Good morning, ladies and gentlemen, and welcome here in Niederönz to our operational headquarters of Bystronic. My name is Patrizia Meier, and I'm Head of Investor Relations. We are very pleased to have you here in person, and also a very warm welcome to those of you following us on the webcast. Before we start with the presentations, let me make a few organizational remarks. First of all, kindly note the disclaimer at the end of the presentation. Secondly, since today in the Canton of Bern, it's mandatory to wear face masks even with events under and using COVID certificates. We therefore kindly ask you to wear your mask throughout the entire day. Thank you. Let us now take a look at the agenda of today. Our CEO, Alex, will introduce Bystronic, our attractive end markets, and our growth strategy 2025 to you first.
The strategy 2025 is based on three key pillars or growth pillars. Therefore, the presentations after Alex will provide you deep dives. Christoph will firstly talk about how innovation is key for our product portfolio. Alberto will give you more insights about our software solutions, and Eamon will elaborate how we drive growth in our service business. After a coffee break, Michael will provide you an update on our ESG roadmap, and Beat will wrap up with what all of that means in terms of financials. We will have a short Q&A session after every presentation, and we will take the questions from the room first, followed by those submitted via chat in the webcast.
Kindly note that we might not have all the time for all your questions right after every presentation, but we have a longer Q&A slot also with what all of that means in terms of financials. We will have a short Q&A session after every presentation, and we will take the questions from the room first, followed by those submitted via chat in the webcast. Kindly note that we might not have all the time for all your questions right after every presentation, but we have a longer Q&A slot also reserved at the end.
We have six members of our management team here today that will present to you, and also during the tours in the afternoon, you will have the chance to meet a few of our other leaders, for example, our Chief Operating Officer, the Managing Director of the production site here, and also our Head of the Solution Center in Oberbipp. We trust that this will give you a good feeling for our strong management team here in Bystronic. With this, it's my pleasure to hand over to Alex.
Patrizia, thank you very much. Good morning, ladies and gentlemen. It's a great honor to welcome you here today at Bystronic's headquarters. My name is Alex Waser, and as you can see, I'm actually in this role since 2013, early 2013. It's a particularly great honor for me today because it's the first capital markets day that we are presenting to you as a pure play. What you're gonna see today is really around the story of Bystronic, and we feel what you're gonna see in the next couple of presentations and slides from our experts is that we are, you know, in really attractive growth markets. We have laid the foundation of growth already, and we feel in 2013, early 2013.
It's a particularly great honor for me today because it's the first Capital Markets Day that we are presenting to you as a pure play. What you're gonna see today is really around the story of Bystronic, and we feel what you're gonna see in the next couple of presentations and slides from our experts is that we are, you know, in really attractive growth markets. We have laid the foundation of growth already, and we feel after the first year is already gone, although it was an interesting year, that we are on track to deliver our 2025 strategic financial targets. If there is one thing I feel you need to take home with you today, then that is really what explains what we're all about.
You know, we are an innovation leader creating value for our customers in attractive markets, as I said, and we see potential for sustainable growth, and we'll hear about that more today. We strive for industry-leading profitability in an asset-light business model that also includes our strong balance sheet that gives us firepower to complement our portfolio. Most importantly, besides everything else, today I'm very honored to present you some of my team, very strong team, probably the strongest team I ever had in my time here, and that is really what's all about. It's about people, and I'm very happy that we'll get into this a bit more detailed. What we are doing is, you know, what is it all about Bystronic itself? You know, Bystronic is in an industry of sheet metal. Sheet metal is everywhere.
We'll get to that in just a minute. Sheet metal is everywhere, and if you have customers that work with sheet metal, you need to have systems that are in the first and the second part of production, which is laser cutting and bending, and that is what we're doing, and of course, supplemented by automation, by software. We'll hear a lot about software today because we see this as one of the keys for future growth. We have reinvented ourselves when it comes to service, sustainable, you know, revenue stream that we are building quite strongly. You know, from 2020, our numbers, we came from around about CHF 940 million or CHF 1 billion in 2018 to CHF 800 million last year, 7% EBIT. We have around about.
We have reinvented ourselves when it comes to service, sustainable, you know, revenue stream that we are building quite strongly. You know, from 2020, our numbers, we came from around CHF 940 million or a billion in 2018 to CHF 800 million last year, 7% EBIT. We have around 31 sales and service organizations and nine plants. That's the footprint that we have right now. What is sheet metal, and what is it made out of, and, you know, why is this an interesting material? What you're gonna see later today is sheet metal is available in sheets, you know, 3 m to 1.5 m or 4 m by 2 m. It's a little bit like paper, just another size. Or it comes in coils. You see that often in automotive size.
Of course, the material itself varies of what we can work with. But the beauty of sheet metal is it's an ideal balance between strength and lightweight. So you can see that a lot of constructions are being built with sheet metal, but people are not that aware of it, and obviously it's highly recyclable. That really makes a lot of sense. In addition to that, our customers or the end markets are really all over the cycle. We have early cycle customers or industries, mid cycle and late cycles.
They're aware of it, and obviously it's highly recyclable. That really makes a lot of sense. In addition to that, our customers or the end markets are really all over the cycle. We have early cycle customers or industries, mid cycle and late cycles. You know, we could go from utilities to technology to communication services to real estate to agriculture to industries, and that is why we feel we are really balanced throughout the cycle. A few examples. I guarantee you that you have been in contact with sheet metal already this morning without probably even saying it. You know, a coffee machine, for instance, is nothing else than sheet metal with a bit of a cylinder in it.
When you probably took an elevator this morning, you know, from your house to get to the street, an elevator basically is sheet metal. If you have a fruit, if you had a fruit this morning, well, most probably a tractor from a farmer has been used to actually gain this or a harvester, and so on. When you look at Amazon, when you look at storage systems, you know, the largest warehouse, that's all sheet metal. That's actually interesting. When you probably took an elevator this morning, you know, from your house to get to the street, an elevator basically is sheet metal.
Our customers are in a wide range of industries and products around the globe. Even more important is when you look at the mega trends, you know, e-mobility or electronics. Let's take urbanization for a moment. Basically, what we're seeing is that, you know, urbanization, meaning people moving into cities, which means, you know, more infrastructure is being built, which means more construction is being built, more elevators being built, and so on. We see that directly related to our business is really some of the mega trends, and that's quite interesting.
We see the market growing, I don't know, 2%-4%, something about that. As you will see in a minute, we are targeting to grow above that, meaning winning market share. The market roundabout, the addressable market, we estimate that to be about CHF 9 billion. Biggest part of that actually is the first part of the process, which is laser cutting, followed by bending and other areas. This is an interesting slide. We've actually never done this and talked about our you know competitors in the past. When you take a market share, when you take a market of, let's say, approximately, CHF 9 billion, the addressable one, then basically about three companies hold about half of the market share.
Then you have a few mid-size players, and then you have a long tail of other competitors. When you look where, you know, where do we have potential, then we see the expansion in applications as significant opportunities because we have many applications not covered yet compared to our other companies out there. In addition to that, Bystronic, as one of the few companies actually, has managed to get not only products in the gold segment, but also delivers and produces silver segment and entry-level products, so we can actually leverage in different market segments.
In addition to that, you will hear from Eamon today, our standardized modules on service that creates a really nice revenue stream, a stable revenue stream that is actually nicely accretive to our business. You know, also you will see today how solutions and software-driven solutions actually support our customers, and that is when Alberto will talk about that. We'll see about technology today, we'll talk about service today, about software and solution to our business. Those are significant opportunities, and you see already now how we are accelerating in those fields.
What are our customers? I get asked that quite often. You know, in a way, that's hard to explain because a lot of our customers, about 80% of our customers, are job shops, contract manufacturers, and they are active in either one or several fields or industries that we just talked about. We also have large companies, like the OEMs you can see here, in different areas. We have got actually quite a long list of those. Common in all of this is that, you know, they all have pretty much the same challenges to deal with flexible production cycles, with varying lot sizes.
We also have large companies like the OEMs you can see here in different areas. We have got actually quite a long list of those. Common in all of this is that, you know, they all have pretty much the same challenges to deal with flexible production cycles, with varying lot sizes, with high speeds, day and night shifts. What's also nice about that story is that, you know, none of the customers or customer groups are really higher than, like, 5%. We have a large distribution of customers. This is my last slide before I hand over to the technology part of our business. We just wanna reiterate and confirm our midterm targets.
You know, we wanna be above of those three metrics: 5% annual growth, 12% EBIT, where we came from, and 25% ROE based on an asset-light business model. Again, what you're gonna hear today is the core of our strategy and the proof points of the core of our strategy in leading technologies that create value for our customers. In addition, you will see recurring revenues models on the service side and industry-leading solutions with integrated software and automation.
By the way, does anybody know where the name Bystronic comes from? Those that know shouldn't say it. Well, it's driven by the three founder families, Byland, Schneider, and Trösch, and then the ic was added to it. I hope I have said that correctly. With this, I would like to hand over to Christoph on the technology side. I'm very happy to welcome here on the stage. Thank you, Christoph.
Thank you very much, Alex. Yeah, good morning, everyone, and also warm welcome from my side to today's Capital Markets Day. My name is Christoph Rüttimann, and I'm the Chief Technology Officer of Bystronic. I joined the company back in 2017, and my background is in microengineering and laser technology. As Alex has pointed out, we are in a very attractive market, and we have an ambitious strategy, 2025. I would like to explain to you now the first strategic pillar, which is called Systems, in a bit more details. Innovation is the key for our portfolio. Therefore, I would like to show you why innovation is somehow the lifeblood of Bystronic and how we can make our customers more successful.
We will also discuss on how we ensure a constant innovation flow in our daily business to ensure that we remain at the forefront of technologies. I will present you some examples on how we leverage on our innovations across markets, segments, and geographies. Before we start, let us ask a customer and let him talk on what he thinks about Bystronic's technologies.
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In everything we do, we have the future customer needs in mind. As you have seen in the video, this means offering the right products in the right segment for the right price and of course, based on future-oriented technologies and based on digitalization and sustainability. For every new product development, we closely collaborate with customers to understand their end-to-end process and their needs. We have to develop highly innovative products and systems, and to do so, our innovation strategy is based on three main pillars, spotting, developing, and creating. Firstly, we focus on identifying trends and recent developments. Secondly, we invest into start-ups and new technologies, thanks to our venturing fund.
Thirdly, and most importantly, we co-create with customers and partners. Our foundation to do all this is our global R&D organization. Our innovation strategy is based on three main pillars: spotting, developing, and creating. Firstly, we focus on identifying trends and recent developments. Secondly, we invest into start-ups and new technologies, thanks to our venturing fund. Thirdly, and most importantly, we co-create with customers and partners. Our foundation to all, to do all this is our global R&D organization. Following this strategy, we ensure our position as an innovation leader in our market. Let me go now into more details into these three pillars. The first one, spotting. We have developed an in-house technology radar to understand the market dynamics and future trends.
Once we identify a relevant trend or a technology, we look to develop features and commercialize these. As an example, you can see on the left side on that slide the technology radar for the year 2019 for the area of bending automation. Among others, we have identified machine vision as being a key enabler and the key enabling technologies for the future. After that, we have carried out a case study where we have applied vision technology to a cut part, as you can see that on the picture on the right side, to see whether this part has been cut properly, whether there are any quality defects that would prevent it from being bent in a later state. Thanks to this technology, we were able to reduce waste, increase yield, and of course, speed up the process.
In 2022, this feature will be a standard offering for all our bending automation products. Let me now explain to you the second pillar of our strategy. This pillar is called developing. With this pillar, we ensure to have access to the latest technologies that might act as an enabler for innovative products for Bystronic. We have set up an internal corporate venturing fund that allows us to make one to two investments into start-ups every year. We are not aiming in investing seed money, but more like Series A or Series B investments, and we're also not acting as a financial investor, but we are acting as a strategic investor. The three main objectives of the fund is investments into start-ups every year.
The three main objectives of the fund is we want to have early access to disruptive technologies that Bystronic does not have in-house yet. We want to strengthen the collaboration with the start-ups, which might be a possible M&A target in the future. Thanks to a board seat that we get through this fund is we want to actively shape these technologies for the Bystronic needs. I want to give you now a proof point of such a venturing invest. In 2018, we have invested into the company Embotech. Embotech is a spin-off company of the ETH Zurich, which main goal is to optimize movements. So this can be a self-driving possible M&A target in the future.
Thanks to a board seat that we get through this fund, we want to actively shape these technologies for the Bystronic needs. I want to give you now a proof point of such a venturing investment. In 2018, we have invested into the company Embotech. Embotech is a spin-off company of the ETH Zurich, which main goal is to optimize movements. This can be a self-driving car, but this can also be a laser machine, for instance, to optimize its speed or its precision. Thanks to this co-innovation with Embotech, we have developed, in a very short period of time, a feature we call Quick Cut. I will say more to that later on. It is a feature for tube cutting systems.
The good thing is actually, since the launch of that feature, almost all sales of our tube cutting systems, all our customer have chosen this option or this feature. Now let me show you how this looks like. On the left side, you can see a normal cut. This is a tube that is being cut by the laser cutting head. On the right side is this feature. This, powered by these features. As you can see, the head is moving much faster, so the part has a much higher throughput. Our customers can have much higher throughput. Not only higher speed, this option or this feature. Now let me show you how this looks like. On the left side, you can see a normal cut.
This is a tube that is being cut by the laser cutting head. On the right side is this feature. This powered by these features. As you can see, the head is moving much faster, so the part has a much higher throughput, so our customers can have much higher throughput. Not only higher speed and higher throughput, but also higher quality. Maybe one more remark to Embotech. This company has just recently won the Rising Star Award, which is one of the most prestigious startups awards in Switzerland. This shows that we do not only invest into the right technologies, but also into the right companies. Let me now explain to you the third pillar of our innovation strategy. Originally, Bystronic comes from the high-end, high-price machine segment.
This is for sure still our biggest segment, but it's not enough to be future-ready. We cannot only play in the top-end segment. Prestigious startup awards in Switzerland. This shows that we do not only invest into the right technologies, but also into the right companies. Let me now explain to you the third pillar of our innovation strategy. Originally, Bystronic comes from the high-end, high-price machine segment. This is for sure still our biggest segment, but it's not enough to be future-ready. We cannot only play in the top-end segment, but we also have to offer lower priced, lower performance solutions depending on the customer needs.
To do so, we are systematically developing a portfolio of several segments. We call them gold or high-end, silver or mid-range, and bronze or entry-level segment. A good example to explain this is the laser machines. On the one hand, we have the so-called ByStar machine, which is a high-end gold segment machine developed and produced here in Switzerland, in Niederönz. On the other hand, we have the DNE machines, entry-level segment machine developed and produced in China. In the middle, we have the co-developed BySmart machine, which is a combination actually of both worlds. It's a co-development between the Swiss and the Chinese teams.
The goal actually of this development was to combine the Western quality mindset with Eastern cost efficiency thinking. There is roughly a cost difference of 40% between each of these three segments. Furthermore, the BySmart, actually it's the machine that you can see depicted on that slide, is the first product that we are produced locally on a worldwide basis in our factories in China, in Switzerland, and Americas, the very same product. This approach has been successfully done not only with cutting, but also for bending and tube, and we are on the way to repeat that again for automation. Let me give you now another example on how we leverage and co-create innovations. Back in 2016, Bystronic has acquired 51% of the laser machine manufacturing DNE in Shenzhen, China.
The main goal was to have access to the high-volume Chinese market, but also to have access to cost-efficient technologies. Since 2020 last year, Bystronic holds 100% of DNE, and we are now actively promoting the DNE brand globally, thanks to another co-created product, the so-called DNE Global Machine. In 2022, we will launch this product in selected markets outside of China. The machine is again based on a Chinese development at DNE and then refined in Switzerland to make it ready for being sold worldwide. Why do we leverage this entry-level product on a worldwide basis? There are three reasons.
First of all, we want to have access to the highly price-sensitive customers who did not have laser technology before, but who wants to get on this technology because it offers much more flexibility than conventional machine, conventional machining technologies. The Chinese development at DNE and then refined in Switzerland to make it ready for being sold worldwide. Why do we leverage this entry-level product on a worldwide basis? There are three reasons. First of all, we want to have access to the highly price-sensitive customers who did not have laser technology before, but who wants to get on this technology because it offers much more flexibility than conventional machine, conventional machining technologies.
Second, we want to have a foot in the door at these entry-level customers, so that we can grow together with them, create a lock-in with these customers, and ultimately sell higher performance and higher priced machines. The third point, if we don't do it, others will do it. Bystronic has a unique opportunity now to be the first mover among the top three players in our market to address the gold, silver, and the bronze segment on a worldwide basis. These three main strategic initiatives I just explained to you are enabled thanks to our global R&D organization. The R&D teams are organized globally, but with a strong and local footprint and competency centers.
An important point that I would like to mention for all product development worldwide is the focus on the end-to-end process of our customers on a worldwide basis. These three main strategic initiatives I just explained to you are enabled thanks to our global R&D organization. The R&D teams are organized globally, but with a strong and local footprint and competency centers. An important point that I would like to mention for all product development worldwide is the focus on the end-to-end process of our customers and not on the development of single components. For components, actually, we choose partnerships with leaders in their respective market. One example of such a partnership is our supplier for the laser source, IPG.
The laser source is no longer a differentiating factor, but rather on the way to its commoditization. Therefore, Bystronic has stopped its own development of its own fiber laser source, and we focus our innovation on true creation, true value creation along the process chain of our customers. Besides systematic approach of design to cost methods, I would like to draw your attention to another example I would like to point out. We put a strong focus on sustainable product development, and you will hear more about this also from my colleague, Mike Präger , later on. We have started to implement systematic life cycle analysis for all new product developments.
We focus on clean tech solutions so that they become a standard and not only an option within our products. I proudly want to show you some proof points that our innovation strategy works. Every 10th employee of Bystronic is engaged within R&D. This makes us a very attractive employer for young talents, but also for established professionals. Not less than 80% of our innovations are co-created with customers and partners. Already now, more than 30% of our product innovations are related to sustainability and directly linked to the Sustainable Development Goals defined by the UN.
We want to make our customers more energy efficient and help them to reduce their CO2 footprint. We also measure our innovation thanks to the so-called innovation ratio. You can see that on the top right of this slide. We measure the number of sold systems that have been introduced to the market no longer than three years ago compared to the total volume of sales. As you can see, this ratio is above 50%, with a strong and steady growth during the past three years. In other words, every second product Bystronic is selling is not older than three years. Of course, innovation has to be protected, and that's why we apply a double-digit number of quality patents every year.
We have more than doubled the number of filed and granted patents during the past five years, while at the same time, we became much more efficient. We achieved approximately a cost reduction of more than 40% per patent family, or in other words, the number of patents has strongly increased at stable costs. Ladies and gentlemen, all of these proof points show that innovation and technology is one of the main driver and the key element of Bystronic strategy 2025. As an R&D organization, we contribute especially to sales, thanks to our innovation power, but we also contribute to the profitability, thanks to major efficiency gains we can achieve every year.
Of course, the customer is always in the center of our daily work, thanks to our systematic co-creation approach. The so-called not invented here syndrome does not exist within Bystronic. Thank you very much for your attention, and now I'm happy to take your questions.
Any questions from the room? Yeah.
Thank you very much for your attention, and now I'm happy to take your questions.
Question concerning the addressable market and its development over the next five to 10 years. Logically, the three major players are gonna gain, i.e., there is smaller competitors that will drop out. Can you give us a feel for why you should gain more than TRUMPF or those two competitors that you have today in that oligopolistic situation? What makes you better than them, and why should you have higher market share gains?
Yes. I can tell you that probably because we try hard.
Logically, the three major players are gonna gain, i.e., there is smaller competitors that will drop out. Can you give us a feel for why you should gain more than TRUMPF or those two competitors that you have today in that oligopolistic situation? What makes you better than them, and why should you have higher market share gains?
Yes. I can tell you that probably because we try harder, would be the one part of the question. No, you know, both companies that you mentioned are very professional companies, without a doubt. But like everything in life, we are targeting specific customer groups, and we try to understand exactly where, you know, our sweet spot is and try to get in. You know, winning market share against highly professional companies is very, very hard. We know that. But the latest numbers that we have gotten from this year and from last year actually confirm that we have been able to slightly gain market shares in different thing. Part of that has simply to do how well you treat your customers, for instance.
For instance, in 2020, even though we had, you know, a significant reduction in our business, we didn't let go any people at all, you know, outside of what we would have done anyway. We created a lot of programs to keep the activity very high. Last year in November, while everybody was saying, you know, the world is gonna stop spinning, you know, we have seen a massive uptick because we went through with our customers. We constantly were in contact with them. We worked with them. We had virtual meetings. We had hundreds of virtual meetings with them. The moment they were ready to get up again, you know, we immediately got the orders. You know, that would be one example. I think we are really, you know.
The team that you're seeing here, it's not just the technology, it's also the people and the quality of the people we have, and we really work very hard on every single customers. That's a part of our secret sauce, I would say.
I just have a second question concerning the modularity or the standardization. Given the fact that many of these clients do have several offers and utilize several technologies, are you not just yours, but others as well?
Yeah, there was a question. I think it wasn't the microphone wasn't on. There was a question about the modularity of our solutions as compared with our customers or, you know, with other OEMs. I mean, basically what we are selling to our customer is not just a system that you have seen here, you know, whatever it might be. We are also selling them investment security in the sense that our solutions are scalable. You can add automation to it, you can add whole systems twice or three times or four times, and you will see one of the examples actually coming up soon. I think it's more than just being in a competition on one single module.
It's also about making sure for the next seven years or eight years or whatever long that is, you know, that system will be very, very good taken care of by our service, and Eamon is gonna talk about that. Also you are able either protect your investment by adding to it whichever way you wanna do it in the future. I think that's one of the USPs that when we talk to customers, it's quite important to them. It's not a one-off event. I hope I've answered your question.
If I can add something.
Yeah, please.
You know, this is really our part of our strategy, of our value we want to offer to customers. We say we are open. We are open to third-party. If you need to integrate, let's say, also competitor product into our offerings, then we do it. Because at the end, it's the customer who decides which product he wants to use for which application. We do not say you need to exclusively go with Bystronic.
It just come to you. I think Mr. Bommer had a question. Is that correct? Maybe we do four or five questions, so we don't give.
You mentioned the development of the laser source. When did you stop those activities? Did you see the competition, in particular number one, re-organizing the development?
We stopped our own development in 2006-2016. Yes, we see one of our competitors who is developing its own laser source. But not only for its own purpose, but also for let's say also selling it outside of its business. Creating some volumes there, yes, but it's a very hard market. We have seen it, we see it every year actually. We do a price benchmark every year with the major players within the fiber laser technology. There we see. We have seen in the past five years a massive significant price war actually also. To see that the laser source itself is really on its way to a commoditization. It's not a differentiating factor anymore.
It's really the process that counts and not the laser source itself. That's why we strongly believe that our decision to stop our own development was the right one, but to work with the best partner.
There's one more question.
Okay. Could you probably go to slide 11?
11.
With the market positions with your competitors. Yes. Okay. That's a very interesting chart. We see the dots with different sizes, TRUMPF 20%, then 15%, and you have 12%. On the dots below, the only difference is actually in the range of applications. All the other fields seem to be, you know, in a similar size or position as the others. The big difference seems to be in the range of applications only. What is it that the others do that you don't?
Okay. That's a very good question. When you look at some of these companies or also others, you know, we are active in two applications, in laser cutting and bending. There are also other applications. Let's say automatic bending, let's say welding, let's say punching, and so on. Let's say there are six or seven applications, we are active in two. That's why we have said that the addressable market is around CHF 9 billion. Obviously, you know, we think that it is smart to have a broader offering, you know, with more applications. At the same time, we don't think that we need to own all the applications ourselves.
For instance, with welding, we have done a strategic cooperation with a company called CLOOS from Germany, or actually, they're being bought by Estun in Nanjing. We are offering today welding cells that are Bystronic-branded, but the technology is really from one of the leaders in the industries. That's what it is. It's expanding along the applications of our customers. That's one of the key strategies. The size of the bullets, you know, you could argue. Should it be a little bit bigger or smaller? It's more about the qualitative points that we see a significant potential actually to grow along the application chain of our customers, the value chain of our customers.
You are adding applications, huh?
Well, I can neither agree nor disagree to that. Yes, we would like to do this.
Okay. Thank you.
Okay. I think we'll move on to the next block. Thank you very much for your questions. We have time also later on again. We'll move on with Alberto and software solutions.
Today, I'm here to introduce you our smart factory solutions. First of all, let's listen to one of our customers.
I'm Tung Dao from Laser 24 in the U.K., and we have been Bystronic customer since 2008 when we first started our business. We probably provide precision metal processing services for various industry, including construction, engineering, and marine. Over the last several years, we achieved 30% increase in year-on-year turnover. However, our biggest challenge was dealing with two separate software that require us to input the data at least twice and cause lots of, like, human errors. To achieve a sustainable growth, we realized that we need an innovative software that allow us to have a live data to support informative decisions. At the end of the day, we want to make our customer happy by providing consistent products and service quality.
We chose Bystronic as a strategic business partner because we believe that it will help us to transform into a totally automatic and paperless system. At the moment, we're testing the very first versions of the software BySoft Business, which already help us to cut 50% in daily paper use and show us to return the quote within two hours and the sales order for five less times.
Well, in Bystronic, we understand that there are different kind of customers, and each one of them have different level of digitalization. Bystronic provides a real smart factory solutions for each one of them. The goal of digitalizing customers is to generate efficiency and flexibility to adapt themselves to unexpected changes. With our solutions, Bystronic can strengthen our existing customer relationship and attract new potential customers. All this, for sure, will give us an increase in solutions and software sales. Let's start from the very beginning. The beginning is to understand customers' challenges. We have been more than 35 years in this industry, and we think we understand, we have learned to listen our customers to face their challenges. Let's talk about some of their challenges. Heterogeneity.
Customer has different brand of machines, different kind of software, different processes, and all this generates different data sources in their companies. Speed and planning. We have two big kind of customers, job shoppers, which depend on fast quoting and fast execution and manufacturing to compete against others, and large customers, OEMs, original equipment manufacturers, where efficiency is based on planning and schedule all the processes in time. In both cases, the communication between the departments is usually not enough and not efficient, and more important when they try to communicate with suppliers or providers. Another big important pain point would be the analysis of information.
Usually, the decisions are based on past experiences and on subjectivity, and never are based on real data coming from their machines, their processes, and their software. Digitalization is not a simple project that one customer has to face in one timeline, in one moment of their life. Digitalization is a big journey for the customers. In Bystronic, we would like to partner with our customers to go with them during this journey. To start from standalone processes like cutting, bending, where the key features are the innovation, the quality, and the technologies, as Christoph explained before, to a fully automated production cells, where the key factors are the material flow management, scalability and modularity of the systems.
This automation will give to our customers the possibility to work 24 hours per day, 7 days per week, and the whole year. The last stage on the way to the smart, real smart factory solutions, where the main advantages is, the seamless integration of all processes in a company, managing the full data flow of the company. It is not about running machines, it's about running the whole company and, having the production under control in real-time and transparent. As I said before at the beginning, first of all, it is important to understand where our customers are located in what we call digital maturity model. There are many different customers, and each one of them is in one of those steps. We have defined it as starters, explorers, players, challengers, and champion.
We think that most of our customers are between starters and explorers, and this give us a huge potential for growth. Depending on their status, Bystronic can offer them different solutions. From easy-to-use intuitive device controls, which are installed in all our machines, to our BySoft Cell Control software and BySoft Flow software. These are two systems, scalable and modular, to manage the production. The last step would go to a fully digitized smart factory solution, where our system, BySoft Business and BySoft Insight, will help our customers to coordinate and manage all processes in a fully digitized company. It is important, it's really important not to frustrate our customers. We need to offer to our customers what they really need, not what we want to sell them.
They need to go step by step. You cannot rise from zero to 100 in one second. You need to understand where the customer is and how to go with them step by step. When I said before, coordinate and manage all the processes, I'm referring to all the relevant process of a company, not only manufacturing. I'm referring to quoting, planning or scheduling, manufacturing, measure, and optimizing. This is an end-to-end process that integrates, synchronize, digitize, and creates transparency in a daily process in a company, and also for all the stakeholders, not only for the operators or the production manager or the management, for all of them. All this with a fully cybersecure environment for our customers.
Let me give you one example. This is one of our customers. This is a U.S. customer. They have two lasers, three press brakes, six processes, and 18 employees. You see how they plan their production. In the columns, you see all days, day four, five, six, seven. Each line is one process. Each folder is the job they have to produce, and each paper is the part they have to build or manufacture. The colors are the priority, and this is how they plan their production. Imagine that you need to know where is the status or what is the status of one part, or what is the status of one job. It's almost impossible.
This is the way they work today in the factory. This is the future. This is what we are installing now. Our customers will not have to face with this wall full of papers anymore. Everything will be digitized. All the information will be easy to use in an iPad, in a tablet, or in a computer. Easy to use, easy to visualize, fully configurable, and available for any stakeholder, operator, production manager, the CEO of the company, suppliers, providers. Everyone can have his own view of the production. This is the beauty of this tool. It can be used in a large companies or in a very small job shops.
All this has been possible in part due to our, let's say, strategic partnership with a Spanish company called Kurago. Back in 2019, we had the same view, and we signed a strategic partnership with them. We started at the end of 2020 to co-create and to co-develop this smart factory solution. In 2020, we created our first smart factory test center in Oberbipp. You will be able to see this later this afternoon. At the end of 2020, due to the great evolution, Kurago received the Gold certification of Microsoft, which recognizes their quality in software development. At the beginning of 2021, Bystronic acquired 100% of the shares of Kurago.
We decided to keep the Kurago brand on the market to approach software solutions to non-Bystronic customers. Today, Kurago has 65 employees. Where are we now in this smart factory journey? At this moment, we are installing solutions in some field test customers. We are installing it in five customers in U.S. and seven customers in Europe, in EMEA. We have already built sales organization in EMEA, in Asia, and in America. We will launch the first version of our software in the first semester of 2022. With this, we think that we can attract new customers which are looking for a modern and state-of-the-art software for their factories. We will offer to our customers two ways of acquiring this software.
We will use the business model called subscription pay per use Software as a Service. Due to our cloud platform on this new system, we can provide our customers one initial installation of the software with the initial payment, and then automatic downloads and uploads from the web, from the cloud to their premises. This will give us, our customers, the potential option to pay a small amount of money every month. This is a clear recurrent business for us, new for us. Then, of course, some customers will decide they want to go with the traditional, standard way of purchasing software, which is called on-premise.
You pay for one installation once in your life, and then if you want maintenance or if you want updates, you pay for each one of those. It's dependent on customer needs. We are open to fulfill their demands in the way they want. In summary, our smart factory solution is key for our strategy 2025, and the contribution to Bystronic targets are quite clear. We think that we will be able to attract new customers with these new solutions. We are able to open a new business in software for non-Bystronic customers. We think we can make single-digit million CHF revenue in the first years, and we hope we can create a real margin contribution from 2023 on.
This is all I wanted to share with you regarding solutions today, and if you have any questions, I will be more than happy to solve it.
There are no questions currently in the webcast, so we start with the room again. Any questions? Yes, please, Andi.
Hi. Can you talk about the offering of your competitors versus what you are offering, what you showed us?
Well, we are not focused on our competitors. We are more focused on our customers. But it's true that TRUMPF and AMADA, they are long history companies, and they also have service software. The big difference between us and our competitors is that we see this as a whole. We don't create software packages, standard software packages for different problems or different modules. We are creating a whole solution which is scalable and modular. The customer can start from a very few systems and grow with us. As I said, we are not looking at different problems not connected. We are seeing as a whole. This is a smart factory journey. The big difference between us and our competitors is that we see it as a whole.
The second USP, I would say, Andi, is that, you know, we are one of those. That solution is able to integrate any brand. That's different to what everybody else is doing. We don't believe that we just wanna push the Bystronic brand. We wanna believe what's best for the customer and integrate that so we can synchronize the data and the material flow. Those are the two USPs I think are important for you to take with you.
From your first experiences, how open are the clients to not only welcome the Kurago sales, but also the Bystronic machine sales at the same time?
Is it okay if I take that? It's actually interesting. We have one customer that isn't even our customer and wanted to have that because of exactly that point. We see that completely new customers are starting to talk to us that wouldn't probably have talked to us in past because they're not looking for, let's say, a system. They're looking for an integration. While we have now this five and seven, I think, test customers in total, most of that actually starts on the software side, and you see significant productivity coming out because you take the waste out of the process. Most of the time it ends up with a hardware program as well, a pretty significant actually.
We've only seen in one case, no hardware follow the whole project. That we weren't really aware at the beginning of it. This is for sure, you know, opening up the door to customers and to discussions that probably we would not have had discussions because, based on our existing offering today. Would you agree, Alberto, actually?
Would agree. In fact, the first full test customer we have is a non-Bystronic customer. It was the first one.
Thank you.
Okay. One more question with Bert.
Yes. I'm wondering, can you tell us how many scopings you have been running this year and how many scopings you have planned for next year? Can you give us a feeling for the size of the scopings? Are they increasing the customers or are they similar?
You mean scope of the project probably.
As I said, we have installing 12 customers, seven in Europe, five in U.S. We will start also in Asia. The goal is to make around 20 projects this year before EuroBLECH. After EuroBLECH, we will make the full market release. Today, we said we will launch the system first half of 2022, but it will be a limited market release. We want to have this 15, 20 customers under control to make sure that everything goes well, that all the products are running fast and running as expected. Then after EuroBLECH, I think it will be the real kickoff for all the markets.
Now we are focused in U.S., and Germany, U.K., Korea, very specific markets where the demands are very clear and high. Then as soon as this is running well, we will make it more, let's say, bigger.
Okay, thank you so much. Probably a follow-up. You have hired certain people. Can you tell me where you have hired them? Is it more the relationship manager or this built as software engineers or run software engineers? Can you describe this?
Yeah. We since I came here in 2018, we have tried to build a software house inside Bystronic. The mentality, the mindset was a little bit more focused on machines. Now we are more focused on solutions, and software is part of the solutions. Yes, we are hiring a lot of new software engineers to be able to build this solution and growth in the future. Yep.
These are developer then. This is correct?
Yeah.
Okay.
Yeah. Yes.
Okay. I think there was one last question here, and then we'll move on with the next slot.
Question for the CEO. Can you talk a little bit about cultural challenge which comes along with this move, that software-first suddenly is here and your former engineer building the Mercedes has to realize it's moving towards more a Tesla now. Some companies tell me you have to have the hardware and software guys separately because it's completely different cultures. Obviously, you have to bring them together. What's the main challenge, and how do you handle that?
You know, I always thought that Bystronic's biggest challenges are technology and innovation. I can tell you it's culture. It's incredibly hard to bring software guys to teams together with hardware guys, with guys that do only gold segment. You know, sometimes I feel like a soul doctor when I bring them together. It's really hard. To be honest, we had the luxury to bring Alberto in. Alberto has done this all his life. Actually, they have 17, 18 years of experience to do this in another company. He built it up. Kurago was, you know, his child, and he has been able to bridge that.
You know, the software guys, when you talk to them, they have totally different processes, totally different mindset, totally different ways of working and planning projects. As Alberto knows, we have had a lot of tough discussions how to bridge that. That's probably the most difficult thing, how to create a culture. We have been able to bridge this largely by creating a culture of winning, of wanting to get it done, of trying to solve it, bring it together in a spirit of performance, of a family, but performance. I would agree, whoever said that to you, it's one of the hardest things to do. We have actually separated it.
We found out that, you know, you can't have them sort of you need to have them physically for meetings and discussions, but then you wanna create islands where they do their secret sauce, you know. I hope that answers the question.
Thank you. We move on with Eamon and service.
Thank you. Appreciate it. Doherty, Chief Service Officer for Bystronic. Before I jump into my deck, let's first of all hear from one of our customers.
Hello, my name is Piotr from Belma , and we have been Bystronic customer since 2001. Our business is to deliver customized sheet metal products. Although the complexity and requirements for the products have changed over the years, they became more complex, the core business remains the same. In 2019, we decided to exchange all our four lasers into latest generation ByStar Fiber 3015 lasers with automated material feeding and sorting system, which were connected to an automated storage system as well. Now we have 10 Bystronic machines and planning to purchase another two in February.
What we expect as a Bystronic customer, apart from the obvious aspects of cutting and bending process such as accuracy, quality, repeatability, and competitiveness of the production detail, we expect software. Here, very important is the speed of information processing and logistics, process automation, and robotization. We want to eliminate unnecessary logistic processes. The decision to cooperate with Bystronic in the field of laser cutting and bending processes was made due to several factors. We have known and used Bystronic products for many years. We know the quality of these products and the functionality that is tailored to our needs, and we know also the Bystronic service.
The essence of the message that I would like to try and put across to you this morning is about the work that we've been doing within the service organization to create trusted partnerships with our customers. Indeed, the strategy that we use to deploy that is through our three pillars. Our three pillars of being predictive, proactive, and with people at the center. Our overarching goal in doing this is to bring peace of mind to our customers. Already this year, we've been able to develop modular services that provides our customers with degrees of flexibility, where they can customize our products to suit their needs, no matter where they are on their journey.
Of course, this is done within a framework, and it's standardized and aligned across all our regions. We also want to nurture long-term relationships with our customer. One of the ways that we've been incredibly successful in doing this so far this year is by deploying the tool, the 360 Advisor. We'll have the opportunity to talk about that a little bit later in the deck. Our role in service is actually quite simple. It's to develop products that our customers both need and want, that helps them drive their efficiencies, their productivity, and ultimately, their profitability. That allows us to achieve our commercial goals of driving strong sales growth and being margin accretive.
We started this journey by traveling the world. We got in front of our customers, we understood their business models, but we also understood their hopes, their fears, their desires, but also their challenges and their pain points, some of which are on the screen here. When we look at downtime for our customers, that has a significant impact on their production cycles, and depending on which market they belong to, it also can be damaging for their reputation. Tight production timelines. You know, if a machine is idle, the ramifications are significant into their workflows and into their efficiencies. Limited know-how. Our machines are complex.
Our solutions even more complex. They're multifaceted. They cover areas such as mechanical, electrical, and software. And we want to be able to help our customers navigate through that complexity, and we do that by providing them with a one-stop shop in Bystronic. How do we become this trusted partner to our customers? Well, it's through our three pillars: proactive, predictive, and people. If we look at proactive first of all, our goal is to drive our customers' uptime efficiency. We've been very successful in doing that this year with two of our products.
Two of those products is our ByCare program. Our ByCare program is our way of providing preventative maintenance, contractual to our customers for all our product range right across the world. Another product that has supported us in this is the 360 Advisor. In simple terms, the 360 Advisor helps us to identify potential risks or uncertainties that the customer might face in the near future. We'll talk about both of these products in the coming slides. Predictive. We have the ability to interact with our machines, of course, with our customer's permission. That allows us the opportunity to provide high-level diagnostics to our customers. Through that, we can predict costly downtime.
One of the tools that we've developed to help us do this is a tool called our Uptime Analyzer. Our Uptime Analyzer, it reaches out, grabs data, relevant data from our customers and takes it and puts it into a format that allows us to then work with the customers and figure out how we can support them better in driving that uptime efficiency. Our people. We talked a lot about machines and our tools, but at the very heart, at our very heart of what we are in service, we're people, and it's through our people that we're able to drive that customer centricity that we've been talking about. We've been working on developing our organization to be dedicated, competent, well-trained, committed organization that have a deep, burning desire to provide that ultimate customer experience to our customers.
You've heard my colleagues talking today that we have a number of different customer segments. At the beginning of this year, we were able to deploy our program called the ByCare program. This is the preventive maintenance program that we have for all our products. Basically, what its goal is to do is to provide peace of mind to our customers. It's modular, and it allows our customers to choose what level of peace of mind they want to have. You can see from the scale on the left-hand side, the service at cost provides our customers with a small degree of peace of mind. As you work through the steps, that gets higher and higher and higher to our recommended care, which provides a much greater peace of mind.
You can see from the chart here that on our first year, the vast majority of our customers have opted towards standard care. What we can say in recent months, that has been transitioning further and further into the recommended care area. These programs are standard, again, right across every region. What has been very exciting for us in our first year is that 90%, 90% of the products that we've sold in 2021 have been sold with the ByCare program. What's even more exciting for us, even with that great success in this first year, when we look at our total installed base, we're still only at low double digit. The upside potential in this area for us is really quite exciting. We currently have four programs within the ByCare suite.
In 2022, we will be developing a further two programs, our premium care and our advanced care, and they will greatly appeal to our larger, more complex customers. The 360 Advisor, I've mentioned it earlier. This absolutely truly allows us to become and create that vision of becoming the trusted partner to our customers. Pretty much in every service visit that we do, the service technician will review the customer's operations within specific key defined areas. They will review it in such a way where they will determine the threats or the risks to the customer's operations. It's a little bit like a health check.
The positioning of this is that, first of all, the technician, he or she, will identify any risks, any challenges, any threats. They will then offer up the recommended actions, and then most importantly, show them the benefits that the customer will get from carrying out these actions. People. I said that's what service is. We're people. People genuinely enable our customers' success. This, our people are truly our biggest differentiator within the service organization. You can see some of the numbers there, and the numbers, of course, are important. But what's equally important is providing those technicians with the knowledge, the skills, and indeed, the culture to deliver on that ultimate customer experience.
This year we've been working very hard in making sure that we provide that knowledge to our people, working on error codes, symptom codes, decision trees. We've also been building our online content, so making sure that our technicians have access to the knowledge where they need it, when they need it. We've also transitioned our training from being traditionally product-based to future competency-based. Also with all our competency centers, all our technologies, we've now brought that under one global function for our training organization. That allows us to be much better aligned, provide standard training, and be better at execution throughout all our regions.
Our service business today has always grown, albeit with modest rates of CAGR of about 4%. Our goal is to go from CHF 160 million in 2020 to CHF 330 million by 2025. It's also to take our service business from about 20% of our total revenue to about 26% of our total revenue. Standing here today, I can say that we are in line with those expectations. We've had a strong first year. We've done this by, of course, executing against some of the products that we've shown you this morning. For us, most importantly, we've done it through a deeper understanding of our customers, their challenges, their businesses. I mentioned that our goal is to drive our customers' efficiencies, their productivity, ultimately their profitability, which allows us to achieve our commercial goals of driving strong growth with accretive margins.
In conclusion, service does make up a key element of our plan. It is providing and will continue to provide over proportional growth into our 2025 strategy. It does, as was mentioned earlier, provide stable, recurring revenue to our organization. We are investing strongly. We're investing strongly in our infrastructures, our systems, our procedures, our processes, but also we're investing strongly in our customer-facing employees. This will allow us, in the not-too-distant future, to enable us to be margin accretive to the wider company. With that said, I have the opportunity to take a few questions.
Yes, please. Any questions from the room? Maybe a short reminder before that, for those of you on the webcast, please feel free to enter your questions also in the chat box below the webcast. Yes, please.
Yes. Hello. Just two questions. First on the service force. Do you see the 100 technicians to be added in 2022 as a base for the next few years? That's the number you need to add, or is there some kind of a plateau at some point? And also in which region are you especially recruiting this force? That's the first question. The second question is, can you maybe say a word on the margin today of the service business? Is it dilutive? And when do you see this dilution to basically end?
The first part of the question was a little bit difficult to understand, but I'm going to try and.
It's just you say you recruited 70 technicians in 2021. You will recruit 100 in 2022. Does it mean that you will go even higher in 2023 or does it plateau at some point?
Okay. Got it. I should point out that our goal this year is to actually hire an additional 100 technicians. We're currently at 70. You might ask yourself, well, will you get to 100 by the end of this year? The answer is yes, because our recruitment was loaded towards the back half of the year. What's exciting for us on the recruitment side, though, is where or how we're filling these positions. We're filling them hugely from referrals from our existing population of service technicians. For us, that is a huge testament to what we're doing and how we're doing it, because of course, you don't refer somebody unless you're certain that it's the right company.
Key to all of this has been the engagement and the empowerment of our organization. Our goal is next year to continue with that development, and we're not short of great ideas to leverage sales growth within service. We understand our customers' needs, so we do not see a slowdown or a drying up of opportunity, in that area. I would expect that, we will continue to grow our footprint within the service organization. There was another question in that?
It was about the margins. Shall I take that?
Sure.
You know what it takes, and maybe, you know, Eamon can talk about this a little bit more in detail, but it takes quite some time, actually, until such a service technician, a newly hired service technician gets productive. That takes, you know, 12+ months until he is fully productive. What we do see the additional investment in 2021 and 2022 are not yet at the margin accretiveness, if that's a word, as we will expect then going forward into 2023 and 2024.
I think we have answered it perfectly.
About the region.
Oh, regional.
Oh, regional.
Yes. What we can say is service makes its business from our installed base. Wherever the installed base is, that's where we gain our sales. We see no variation or deviation from any market region in that situation. In simple terms, wherever there is a machine, we generate revenue.
Maybe one more comment that I may add. You know, this, the 100 service technicians came out of a plan that is about a year old. At the time, we didn't know that we would grow service business by 30% based on last year, and the total backlog by, you know, like 60%. Actually we cannot fulfill all of the service contracts that we have currently, so we need to continue to actually do this. I think we go with the plan that we have, but I think the more successful our programs are, the more service technicians of course we need to have to fulfill that. Service technicians have two functions, of course. One is the installation of the systems, but the other one is the service of our customers.
Right now we are very heavy on the installed base because we, you know, we have seen this record order entry the last couple of 12 months. I hope that is answering your question.
I'm coming back to this.
Yeah.
I'm coming back to the service technicians. You said that you mostly got them from referrals. When I speak to other companies, they tell me it's quite difficult to get good service technicians. It looks like here that you are well on plan, and that's quite easy for you to find people. Is this the case, or do you have to pay quite attractive salaries?
I would say, first of all, no matter whether an economy is down or up, it's always a challenge to find good people. Where we have been very successful is, first of all, forward planning. We have huge, strong networks within the industry as well. So we nearly always have people on the bench throughout all areas. We're high, wide, and deep within our customers. We always have a strong eye on our competitors as well. Wherever there's talent, we work hard to find it and use it. From a competitive perspective, what I would say is, yeah, of course, the package makes up part of that.
Being able to provide someone with an opportunity to work on, and pardon the pun here, cutting-edge technology is very exciting for a service organization. That's another part of it as well. What I also think is yes, the referrals has worked very, very well for us, but why has the referrals worked very well for us? It comes back to some of the things that we do to make sure that our service technicians have the skills, the ability, the knowledge to be successful. I think that is a big differentiator for us and maybe some other industries.
Thank you. Maybe let's make one last question, then we move on. Or if not, okay. We'll have a coffee break. Before we have a coffee break, thank you very much, Eamon. You talked a lot about peace of mind, Eamon, so we have another short video clip that will hopefully make you also smile a little bit about peace of mind that we offer. Afterwards, we make the coffee break. I think we'll make it a little bit longer, so we're back here at 11:10 A.M.
Okay, welcome back. Welcome also, warm welcome from my side here talking about sustainability and ESG. My name is Michael Präger. I joined the company in March.
This year, and prior to this, my background is in industrial B2Bs, mainly in mining, aerospace, automotive, and packaging. What we wanna talk today really is about how we interpret sustainability at Bystronic. For those who follow our journey a bit, is no greenwashing. We really thrive for impact. We look really at the opportunities where we have the biggest impact, which is at our customers. We'll go through this. Last not least, we announced that we wanna do our first sustainability report next year, and I will give you a little update on that one too. First of all, how do we interpret sustainability at Bystronic? We are looking at our organization, at our customers, and also at our industry and beyond. I have some examples for you with this.
In our organization, I said that before when I joined, I feel Bystronic has a lot in terms of sustainability and ESG. We never looked at it through the lens of reporting or strategy. Now, with the function in place, and also with the governance structure in place that I will show you in a minute, and the sustainability report now gives us a phenomenal opportunity to get it into action and up. Customers and value chain, very important. You will see in the decarbonization strategy that we have launched, that the biggest impact is with our customers, and Christoph spotted this already in his point for technology. We are focusing on sustainable engineering, more and more important for us.
In terms of industry, when we wanna become the industry leader in terms of sustainability, which I believe we can and quickly, then we have also the opportunity to help the industries. We are receiving already lots of requests from even other industries asking whether we can help them, how we do this. There's a whole need for sustainability services. When you have an opportunity as a sustainability officer or ESG officer to start with a strategy from scratch, it's wonderful because then what you need to do, you go from an outside-in mindset. It's no longer enough to go incremental. I reduce harm step by step, year over year. This is not enough. Today, the world expects a company and a leader that you also drive value for environment and society.
Moving forward, you will see that from Bystronic, as we are aligning closely with the United Nations Sustainable Development Goals. You do a materiality metrics where you're looking with your stakeholders, and we really did this in detail with customers, stakeholders, people to see where are the major points that you can make impact. You see those topics to the right. That's what the so-called material topics are, and these will guide our principles of where we put our action. In the next three slides, I really wanna walk you through how, A, for our organization, we drive sustainability culture. For B, our customers, we drive sustainable engineering. C, for industry and beyond, provide sustainability service. Our organization. Look, first is organizational capabilities are key to us.
We are sending executives to bespoke ESG trainings because it's not enough that I'm centrally leading this with the head, he's the ESG guy. We need to decentralize it in the organization, and that's how we implement and get more power into the organization. Employee engagement. We are using doing these things with experiences. I'll give you one example. With AMAG recently, we announced a so-called E-Motion Day. Two days where AMAG brought all the electric vehicles here into Niederönz. Our employees got two days to test them. If you arrived this morning, you see outside the roadblocks, the roadworks, these will be 20 charging stations on the roof next door.
We will do PVs installations next year. As of 2022 in this office, we are moving to renewable energy. That's what I love with Bystronic. We're doing the right things. We're doing them extremely fast, and that's cool. I would say that even from the headquarters, we are so close next year to maybe even look at net zero for our headquarters. Talent management's critical. You heard throughout the day, our people are amazing contributors to sustainability. It's fantastic. Every week, I'm getting questions, suggestions, what we can do. It's amazing how the culture works. Sustainable engineering with customers. I mean, that's what the CTO talked to you about.
Energy efficient solutions. For example, from a CO2 laser to a fiber laser, reduced already 40% of energy efficiency or improved energy efficiency. Our all the machines you heard are modular-based, so we can really reduce the amount of material. We have life cycle assessments, so we look in details how we can further improve our offering. With a pre-owned business model, we already have a circular business model in place where we're bringing no matter what brand machines back into our refurbishment centers, refurbish them, and sell them again to the market as a business model, okay? Christoph said that 30% of R&D is already linked to the Sustainable Development Goals and to so-called Scope 3.
I will give you a little bit background when we talk about decarbonization in a second. Last but not least, this is hot off the press. Last week, we did a so-called late night show where we brought six industrial partners, ecosystem partners on stage in our facility in Gotha. Topic, sustainable management. We reached 1,700 customers on YouTube and get so good insights what's on their mind because they are telling us, h elp us. Do us. As I said before, sustainability service is something we are receiving requests from industries out beyond sheet metal right now.
Help us, tell us. This consultancy of sustainability is in demand, and we see a great opportunity to help people moving forward. At this stage, I would like to highlight also that thanks to these events or videos, this is all done by the corporate comms team, and I'm very proud to lead this team. For me, this is an industry-leading team, and especially in digital events and so on, we are setting the benchmark, and this will help us to differentiate moving forward the brand. Coming to decarbonization. Earlier this year, I said and we did this in record time, thanks to the entire organization of operations, we wanted to drive our carbon footprint, Scope 1 and 2.
This is now done. We are currently auditing the data, but having a carbon footprint evaluated doesn't mean anything if you don't act on it. We have immediately started the decarbonization strategy. We are looking at the toughest standards, which is the science-based targets, 1.5-degree by 2030. This, I think, any company in today's world should do this. We have now looked at this. That would mean 4.2% year-over-year reduction in CO2 across the globe, over the course of 10 years. You hear us saying that next year we wanna link ESG performance, sustainability performance with executive compensation.
We, as a management team, have set that we wanna take this toughest carbon target for us to drive. We are not ready yet to announce science-based targets publicly for one and two for an organization because the database is auditing right now, or we are auditing, and I think we wanna make sure we have the right data in place. I mean, we are very ambitious on this front. To the right, you see one chart which demonstrates. However, I said before, we don't wanna do greenwash, so you can rightly ask, you should ask me, right? You have Scope 1 and 2, you make all these emissions around this. Look, I mean, it's only 2% of it. It's true, but you need to start somewhere.
Evaluating a Scope 3, and for those of you who are not familiar with the terminology, Scope 1 is all the emissions when we produce a laser machine here in Niederönz, everything which is emitted by producing this machine, that would be Scope 1. Scope 2 is the emissions related to the energy we are buying. Scope 3 is the emissions you're emitting when you're with your customer at the lifetime of your product use. You see that Scope 3 is huge for us. That's why you heard here our CTO speaking about energy efficiency, features, start-stop, and helping a client to decarbonize. That's where I have the biggest impact. Also with software, with automation and service, very much so. You asked ourselves about where we was in terms of governance, in terms of sustainability. Look, I'm since here since March.
I've presented two or three times in the board already. I receive a lot of great support from them, and we have very good feedback and knowledge in the board, and they are helping me a lot here, and I appreciate that. ESG and sustainability is linked to the executive committee, so that's where we built the strategy. I hope I can demonstrate to you that we are now decentralizing it and making it as part of the execution. We have started a sustainability council, cross-functional, not only with the departments, but also with people who would like to contribute, and there are so many in our organization. ESG roadmap in a nutshell, governance structure completed, decarbonization strategy in place. We are progressing heavily on sustainable engineering and services. What's next?
Finalizing the ESG compensation targets, finalizing the strategy, KPIs, ambition levels as a part of the GRI reporting process. That will be around Q1 next year, and we will publish our first sustainability report next year, and we're all looking forward to that. How do we contribute to the target? Future-oriented business model. It's proof we have a sustainability mindset in this company and culture. Decarbonization is critical for the industry. You heard this throughout the presentation, people are key. We are doing everything to make our people future fit as well. Thank you so much for the quick update, for listening in. Questions?
Yes, question from.
On Scope 3, you mentioned before that 80% of your clients are small job shops, typically. Did you see a big difference on ESG demand between large and small customers?
OEMs, yes. It's coming. The job shoppers are catching up quickly. The event, the late-night show I presented was across customers and the request for decarbonization is everywhere now. Yes, it's big. OEMs, they are even more advanced. They're using EcoVadis, like more processes, supply chain management. This is what's now needed and requested from OEMs. That's part of our ESG closing the gap process, right? How we are now building all the tools, uploading them into the system. EcoVadis is a huge tool for us from OEMs, but also helping our suppliers moving forward for job shoppers. Thank you.
Yes, next question from Daniel.
I have a simple question. What kind of rating are you targeting? Because it's a fact of life that some rating agencies don't like major shareholders, and B, they don't like double share structures.
Look, the ESG rating is broad, right? It not only has governance in there, but E and S. To be honest, we are not good in ratings at the moment at all, and everybody knows it in the room, because how could we? I mean, we started in this year in March. What we are doing is we are looking at an ESG gap analysis on all our ratings. We are looking into ways how we are targeting this, and simple things. It's signing the United Nations Global Compact, which we will now do. Committing to science-based targets, which hopefully we can do. Step by step, we are going there, right? First of all, G is one element of it, but it's broader than that.
We don't target ESG ratings, but we will commit to gradually improving on the ratings because we would like to move where the impact is. Luckily, ESG ratings also move in that direction, which help us. I would say that year-over-year, you will see improvements from us on certain ratings, but the biggest impact is on where we can make the big difference for customers.
Thank you.
I would have three questions. First, on the 42% reduction in CO2. How did you come up with that number?
This is the absolute calculation when you go into the Greenhouse Gas Protocol and the science-based targets. They give you various approaches, right? They tell you at the 10%, over 10 years, you can gradually go down, and that for us would be 42%. This is what the numbers come up with when you follow this. This is in line with all the industry standards as well.
Okay. Do you think that more is possible?
Yes.
Okay. I thought so, too, yeah.
Yeah. But look. It's great that we are getting these questions. We are doing it step by step. I hope I could come up with and provide you that we have highest ambition, and we wanna be the leader in this, but we need to take also the organization step by step. Hence, we are going with Scope 1 and 2 first. If you're going for Scope 3, because I don't care how much we reduce on 42% on Scope 1 and 2, and the biggest is on Scope 3. We need to get the organization to this, and Scope 3 evaluation is heavy lifting for an organization. It's nice to have a rating on this, but it's huge, and we need to help an organization to get there.
We wanna focus where the big impact is, but also demonstrate officially that we are ambitious and we are making progress. Let's see how we end up with this.
Yeah, that would be the second question. Scope 3 targets, when should we expect them?
We have in our roadmap done this. What you saw here on the right-hand side is Niederönz from 2019 as a kind of a pilot. You know, we did a pilot on this. We looked in the way of how we automate this data evaluation because data management is critical in this piece. It's not enough to just evaluate it one time. You need to have the data system that you are not slowing down the organization. We haven't agreed on this, but we need to make progress in 2022 on maybe two sites. We would go also where the biggest impact is, so it's Niederönz and Gotha. That would be. If we start with this would be the areas where we go.
For science-based targets, you need 60% coverage on Scope 3 in order to claim a reduction target. I haven't made that calculation yet, how many sites we would need.
The last question is probably to Mr. Rüttimann as CTO. How do you see ESG in R&D, and where do you see it go from here, and what are your clients telling you about that?
Yeah. Thank you for this question. As I said before, we already have now 30% of our new developments are related to improving the CO2 footprint of our customers. We're really looking into various technologies and starting from lasers, because lasers are of course emitting or creating, let's say, the biggest impact. We are really looking through step-by-step in applying life cycle analysis through the entire process chain to see where potential we could improve on which technologies in order to reduce the CO2 emissions at the customer sites.
We do not only do it in lasers, we also do it in bending, where we implement intelligent features that the press brake is only really on when you really need it, very similar to the start-stop function within your car. We're also working on that the customers can produce their own cutting gas, you know, so that they can really produce their cutting gas from the air, taking the nitrogen out of the air, and having this integrated with a solar panel. Then you get a fully autonomous production of your cutting gas, and you're basically emission-free. This is also one example.
Another example is that we are investing in other process gases that enhance the process, the cutting process, in such a way that you don't need post-processing steps, and you can basically save additional machines. We are really looking at this from an end-to-end value chain, and as I said before, already 30% of current developments are dealing with these topics.
Additional questions here? No? Okay. Thank you very much, Michael.
Thank you.
We move on to the last slot with Beat.
Good morning, everyone. A warm welcome from my side. My name is Beat Neukom. I'm the group CFO for Bystronic, and I joined in May this year. You've heard from my colleagues, they talked about the attractiveness of the sheet metal industry, where we're positioning the market, and what our key pillars for growth are for the upcoming years. What I try to do is now bring this all together and explain to you what this means in terms of the financials. Number one, we drive top-line growth by the means of innovation. You heard it from Christoph Rüttimann, operational excellence and the regionalization strategy. We pursue an asset-like business model with high returns on net operating assets. I will get to that also in my presentation.
We have a very strong balance sheet where we have further headroom for M&A to expand our portfolio. Before we look into the future, I kind of wanna look back because we have proven in the past that we successfully executing on our capital efficient, profitable growth strategy. We're looking at four elements. Number one, our net sales growth has been about 8% between 2015 and 2021 on a yearly basis, but that includes acquisitions. If we exclude the acquisitions, which are mainly DNE, which was a major acquisition and some smaller ones, the growth rate on a yearly basis on average would translate to about 5% in that period that we're looking at.
With regard to the EBIT margin, you've seen that we have also generated nice EBIT margins in the past. What we have done here on this chart is with the transformation from Conzzeta to a pure play standalone entity now as Bystronic, we adjusted these EBIT margins because we have taken over some of the costs that originally were borne by Conzzeta. To provide you with an apples-to-apples comparison, we have adjusted these numbers going backwards as if we had been a standalone entity since 2015. Capital efficiency is very important to us, and we therefore generated strong return on net operating assets also in the past. Operating free cash flow has also been growing nicely over the last couple of years.
You have seen these numbers before on the different slides from my colleagues. I want you to remember these three numbers: five, 12, and 25. This is the targets, and I wanna reiterate them for the midterm. 5% sales growth, and that is calculated on the basis of the pre-pandemic levels, 2019. We have not taken the 2021 into consideration because it's kind of an outlier. Based on 2019 levels, we wanna grow 5% on a yearly basis to reach our ambition of CHF 1.3 billion revenues by 2025, and 26% of revenues coming from the service business. EBIT margin of 12%+, which is an industry-leading metric.
The profitability or capital efficiency, I should rather say, the return on net operating assets at a strong 25%+. Now, looking into these individual items a little bit more in detail. Since our sales have dropped in 2020 in the pandemic, about CHF 130 million, the net sales CAGR from 2020 onwards latest estimate, we need to achieve an 8% sales CAGR to achieve the CHF 1.3 billion by 2025. 8% organic, that is excluding any acquisitions. This is split into the service business. You know, Christoph was talking about that. The systems business, and Christoph was talking about that, and then the service business. For the systems business, we need to grow about 7%.
That is our objective to reach the 2025 target. The first driver for that is integration, automation, and solutions. We have seen high demands, especially now post-pandemic, customers have realized that operating an automated manufacturing place is actually very attractive for them because it is with less people. We get a high demand on automations and solutions. The second driver are the different market segments we talked about before. For example, Christoph has talked about our DNE entry-level offering that we're now expanding outside of China into the rest of the world. The third is our regional presence that brings us even closer to our customers. Since the beginning of this year, we have a regional organization in place.
What's interesting to see on this chart on the right-hand side is that for the first time in the history of Bystronic, the non-European markets represent more than 50% of the revenues on a global basis. Service, you heard it from Eamon, we have put a strong service organization in place, which allows us to grow the service business over proportionally at an average rate of about 12% to get from an average of 23% in this year to 26% by 2025 on a total net sales basis. We will achieve this through the programs that Eamon was talking about before, these modular services, where we add another two services next year.
I wanna reiterate that we have a very low rate, a low double-digit rate with regards to service coverage on the installed base. That's a great opportunity for us. Now with regards to the profitability, to reach the 12% EBIT by 2025, which translates to about CHF 150 million of EBIT, we need to achieve an EBIT CAGR on the basis of 2021 of about 18%. Nice leverage and, I'm sure you would agree with me that this is an ambitious target. We are well positioned to do that. With the investments in the service business, which we plan to continue to do also, and you've heard it from Eamon in 2022, we will be accretive to margins in 2023 and beyond.
In addition, we constantly innovate, you know, design to cost programs, as an example, is one way to reduce the cost for our products. New innovations allow us to get premium pricing. I wanna give you one example. We just launched recently our 20 kW high-end laser, the ByStar Fiber 20 kW machine. We have been able to sell this significantly higher to the early adopters, compared to prices with lower kilowatt power. Then third is our operational efficiency and our operational leverage. I wanna go a little bit into the detail about this and give you more transparency on our cost structure that we have.
45% of net sales are related to material expenses, and we have kind of broken this down for the first half of 2021. The vast majority is related to components that we source from various suppliers, laser sources as an example. But we have clear pricing contracts and volume contracts in place with our suppliers. However, given the strong demand that we experienced at the beginning of this year, and it continued also in Q3, we have sometimes exceeded these volume contracts with our suppliers, and we had to renegotiate some of those, which resulted in some higher material costs for this year. Personal expenses represent about 28% of sales.
You know, in the midterm, we also do see some leverage there. There we'd like to also continue to invest next year into the service organization and add, you know, on our 3,500 employees, an additional 100 service technicians, plus some back-office support that we need, some hotline support that we need, so that we do not get a leverage in 2022, but then in 2023 and 2024 and beyond. Other operating expenses are to a large part not volume related, as you can see here in the bottom right-hand corner. This then demonstrates how we can leverage our operational efficiency in the midterm.
Some pressures we do see this year, unfortunately, you know, as any other industry has the same challenge, is with regards to transportation capacity and costs. We clearly have a seller's market there. We have seen this in addition to limited transportation capacities. A word on our foreign currency exposure, given that the euro has weakened or the Swiss franc has strengthened recently. Our main operational foreign currencies are the euro, the U.S. dollar more increasingly now, and the Chinese renminbi. The good thing is we have a natural hedge for the euro in place since we source a lot of our components in euros and these offset the profits we generate in the Euro zone.
With regards to the US dollars, we have a hedging policy in place, and we are hedging on a 12-month rolling basis up to 80%. Now, Alex was talking about the asset-light business model, and I wanna talk to you a little bit more about this and wanna give you what this means for us. First of all, we do have lean manufacturing in place at our manufacturing facilities. We are only manufacturing machines on order intake, so we don't manufacture machines just on stock. We keep inventory levels for the components low. This has changed a little bit recently given the supply chain challenges we have experienced since middle of this year. We have slightly increased our inventory levels this year.
Also with regards to our customers, we have internally a very strict policy in place with regards to advance payments. What we do is we're requesting from our customers when they place an order up to four payments until the machine is delivered, and the first order being at order intake. This allows us to quasi finance our working capital and the growth by our customers. It's actually well illustrated on the right-hand side when you look at the balance sheet, and our net operating assets.
If you compare the end of 2020 with the end of June this year, you see that despite the sales growth that we have experienced and the significant and strong order intake we have seen in the first half, our net operating assets have been nearly flat at CHF 230 million, a clear sign that, you know, these advanced payments have been successfully executed. Now with regards to free cash flow generation, a little bit of history with regards to our capital expenditure ratio. This has been at around 2.7% of sales. Historically, you see two spikes here in 2019 and 2018.
These relate to the production capacity and new facility that we have built for DNE in China for our entry-level and the brand experience center assembly facility. You can see a picture here on the right-hand side from the grand opening in the United States, where we now can locally manufacture and assemble our products. Now, going forward, to give you a little bit of a guidance, what we plan to do, we expect our capital expenditure ratio at about 3%. Apart from maintenance capital expenditure, we have a few special investments that we plan to do. One being a brand experience center in Korea, which we plan to open in the first half of 2022. A competence center for automation for the fiber and entry-level segment in China.
The largest one being actually here next door is a global brand experience center here in Niederönz, which we expect to open in 2024. Our strong balance sheet offers us opportunities for shareholders' return and mergers and acquisitions. As a result of the solid operating free cash flow over the last few years and the proceeds from the disposal of the various Conzzeta businesses, we're having a very strong balance sheet. At the end of June, we had liquid assets of CHF 480 million and are having an equity ratio of almost 70%. This allows us to take a balanced approach between shareholder return and M&A at the same time.
Historically, the board has proposed to the general assembly to let the shareholders participate in these proceeds, either through an interim dividend or as part of the normal dividend. With regards to this year, I can reiterate what we mentioned already at the H1 closing, and that is that the board will state its position with regards to the 2021 dividend at the 2021 annual reporting in spring. Looking at mergers and acquisition. Well, M&A, you can see it here on this chart. M&A has always been a part of Bystronic's strategy to expand capabilities and strengthen the portfolio. We have a good track record of acquiring entities, complementary targets, integrating them, and leveraging the know-how on both sides.
We often have started with a strategic partnership and collaboration and acquired it fully at the end. A good example is TTM Laser here, that is actually Bystronic's tube offering, the DNE Laser entry-level offering in China, and most recently, Antil, Bystronic's automation offering. You might have seen the press release that we issued yesterday that we now have fully acquired the remaining 30% of Antil. I wanna give you a little bit of a transparency with regards to the enterprise value because we got some questions actually with regards to that. The enterprise value for the full company at 100% is less than CHF 40 million. Going forward, we're screening M&A opportunities. It's a key opportunity to expand and complement our portfolio, and we're actively looking for those.
You have seen in Alex's presentation that, you know, our larger competitors have a broader portfolio than what we have along the value chain of sheet metal, sheet metal industry, that is something we're looking at. Also, service and software is something which is interesting because you've heard it's a key pillar of our growth strategy, and we could strengthen in this area, the fourth area we're looking at is tooling and integrators. Now on the right side of this chart, you see five key criteria that are absolutely critical for us. We're focusing solely on the attractive sheet metal processing industry. We're looking at bolt-on acquisitions on the one side, but also medium-size targets.
They need to be profitable because we don't want to have our management teams and operational teams being absorbed in any restructuring cases. Restructuring cases are off the chart. We're also looking for solid margins, and we want to complement our portfolio to have synergy potential. Now with regards to 2021, and then also going forward, we want to reiterate our guidance and midterm targets. With regards to 2021, you know, this time, it's the 30th of November. You know, some years ago, or actually last year, we would have been able to exactly give you the number how we would close the year. This year is a little bit more complicated because of some transportation capacities, right?
We don't know whether some of the products will arrive at the customer place, and we're able to install them and then have it taken over by the customer.
There's a little bit of an uncertainty with regard to that, but we stand at the 15% as we communicated earlier. Foreign currency impacts are limited to about 1%. We confirm the EBIT margin, obviously depending on the sales generation and how we will close the year. Tax rate at around 21% for this year, and capital expenditure at about 3% of sales. With regards to the midterm, it's these three numbers, five, 12, and 25. Two of them are mentioned here. A 5% sales CAGR to get to CHF 1.3 billion by 2025. EBIT margin of 12%+, and the tax rate slightly higher given our different geographic footprint.
We're now manufacturing more products outside of Switzerland in the various countries, like the U.S., where we experience a little bit of a higher tax rate than what we have here in Switzerland. That's why our guidance is around 21%-23% taxes, and capital expenditure going forward also at about 3% of sales. This brings me to the end, and now we're opening for questions.
Yes, any questions from the room? Yes, please.
Thank you. Mr. Waser, you mentioned before that you won market share. Can you give us the numbers of these market share wins?
I could, yes. Well, it's you know, market share is incredibly hard to really sort of in general answer. What we actually do is we are looking into very specific markets. One example I could give you is that in United States we have very specific industrial statistics, and in that case, we clearly have signs there statistically proven that that was the case. So maybe that's one little nugget I can give you. But it is incredibly hard. It's every year it's a race, and we feel that through the strategy we have, we have shown that slightly but surely we're going up that ladder in winning market share.
You mentioned slight market share win. I mean, can you give us sort of a bit of a range what you mean by slight?
Well, you know, we are a Swiss company. We're trying to be careful.
Because 1 percentage point might be slight, but if you have 12% share and you win 1 percentage point, it's quite significant.
Yes. Yes.
I assume when you mention slight, it might be 0.3% or a slight 1%. I mean, just.
Let's agree on that roundabout number. You know, for us it's important that we find the way to continuously get a little bit better than last year and then get a little bit better than the year before. That's ending up in more market share, and we actually see us on this path, statistically proven. Just to give you a number is incredibly hard to be honest. You know, it will be a couple of percentages up, but in five years, just without a doubt.
Okay, thank you.
Further questions? Yes.
That is organically, by the way.
How far would you get with leverage when you can do a big acquisition until you get uncomfortable?
The question was that.
If you make a big acquisition, how are your limits with leverage you will feel comfortable?
Leveraging the balance sheet.
Yeah. Acquisition, how much debt would you load on your balance sheet?
You know, Alex was talking about the conservative Swiss company, right? I mean, you know, we definitely need to be investment grade, you know, if we were to do this. You know, we kind of looked into the numbers and, you know, you can do the math, but, you know, we still have a very strong balance sheet, also on the cash side. It all depends on, you know, how big the target is that we would need to acquire.
It's probably fair to say that we haven't seen a target that would be impossible to get to. Right? Yes.
When you mention expanding software capabilities with acquisitions, what area are you thinking about? Because I think you have great organic initiatives. What is missing there?
Maybe I can take that. Well, what's actually interesting about service is, you know, you can grow with your own service organization, and that's what we're doing. That's why we're doing, you know, and getting those 100 service technicians this year and next year on board. But also we could grow with local service organizations. Now, unfortunately, those organizations that we have, you know, checked out in many countries, actually, those are regional country-based organizations. They're not huge, you know, multi-country organization. So we see several opportunities in Europe as well as in the United States to actually complement our service footprint with service companies. Third-party service companies. That's what we meant with that slide with the comment. Did I answer your question, Spunk?
You mean Software as a Service?
No. Those are two different things. We feel currently that we are actually really well positioned with what we have done on the software side. There's no immediate need to complement that. We do see on, you know, down a couple of years into horizon, a few opportunities actually. I would say service is much closer for us to actually capture than on the software side. On the software side, currently, we feel comfortable what we have in the portfolio with Kurago and with our part. Thank you, Mr. Baumann.
Yes. Well, I have a follow-up on this as well. You said medium-size, probably you have mentioned it, but what is medium-size in relation to sales on the funds you will invest? And what is medium-size? I don't know, to be honest. If you can help me there, this will be the first question, then I have a second one.
Let me do this. This is a dangerous one here.
Are you medium-size company, Bystronic, or is this what you are?
Yeah. Yeah, still. Well, large would be CHF 3 billion, small would be CHF 5 million, and medium is anything between basically.
Okay. Thank you so much. This is a great help.
I know I didn't help you, but this, you know, the more I explain to you, the harder it is. I'll leave it there.
No, you made several acquisitions in the past, you know, and these are bolt-on acquisitions then. I guess these are medium-size acquisitions. Is this true? Do you see that you can.
Those are probably smaller ones.
can have much more and ones that-
Those are probably smaller ones. Antil was about, you know, we doubled sales now in three years, probably CHF 25 million in sales, CHF 30 million, CHF 35. FMG was single-digit million. The biggest one was DNE with about CHF 100 million of sales. I would see quite a bit bigger than that, actually.
Okay, probably another way around. We have many corporate bankers here, so I guess that you pay a negative interest to these guys. Is this true, or do you have a gentleman's agreement? How long are you running this gentleman's agreement, and how much time do you take to stop this then?
I, I.
Well, I'm sure.
I didn't hear that question. Did you hear the question?
Yeah. No, I heard the question, but you know, I'm sure these corporate bankers, you know, they would love to have that information from us, but.
Please.
A question.
The 45% material expenses in the first half will certainly be quite higher in the second half, will be higher next year. What do you expect this number to do, particularly in 2022? The adjacent question is, I mean, always the same, how are you able to pass these higher raw material expenses on to your customers, and what is the time lag?
You know, with the service business, there's also spare parts, right? Usually, we do see, you know, better margins, lower material costs on the spare parts. The more we can grow the spare parts, the more accretive is going to be with regards to the material expense in total. You know, we have been increasing prices on the spare parts twice this year. You know, we also plan to do this next year to increase prices and give those forward. There, it's a little challenging, but less challenging to do than on the machine side. On the machine side, it's mainly through innovations, right?
We have increased prices on the machine side also this year, but it is more challenging because you're going into, you know, these offerings, you know, versus your competitors, right? We have increased prices this year as well. Yeah. That's what I can say.
In addition to that, we have several programs in place to attack the material quote every year. You know, we call it the
Okay. There is a mix element, there is a price increase element, there is an efficiency element, and all together, you will be able to compensate. That is the answer.
There is no margin dilution from raw materials due to all these factors.
For next year, you mean, and beyond?
Yes.
Yes, I would say so. I mean, we're still in negotiation with our suppliers, right? I mean, that has not yet, you know, completely ended. That's what we're expecting. We assume that, you know, things will get better, you know, mid-year. That's kind of our assumption.
Okay. Thank you.
I would have two questions. First, thank you for the detailed slides and especially also on the targets and which give them additional information how you want to reach them. Now, the first question is on the service business, which is important to reach the EBIT margin improvement. You mentioned that addressing or selling service packages to the install base is very important. Now, I wonder how you want to achieve this given that it's an older install base, which is probably not very well accessible through remote services. Therefore, I wonder which package, you know, is in forefront there.
Who would be better positioned than Eamon to answer that?
I mentioned during the presentation that we put a high degree of investment into our infrastructures. One of those was into our reporting systems. We have now great visibility as to our installed base, our customer base, and of course, the type of products and the age of those products. When we overlay that with our ByCare program, we can clearly see where our low-hanging fruit is. Very, very visible with a couple of clicks. We clearly see that there is a huge potential still sitting there, especially in those machines that are zero to five years, where there is honestly thousands sitting there that don't have any care programs whatsoever.
There is no doubt, 2022, we will be putting concerted effort targeting that opportunity 0-5 years, especially in the base of cutting. Does that answer your question?
Yes. It absolutely does.
Super.
Thank you. Second question is indeed again on capital allocation. Given the you know, you have the CHF 420 million in cash and equivalents, but also then you have securities, another CHF 50 or so million, and therefore you know, if even if you're a Swiss company, could you give us a little bit of guidance where your thinking is going in terms of dividend policy? Is this would this be a front-loaded maybe payment in the beginning, that you have a larger one-off dividend, or is this more a continuous pulse that we can expect? Thank you.
We have gotten that question many times already, and the answer is actually always the same. Beat?
Yeah. The board will state its position with the 2021 reporting, right? You know, we've been consistent with regards to that.
Thank you very much.
Okay. I think we have time for maybe one or two other questions. If no more
Anything in the chat?
No, so far not.
Okay.
Yes. Now there is one.
Well, we are.
Oh, there is one, I think.
Oh, there is one. Okay.
Okay, there is one from Tobias Fahrenholz from Stifel. M&A strategy: What is actually the reason that, in contrast to the past, you did not distribute special dividends after your recent disposal announcement? Shouldn't it be a hint that you're currently concretely targeting slightly bigger M&A activities in the weeks and months to come?
Well, we actually have the answer to this question. Beat just mentioned it.
Okay. Then there is one more, also from Tobias. Coming back to your sales growth assumptions until 2025 and afterwards, when we look at the underlying overall end market as a basis, what kind of assumptions have you considered regarding future market share gains of your fiber laser solutions versus those less productive, and as you highlighted, also less green CO2 lasers? What is roughly the penetration rate of today's installed global base?
CO2 versus fiber.
Yes.
We are actually not sharing the exact number of the installed base, but we have a long way to go. We are basically. You know, we are selling purely fiber laser systems since quite a couple of years already, but there is an installed base out there that is largely still CO2.
There was a second part of the question, right?
Wasn't there?
Yes. What kind of assumptions we have regarding future market share gains of fiber laser solutions versus CO2 lasers?
I know there are companies out there that are still selling CO2 laser systems. We think that's something that has gone into the past for us. We have stopped doing that about five years ago. We think that the advantages of fiber laser systems are so significant that we don't even worry about CO2s anymore.
Okay. There are other questions on the dividend again, which we will skip, so we will move on with your wrap-up, Alex.
Thank you, Patrizia. Well, really what I would like to come back, and this is gonna be really just one or two more slides is, you know, I started today talking about the five things that hopefully you can take with you back home today. You know, you have heard the story of Bystronic, of an innovation leader creating value for customers in attractive markets, and you have seen several examples of that. We see potential for sustainable growth, industry-leading profitability, and an asset-light business model. Also you see the balance sheet offers opportunities and firepower, and probably most important thing on that one, you have also experienced some of my very talented team, and that is what we were hoping that you would experience today.
I'm very happy that we get to that point, because I can see some of you are ready to get some lunch. Patrizia, will you tell us a little bit where we're going from here, please?
Yes. Thank you, Alex. Before we move on to the lunch break, let me familiarize you with the program of the afternoon. We will have lunch in the demo center, so if you go outside here again, where you had coffee, and then on the left-hand side is the entrance to the demo center. You can't miss it, so please help yourselves there with drinks and lunch. There will also be teams around for the machines, so please take a look at the machines, and if you have any technical questions, they will also be very happy to help you with these. At 1:00 P.M., we will start with the tours in the factory.
You all have a number on your name tag, and the number is from one to four. This is your group for the afternoon, and please stick to that group because we have arranged transport accordingly. Group one and two, they will first start in the demo center. At 1:00 P.M., please meet at the entrance of the demo center, where you enter for lunch now. You will see two signs with one and two, and also the headsets. That's where you will meet your tour leaders. Group three and four, they will first go to the factory, to the smart factory in Oberbipp. Please, at 1:00 P.M., meet outside on the parking space. There will be a large car available.
You can directly board it. We will take you to Oberbipp, and then you'll come back. All the tours and all the groups will finish around 3:30 P.M. That's it for the presentations. Enjoy your lunch then, and see you in the afternoon.