's. We are there, we're looking at it, we're driving it, we are part of several initiatives, but we're not talking about it because it's too far ahead.
You know, I think one thing that you see is we talk about what we think we are doing or we're about to do, and things that are a little bit further out in the future, we keep quiet, and, and, and I think that for certain intricate parts and, and difficult shapes, you know, it's, it's quite valid. But to believe that we're going to make rings for a bearing or a roller, out of additive manufacturing in the near future, I think, we need to see some step change in the speed of the machines and also in how you produce the powder. It's quite expensive. I know, I used to make it.
Yes, hi. I might give it a try at the market for a moment. Just referring to Christian, your comment on the market before. We saw last year where volume was down. Today, the comps looked a bit better, and you're showing some progress year-over-year. In your view, I mean, where are we in the cycle? If you look at some certain areas of your business, like the automotive industry, look at the aerospace, look at some other consumer sectors, North America is doing fairly well. I mean, is it your judgment that we are waiting for something to happen, and is that only the deep, deep, deep cyclical areas, or could you elaborate on that a little bit?
Are you talking to me as an economist?
No, as what you see in SKF. I mean, how many areas in your business do you see deep underutilization or where you expect a market normalization going forward?
Ah, but you can understand that if you look at the light vehicle production, it's been doing quite well for quite a while, you know. It's interesting, after the Lehman crisis, what was the industry that was coming back the quickest? And it was, of course, car manufacturing, and car manufacturing has been growing steadily for a long, long time. And of course, as you have this kind of stable growth, of course, that tends to mean also that your manufacturing utilization is higher. And in the other areas where you have niches of business that's more volatile, and then, of course, during a while, you can then see big variances. You know, right now, for instance, one area that's booming is tunnel boring machines, for instance. So the people making tunnel boring machines, they're fully loaded, huh?
It seems like the world's politician wants to make a world into a Swiss cheese. So it's a difficult question to see. I mean, we see a broad-based recovery. This is what we see. But there is, of course, niches where there's still capacity and then... But then also, personally, I also believe that we are in for a technology shift. It's the reason for investments today are not only because suddenly somebody is seeing that they need a capacity to attend a certain segment of the market. It's also that I think we're all sitting in the boardrooms today looking at and saying, "Ah, you know, there's a new technology.
I need to be on that bandwagon, otherwise my value chain will not be competitive enough." I personally believe that what you see, what you saw today in Gothenburg enables companies who adapt these kind of technologies to actually be competitive in areas where before you didn't think so. So globalization goes from what I said in the beginning, you know, from a labor arbitrage and inexpensive logistics to actually being able to produce closer to market.
I happened to wind up beside Donald Trump in the Swedish, Svenska Dagbladet's, internet issue, and a friend, contacted me and say, "Why are there two pictures of you in the paper?" And the reason I came there was because I said, "I don't think that a decision like the Ford factory in, being, now, in the U.S. as opposed to in Mexico, had anything to do really with Donald Trump, but more actually with, with normal economics." That it's more important to Ford, with a modern production plant, to be close to the market, quick deliveries, as opposed to, to, having a labor arbitrage and being farther away from the market. Because today, with modern assembly plants , that kind of equation plays out in favor of flexibility, in favor of, of closeness to market.
I think this is one of the trends that is a mega trend, and that will drive certain investments for many years to come. Of course, for us, that's positive also as a supplier to these industries.
Yes, hi, Andreas Koski from Deutsche Bank. You said during your presentation earlier today that prices are now increasing again, and-
That we're trying to make them increase.
Okay. And then during the innovation presentation, we learned that you have a lot of products that are over-engineered, and you're trying to take down the production cost and be able to lower the price for the customer. So-
The cost?
...The cost for you and the price, and the price for the customer?
The cost for the customer, the cost for the price. For them, it's a cost. Yeah?
Yeah. And how do they go hand in hand if you're trying to increase your price, but at the same time, develop new products that you should be able to sell at a lower price? And what do you think will happen to the price mix going forward when-
You know, this is what is a price and what is a cost for the customer? It means that if I have an application that needs a certain bearing, and that bearing or that product has, is the kind of performance you need, that's what you're comparing with. And in this case, of course, as it becomes more of a buyer's market, a seller's market, sorry, and you have cost inflation, your ability to pass that on into the value chain increases. That's price increase.
If you are working with a certain developing a machine where the loading and the speeds don't require this very expensive engineered product, but you can actually do something with a different product that actually is engineered to a lower cost, me supplying this to you is not decreasing the price. It's actually even enables me, maybe to even have a better margin. So these are not contradictory. And, you know, I resent the notion of a middle market. I think it is, for some applications, actually, the market. And in the automotive, we've been doing this, and the whole industry has been doing this for quite a while.
Where it's coming in now, more and more, is in also in the industrial market, due to the fact that we are better at being flexible in our production, and we are even more customer sort of centric in understanding. We need a product that does the right job for you at the best performance cost equation for you. And if I don't supply it, you know, somebody else will. So I better do it as well as I can. And what we have learned since we started on this journey is that we can. Yes, we can.
May I also ask about the U.S., because I think you are going to raise list prices with U.S. distributors by almost 5% from May this year?
Do you think you will be able to get all of that through as a net price increase as well? Or do you think there is a risk that you are going to build more discounts again?
You know, I think that the ambition is always to be able to have a fair price for the kind of product that you are supplying. And as we are now turning, if this is now turning, as we see, as we think we see, there's an opportunity, in all fairness, for us and for our distributors to have a better price opportunity in the marketplace. And of course, that's why we do it. How it will actually play out, I don't know. It's happening at this moment, and it will depend on always, you know, here you have two cups, here's one and here's another, you know, so which one will you choose? Long term, I have no doubts.
Long term, I'm sure that the bearing industry has the ability to offset cost increases in the value chain through the market, like it's always been able to do. I don't think there's a difference today than what it used to be before. Where it's going to be is how it plays out in the short term, and that, of course, will depend on how quickly the market recovers. If it recovers, it's gonna depend on how quickly inflation picks up, if it picks up, and it's going to be dependent on what the incumbent sort of how the incumbent act in the market. And I argue this is the same as it's always been. This is nothing new, if you understand. There's no difference today than in before.
I don't see any difference.
May I ask lastly on your outlook that you maintained?
Yeah.
How much of the first quarter have you seen now?
You know, if I answer that, I would get a call from the Swedish Stock Exchange, and I would probably be fined. You know I can't answer that question.
Sorry for asking.
Okay. Thank you very much for coming and seeing us. I have a question to you, just a spontaneous question: How often should we do this? We used to do it every year, now we did it year and a half. Is that... Should we do it every second year? Should we do it every month? You know.
When you have something new.
Yeah, exactly. So it's better to have something real good to show you than actually doing it every year.
Right.
Yeah. Then that's good input for me, right from you here. And I hope you thought it was worthwhile coming. We are very proud that you decided to come, and we thank you for it, for spending your precious time with us. And whoever is listening in as well, that you took the time to listen in, and thank you very much. And whoever is staying tonight, you know, we're going to go to the Post Hotel. And for whoever is staying tonight, you know, if you're happy to do... We're happy to have you and join us for a small bite or anything like that at the Post Hotel after.
Thank you very much.
Thank you.