Good morning, everyone. My name is Bill Waelke. I'm the head of investor relations for Gates. For those of you here in the room, for those of you listening remotely, welcome. Thank you for joining us here on our first Investor Day. We're excited to have the opportunity to tell you a little bit more about the company, and we hope that this is a productive morning for everyone. As I think you're aware, we'll be making forward-looking statements here today, so please familiarize yourselves with the forward-looking statement language and disclaimer on slide two of the presentation. Our primary presenters here today will be our CEO, Ivo Jurek, CFO, David Nomura, our CMO and Head of Product Line Management, Tom Pitstick, and our Chief Commercial Officer, Grant Kronick.
They'll be joined here, as you can see, in breakout stations through which we'll be rotating everyone around the room by some additional people, faces, and names you may not have seen before. Joining Grant will be Cindy Cookson at our industrial fluid power booth, who's our product line manager for hydraulics. Joining Tom Pitstick at our chain of development booth will be Taylor Young, who's a global product line manager for industrial power transmission. Then joining me at the transportation mobility booth will be Dave Miller, who's a global product line manager for our automotive replacement business. We do have a pretty full schedule today. Apologies for starting a few minutes late, but if you can bear with us throughout the course of the morning and hold your questions until the dedicated Q&A session, that'll give us the best shot at making it through all the material.
With that, we'll jump right in. I'll turn things over to Ivo.
Thank you, Bill.
All right. Good morning and thank you for participating here with us at our first Investor Day since our IPO last year. We've got a full day planned to provide you more detail on our company, our business model, and markets, as well as to give you a high-level view of where we see Gates moving after the next several years. Let's start with a quick summary of what you will hear today. First and foremost, Gates is a replacement-focused company. Quite simply, we make things that wear out, things that power the industrial economy. We generate over 60% of our revenue from replacement markets, which tends to be less cyclical and more profitable than first-fit channels. Second, our business model is incredibly diverse and extends across products and markets, applications, channels, and geographies. This diversity helps insulate us against volatility in individual markets and regions.
2018 was a great example of this, where certain out-of-first-fit markets were down, and yet we still delivered record results on the strength of our global industrial business. Third, we are an industry leader with approximately 83% of our revenue coming from top-three market positions. We only have about 5% share in our total available market, so there is a high degree of fragmentation and plenty of runway to grow well into the future. We also have a demonstrated track record of margin expansion and believe there is room for more. We believe this combination of attributes, market opportunity, and demonstrated performance presents an attractive investment opportunity, and we are excited to share the story in more detail throughout today. Moving to slide seven, which lays out the vision we have for the company. Our markets have not historically experienced a high level of innovation.
Because of this, we believe that leadership in innovation, combined with our strong brand and global footprint, will further expand our leadership position in our core markets. We continue to invest in differentiating our products and providing increased value to customers, laying the foundation for our future growth. We believe that we can continue to grow at an above-market rate without sacrificing profitability or our ability to generate strong cash flows. On slide eight, we provide a few quick facts and figures about our company. In 2018, we did a little over $3.3 billion in revenue with an Adjusted EBITDA margin of 22.6%. It was a record year for the company, but also a year where we invested significantly in our business to expand opportunities for future growth and margin expansion.
The business operates under two product lines: power transmission and fluid power, both of which have a global presence and scale, but also the ability to act nimbly. Both of the segments enjoy similar business characteristics: brand awareness and profitability, with strong, established presence in replacement channels, as well as overlapping customers and markets. Our mix of replacement channel business sets Gates apart from our competition and provides high-quality growth at attractive margins. Roughly two-thirds of the business goes through these channels. Fundamentally, we make mission-critical products that are used in harsh applications, but they wear out and need to be replaced at regular intervals. There are a number of benefits to having this much replacement revenue mix, including relative stability, as replacement markets tend to follow usage trends and can largely be delinked from new equipment cycles.
In some segments, one could argue they are even inversely correlated to these cycles. For example, a farmer might repair an old combine instead of buying a new one if they are worried about the economy. We generate strong margins given the relatively low cost of our products versus the high cost of downtime that end users look to avoid. In general, we have great pricing power to offset inflationary impacts due to our strong brand and services that we offer to our customers. Furthermore, it is critical for customers to be able to get the right products at the right time. How do we differentiate in this channel? What does it take to win in this channel? It comes down to three primary items that would be very difficult for others to replicate. First, a broad product portfolio. Two, a well-established channel presence.
Three, local manufacturing footprint to feed that channel. We'll talk about each one of these and what sets Gates apart in the upcoming slides. Let me reiterate again, this heavy replacement channel focus is a big part of what makes Gates and our financial performance special. Our highly engineered products are used in a wide range of applications across numerous end markets. 36% of Gates' total revenue is generated from a broad set of end markets in the industrial application channel. These markets range from general industrial and manufacturing to mining and, frankly, everything in between. The balance of our replacement channel business, 26% of total revenue, goes into automotive replacement applications. This business tends to follow miles driven and the size of car park, especially the sweet spot of the car park, which we define as vehicles that are seven to 12 years old.
This sweet spot typically creates the highest replacement rates for our products. We really like this business. It's profitable, stable, and has some solid tailwinds in both mature and emerging markets. We also think the continued trends in hybridization and electrification are good for us, and we will go into it in more detail later. The majority of this business for us today is in developed markets, such as the U.S. and Europe, which provides a steady platform for growth, solid margins, and we also see a significant opportunity in emerging markets, where the end market has grown a double-digit compound annual growth rate over the last several years and which will continue to grow at high rates based on the aging of vehicles shipped over the last decade plus.
On the first-fit side of the business, 22% of total revenue comes from our industrial first-fit customers across a wide range of end markets, from agriculture to heavy-duty truck and general industrial applications. This is a market that we believe offers significant opportunity for future growth, as well as many of our initiatives we will be discussing today target the opportunities across the industrial landscape. Finally, 16% of the total business goes into automotive first-fit applications. Of this, a little more than half goes into emerging markets, such as China, India, Brazil, and Southeast Asia. When we think about this end market, we have two distinct strategies that focus on pursuing attractive business in what could otherwise be a more challenging segment. First, we are very selective about which automotive first-fit programs we pursue.
In developed markets, where our brand is well-known and the replacement channel is well-established, we don't need a large first-fit presence to be successful in the replacement markets. The most core propulsion system development, whether or not it is internal combustion, hybrid, or fully electric, occurs in North America, Europe, and Japan. It is essential to have at least some participation in these markets. We do so by focusing on programs where we can differentiate with technology. We announced a few examples of some of our new technologies for this market a few weeks ago, and Tom will share more of this in a bit. As we move into the future, we expect these differentiated products to support our desire to stay relevant in this market and do so at a better level of profitability.
In emerging markets like China, which has the biggest and fastest-growing sweet spot car park in the world, there is a much stronger link between the first-fit and replacement channels. The first-fit pedigree is more important to building credibility in these developing replacement markets. We also find that automotive first-fit customers in places like China and India value the technological expertise we bring to the table. Frankly, we get paid for it. The key idea we want to get across here is that we have a ton of diversity across industrial end markets and a very focused approach to automotive to ensure that we are participating in a very attractive aftermarket and where we can differentiate with our technologies. We have a very nice balance of business across developed and emerging markets, supported by our in-region, for-region manufacturing footprint.
In developed markets, we still have significant room to grow given the high level of fragmentation in a competitive landscape. In emerging economies, we are excited by the underlying market growth rates, as well as specific opportunities presented by the replacement channel build-out. For the most part, we like our global footprint and the ability it offers us to serve our customers, but we do have some footprint optimization opportunities, which David will touch on a little bit later this morning. The takeaway here is that we have an established global footprint and are focused on serving our customers locally. We are not talking about India or China being startup regions for us. We have had an established presence in locations like these for years that we can continue to build on for future growth.
This is another area of competitive advantage for Gates and one that is particularly important to our replacement channel customers. We maintain a product portfolio of more than 370,000 active SKUs, which we believe is larger than any of our direct competitors. As an example, in the automotive replacement channel, our catalog covers 99% of the car park for our main products in the three largest car parks in the world: the U.S., Europe, and China. In industrial markets, we have a wide range of fluid power and power transmission parts that cover a broad array of replacement applications, from combine harvesters, such as the one shown here, to light industrial distribution centers and everything in between.
Whether it is a part for a machine from a global or a local OEM, there is a very good chance Gates, or more importantly, our channel partner, has the part needed to keep that critical machine running. Our product portfolio represents a significant competitive advantage for Gates, especially given the time and resources it would take to replicate it. Speaking of the replacement channels, on page 13, we have a well-established geographic presence with about 9,000 distribution channel partners in over 120 countries. These customers have over 100,000 locations, which provide easy access to Gates' products just about anywhere. We support these partners by continuing to expand our product portfolio and by providing value-added services such as training, merchandising, installation instructions, application engineering, and inventory optimization. In our in-region and for-region footprint, it means shorter supply chains and ready product availability for our customers.
Despite this extensive coverage, we still see opportunities to build our channels in developing economies. In places like China, India, and Brazil that I'll talk about later, we have been focused on building out our channel footprint, which has supported our outsized growth to date, but is an area where we still have lots of opportunity as these economies mature. To give you an example of that opportunity, we still have in places like China. Today, we have one store that sells Gates' products for roughly 100,000 vehicles on the road. Our goal is to double that to one store selling Gates' for every 50,000 vehicles on the road over the next few years. By doing so, we believe we can cement our leadership position in that country. There are similar examples in places like India, Southeast Asia, and others for both our automotive and replacement channels in industrial applications.
Slide 14 lays out some of the things we are doing to build out and improve our commercial capabilities globally. It describes how we are thinking about building demand for our products more effectively. These improved capabilities are critical for effective rollout of new products we are launching, as an example. We are also working to deploy more contemporary tools and processes to become easier to do business with well into the future. On the demand creation side, we are investing in marketing capabilities around the world. People, processes, and tools, such as the new Gates.com we launched last year and the advanced web-enabled tools, such as the connected Crimper we will demonstrate later on today. Our sales teams are continuing to build out our focused application engineering capabilities to help our customers engineer the right solution for their applications.
Not only does having this deep domain expertise help our customers in the field, but also it feeds it back into our product development processes and technology roadmaps. With respect to demand fulfillment and customer service, we think about these processes in three separate areas of focus. We have been investing in our plans and have made the most progress so far. We still have lots of opportunity to drive improvements around the overall customer service experience and enabling our channel partners to continue to drive their business forward. One of the ways we are doing this is through deploying digital tools that enable self-service, as well as tools that empower our customer service teams to deliver a more seamless experience. We are also working to support our channel partner efforts around e-commerce.
As an example, in places like China, we are working with online B2B retailers and supporting them with value-added services and content that helps their customers choose Gates. We actually view e-commerce as an opportunity to deliver Gates' products to segments of the market not easily served by our traditional channels there. In many instances, our customers need replacement parts now, not later today, not tomorrow. If their equipment is down, they have got to get it back up and running as soon as possible. Thus, we see e-commerce as an important part of our ability to service our customers well as a part of our comprehensive suite of services in conjunction with our traditional distribution channel partners. Finally, our product management and research and development teams are working hard to revitalize our entire product portfolio and bring disruptive technologies to market, which leads me to my next slide.
Speaking of innovation, we have spent lots of time and effort since I've been here at Gates in rebuilding our innovation capability and have roadmaps in place that will touch just about every product family in our portfolio over the next several years. Many of you are probably familiar with the Vitality Index Matrix pioneered by 3M. For Gates, we are now below 10% of vitality today. I'm confident that with the product roadmaps and the exciting new technologies we are launching, we will be hitting 25% or more in new product vitality in the next few years, a true measurement of the efficacy of our R&D effort. There are four components to how we think about innovation. The first comes from developing a deep understanding of our customer needs and application requirements. I spoke about that a little bit earlier.
We have three focus disciplines in R&D: material science, product development, and process engineering. Gates has had strength in each of these areas for a long time, but what is new to Gates is the close interaction we are driving between these three areas. What we are finding is that we are able to come up with really interesting technologies and deliver improved product performance to our customers and nicely improve our factory operations. All of the technologies start with the same end in mind. They must be significantly differentiated, IP protectable, and in general, have a significant component of manufacturing process innovation as part of this MPI.
Even if a competitor could possibly figure out the design component of the products, they probably aren't able—they probably aren't going to be able to fully understand the material science behind it, then layer the secret sauce that goes into manufacturing processes, and you have something that is potentially very difficult to replicate. In some cases, innovation will help us to disrupt markets that have been stagnant for a long time. In other cases, we are entering segments of the market we haven't traditionally served and are well-positioned to take share and drive profitable growth. I firmly believe that innovation is at the core of the organic portfolio transformation that we are executing and a key component of Gates being able to drive above-market growth over the cycle.
Moving to slide 16, which highlights the really interesting dynamic of being a leader in most of the things we do while having only about 5%-6% share in nearly $60 billion of total available market. To start with, our markets are supported by long-term secular trends that favor applications we participate in, be it infrastructure development or food production to support population growth, or even everlasting levels of industrial automation to drive industrial process efficiencies, to name a few. If you split our total available market between industrial and automotive, you'll see that our industrial opportunity is about one and a half times larger than the automotive opportunity. It's also an area that we are relatively under-penetrated, and we are investing quite a bit to go after.
We view our industrial products as ideally suited to support a number of secular challenges our customers face, such as energy efficiency and emissions regulations, uptime and reliability, ever-increasing safety standards, and many, many more. Although we are quite excited about the size of our opportunities in the industrial markets, we are not moving away from our automotive markets. As I mentioned earlier, our primary focus there is on the replacement channel with a selective approach towards first-fit opportunities where we can differentiate with advanced technology. We are quite excited about the propulsion system trends we are seeing in automotive. Our potential content per vehicle actually increases as you go from traditional combustion engines to hybrid and full electrics. The solutions for these vehicle platforms also tend to be more highly engineered, so we believe system price and, more importantly, margins will be better.
I don't think we clearly know if EV penetration will be 10% by 2030 or 30%, but we see EV growth as an incremental opportunity for Gates. We will go into some details on this in Tom's presentation and in the showcase during the break. This is what I mean by organic portfolio transformation: shifting the business towards a diversified industrial segment and selectively participating in attractive portions of automotive with highly differentiated product offering. Let's talk about some of the industrial growth initiatives on the power transmission side of our business. Today, we will provide you with a bit more granularity on our chain-to-belt initiative. To start with, Gates has an existing business that's over $250 million in annual revenues across applications that we have been converting over a number of years.
There are, however, a number of things that are new when we think about the chain-to-belt initiative. First of all, we are taking a much broader view of this opportunity. What we have scoped here is something north of $8 billion in addressable markets specifically related to potential chain conversion opportunities. Additionally, we are investing in our product portfolio and changing the way of our go-to-market approach to execute on these opportunities. We are looking at the chain-to-belt opportunity across three specific subsegments: industrial chain-to-belt. These drives are in mobile and stationary applications and benefit from the inherent value and advantages of belts, everything from a drive on a conveyor belt in a factory to a drive in a bottling plant, and so on. We have previously mentioned key target verticals such as lumber, asphalt, and aggregate production, and light industrial distribution.
These all fall in this broad bucket of industrial applications. This area is where our unique extended-length product, innovative sprockets, and design tools will help us accelerate the chain-to-belt conversion over the midterm. The next one over is personal mobility. This target set of applications has taken off, and we have decided to put a special focus on those. In nearly all geographies, we see an increasing trend towards some form of personal mobility: eBikes in Europe, scooters in Asia, or various forms of bike and scooter sharing programs in the United States being examples. There is also an interesting electrification angle here. We are seeing more and more electric bikes, scooters, and motorcycles come to market, and our clean, quiet, long-lasting, low-maintenance belt drives are the perfect solution for these applications. We view this opportunity as a shorter-to-midterm opportunity for us to capitalize on.
The other category that we have decided to call out with dedicated focus is precision motion control. The boom in global e-commerce and industrial automation is driving demand for clean, reliable motion control solutions that our thermoplastic polyurethane or TPU belts are a great fit for. We estimate this to be about a $1 billion market opportunity and another area where Gates has a base of business and a footprint from which we will continue to build our incremental revenue from. This area also represents a short-term opportunity for us to drive growth. On the other hand, we have not talked much about the belt-to-belt opportunity, but this is an area where we are the market leader with business that is more than $300 million in revenues. These are our industrial V-belt and industrial CVT, or continuously variable transmission belts.
These products go into an equally diverse set of industrial applications, as many of our products do. In this area, we are driving a complete refresh of our product portfolio with some of the innovations we have been discussing and will be in a position to talk more about the specific developments later on this year. As you have heard me say over the past year or so, this whole area of industrial power transmission presents a number of opportunities for growth, all building our substantial business in each of these diverse areas I just described. Moving on to slide 18. As many of you know from past discussions, we have been relatively under-penetrated in some of our markets outside of North America. As a reminder, in two of the largest hydraulic markets in the world, Europe and China, we have less than 5% penetrations.
The new factory we built in Poland will help us penetrate the European market further, and our additional capacity we have brought in on China will do the same across Asia-Pacific. The other two primary hydraulic initiatives cover a couple of key growth themes here. One, we are driving innovation into the premium hydraulic market by developing differentiated product constructions and processes we use to manufacture them. We will ultimately refresh our entire portfolio with technology that offers our customers clear value drivers that move beyond the simple economics. Two, for the other half of the premium market where our share is low, we have developed the new Gates Pro Series portfolio of hose and couplings. This expanded portfolio now more than doubles our served market, and these products are used by many of the same customers and channel partners.
In a nutshell, we aspire to be the leading player across the premium market segments in hydraulics with highly tailored and differentiated products that cover the vast majority of our customer requirements. On a number of occasions, we have spoken about our significant presence in emerging markets, with over 30% of our revenue in 2018 coming from these geographies. Let's talk about three of them here on slide 19. Starting with our business in Brazil, it is approaching $100 million in annual revenue, and although the country has had its share of issues over the past few years, we are pleased with our performance there and are optimistic about our future business potential. We have a strong local power transmission and fluid power manufacturing base and an experienced commercial team on the ground.
Our replacement channels have been driving strong double-digit growth, and we are relatively constructive on a midterm business environment in Brazil. India is also approaching $100 million in annual revenues and has been growing rapidly for Gates since 2001. The targeted infrastructure build-out, along with robust markets for agriculture, personal mobility, and even auto, are supporting our solid growth trajectory there. In India, we also have a well-established footprint, and our teams there are focused on further build-out of channel presence and driving first-fit adoption of our new technologies. To that end, the Indian team has been successful in selling some of our newest technologies, like the MXT hydraulic hose and Extend Series Micro V-Belts. In short, we believe we are well-positioned to capitalize on our outsized opportunities that we believe lie ahead of us in India.
Despite the most recent headlines about the slowing growth in China, we have a solid business there with significant prospects for growth. The developing automotive car park in China is very exciting. We have been growing that part of the business rapidly from what's already a meaningful base. We expect that trend to continue because the robust historical vehicle production continues to age. As of 2018, the Chinese sweet spot car park overtook the U.S. in terms of total vehicles and will continue to grow from there. I'm very confident that we are out in front in terms of channel build-out in this market, but we'll have a lot more to do to maximize our opportunity that we see in that market. Additionally, China, being one of the largest industrial economies, offers strong prospects for growth across a wide array of industrial applications.
China and its evolution into a more efficient economy bode well for future demand of our advanced industrial product lines and applications they go into. Irrespective of the occasional market volatility, we remain optimistic about our growth prospects in the developing economies. Moving to the next page, highlighting the playbook at Gates, we have a cadence to how we think about running the business in a sensible way that creates growth opportunities and ultimately will reward shareholders with compounding returns. By deploying the Gates operating system, we are consistently looking for ways to improve the efficiency of our operations. This is central to what we do, simply a part of our DNA. Between 2015 and 2018, we delivered over 250 basis points of Adjusted EBITDA margin expansion, mainly through sustainable operational improvements.
While we don't expect to see that same level of improvement in the next three to four years, we think we can get close to 50 basis points per year through VAVE, new product introduction, and a number of available self-help opportunities we see ahead of us. We take some of the savings that the improved process efficiency delivers and use them to reinvest in the business with a special focus on innovation and commercial capability build-out. These investments will continue to fuel our organic growth in highly fragmented markets we participate in. Taking this growth, we're expanding margins from Gates operating system and products with enhanced value proposition, and we think we are well-positioned to generate highly attractive returns well into the future.
With that in mind, looking at the midterm set of opportunities and translating those to what Gates may deliver over the next few years, we believe that our competitive advantages, in combination with the fragmentation of our market and the focused growth initiative we have undertaken, will allow us to deliver over $4 billion of revenue over the planned cycle with over 24% of Adjusted EBITDA margins. Based on the relative size of the market opportunity and the substantial investments we are making, we anticipate that our growth in industrial markets will outpace that of our growth in automotive markets and that we will maintain our replacement channel focus. We are in a strong position as a market leader with this potential for generating outsized industrial growth.
Combined with our level of profitability and all of the benefits of the replacement-focused business model, we believe that Gates offers a compelling investment opportunity for shareholders. To quickly summarize, Gates has large under-penetrated markets to go after, and these are core markets. Even larger secular opportunities, such as chain-to-belt, are opportunities we have been evolving over the time and have a solid base of business to build on. We are diverse across end market geographies and product lines and have strong replacement business, all of which tends to support a more stable business and attractive margins. Disruptive technological innovation, and I do not use that term lightly, will continue to deliver the organic portfolio transformation I have mentioned and is in early stages of execution across most of our product lines.
In addition to organic growth opportunities, we have got a runway to improve the efficiency of our business, optimize our footprint, and continue to expand our margins. All of this leads to an attractive financial profile that allows us to generate a significant amount of free cash flow. Perhaps most importantly, we have a strong, experienced leadership team in place that has developed these plans and has a demonstrated track record of execution in premier diversified industrial companies. Throughout the course of the morning, we'll describe in greater detail the specific initiatives we are executing on to support our growth thesis. I'm now going to hand it over to Tom Pitstick to go over the segments in more detail. Tom.
Good morning, everybody. Thanks, Ivo. Let me add my welcome to everybody.
It's good to see a number of familiar faces I've met over the past year or so here at Gates. I'm going to go through our two product segments in a bit more detail today, as Ivo mentioned. The first one we'll talk about is our power transmission segment. Let me start right—let's see. In 2018, let me skip ahead to this one. In 2018, we delivered just under $2.1 billion of revenue in this business. We had a good year driven by strengths in our industrial end markets and our automotive replacement markets, offsetting a little bit of softness we saw in auto first-fit in select regions. Taking a quick look at the pie charts here, our power transmission business is balanced across the globe with about 40% of the business in the Americas, 30% in Asia, and 30% in EMEA.
On the end market chart here, you'll see again about two-thirds of the business goes through replacement channels, both automotive and industrial. Automotive replacement is our largest segment in that portion of the market, with general industrial, heavy-duty vehicles, energy, ag, and construction part of the mix as well. Our industrial first-fit end markets are similarly diverse across general industrial, heavy-duty, ag, and construction. About a quarter of this business goes into automotive first-fit channels, where we've been driving the strategy Ivo mentioned of selective participation, where we can differentiate with technology or where it feeds into the aftermarket opportunity. We'll talk about some of those technologies in a few slides. The other key strategy here is in emerging markets, where first-fit business feeds the emerging replacement market, as Ivo mentioned. We're showing some of our PT products here on the lower left.
Our micro V-belts go into engine applications as well as things like white goods and light industrial applications. Timing belts, along with metals, water pumps, and kits are used in engine applications. On the industrial side of the business, we have synchronous belts, V and CVT belts, and the TPU belts that Ivo talked about. We'll talk more in detail about these today, some of our product roadmaps, and some of the things we're doing to create demand for these products. Jumping to the upper right product or upper right quadrant of the slide, sorry, we are a clear leader in this marketplace, number one share globally in power transmission products in a highly fragmented market, so still lots of room to grow.
We have a broad product catalog, which helps us serve the replacement markets we're focused on, and our teams work hard every day to expand that catalog. Very important for our replacement business. Belts have a unique value proposition. They are lightweight, clean, low maintenance, generally safer, and more environmentally friendly than alternative solutions, and we'll provide a number of examples throughout the day to help reinforce that for you. Finally, the PT markets we participate in are about half of the $60 billion Ivo mentioned, about $30 billion. It is pretty heavily weighted towards broad industrial markets where, again, our share is relatively low and where we believe our initiatives will help us drive growth. I'll go into each of our five initiatives here in a bit more detail on the coming slides.
Ivo talked about our broad industrial chain-to-belt initiatives, but we also have focused efforts, as he mentioned, on industrial V-belts as well as engine systems that sort of bridges the gap between chain-to-belt and belt-to-belt. In all of these initiatives, there is a strong focus on innovation and refreshing the product portfolio. We are also executing well-defined commercial programs to create demand for these products and take advantage of the natural benefits our products have versus alternatives. The next few slides here will show a little bit more detail on our industrial chain-to-belt opportunity. The first one here describes this $6 billion opportunity. We will talk about the $8 billion chain-to-belt opportunity in total, but the industrial opportunity drives that you would find in factories, in lumber mills, oil refineries, a variety of industrial environments fall into this category.
From general industrial to logistics and distribution, lumber, grain, food, and beverage, you name the industry, and it's likely we've got parts driving systems in those factories and plants. Let me highlight a couple here. Logistics and warehousing. There's a number of drives in these facilities: belts driving conveyor systems, belts driving lifting mechanisms, a number of opportunities also in precision positioning where things are being moved in and around logistics warehouses and in various operations. In the food and beverage markets, the low maintenance and lubrication-free attributes of our products are really important. A lot of these environments are washed-down environments where someone goes in at the end of the day and hoses down the equipment. If you've got an oily, greasy chain in that environment, it's a bad thing. Furthermore, if you throw in some flour or other food dust, you get a really bad mix.
We're seeing a lot of demand in applications like that. In energy and mining, customers seek low maintenance and highly reliable solutions, which are also the case in other harsh environments such as lumber, aggregate, silage, mining, etc. Why are we so confident? If there's one thing I want you to take away from the chain-to-belt discussion today, it's the value prop that our products bring to markets. I can sit here and talk about them until I'm blue in the face, but we'll show you hands-on in the showcase later this morning. Ivo mentioned what's new as we think about the chain-to-belt business. We've been converting chain for a long time as a company with roughly a $250 million base business. The what's new is what we're doing from a product technology standpoint, and we're upgrading the product portfolio.
Within the Pallet Chain family, and we'll show you some of these products later, we've had something called Poly Chain Carbon GT for many years. Some of you that have been out to visit us have seen this product in action in our demos in Denver. We've also added ADV, which is a higher performance version, as well as a product called Pallet Chain Volt, which is used in electrostatic discharge applications that you might find in a grain silo or in an oil refinery. There is our extended length platform where we can go after applications beyond the traditional length limits of belts. You'll see some of these very long belts over here in the display that are longer than what anybody else in the industry can provide. Our Power Grip family of products is our rubber or elastomer synchronous belts.
Here we've had the GT3 product in the market for several years. I think it was just last week we announced the launch of GT4, which is the next generation of this product family. GT4 really shows off our material science capabilities where we've developed this product using a new compound or a new family of compounds called ethylene elastomers that enable higher performance, higher temperature tolerance, and better chemical resistance than existing belts on the market from us or our peers. We have a long list of product line extensions that I won't go through today that we'll be launching further in the year and in the next year that will extend our application coverage. Much like you'll see across all of our portfolio, there are two common themes.
We're working hard to extend our performance of our products into higher tech, higher spec segments of the market, as well as developing fit-for-purpose variants that extend our product coverage into broader applications that we did not necessarily cover in the past or cover well in the past. The other thing that is different about our chain-to-belt initiative here is our go-to-market strategy. One of the beautiful things about this market is the sheer diversity of applications, end markets, OEMs, and end users. There is a lot of business to go out after out there, but this breadth also makes it a challenge to get our message out. We are addressing that through a number of means. First of all, we are putting more feet on the street and expanding our application engineering and customer service capabilities, as Ivo mentioned. We are also scaling marketing and demand creation capabilities as well.
We're continuing to build out content on gates.com. I know a lot of people in the room watch CNBC quite a bit, so hopefully you've seen some of our new chain-to-belt commercials over the past several days, and those will be playing throughout the first quarter. If you happen to walk by Times Square last night as well, we're on the Billboard above the Morgan Stanley facility there. We've also leveraged social media and a number of other forms of direct marketing to create more awareness and generate leads for this part of the business. As we generate these leads and opportunities, we track and manage them through a Salesforce automation platform and also use our drive design software tools to help our customers design our products into their applications.
Our application engineering teams also help in the field to drive these conversions with customers, and we'll show some more specific examples in the showcase, and I think Grant has a couple to talk about in his section as well later. Slide 30 here. Diving into precision motion control a little bit more. Ivo touched on the market opportunity here. This is a large established market for TPU belts, warehousing, logistics, industrial automation, and robotics. A number of the applications we've touched on already, conveying systems, positioning applications. These aren't necessarily high-load applications, but they're locations where you're trying to move something from point A to point B or to synchronize two systems in, say, I don't know, a case packing machine or some other packaging equipment or maybe a bottle labeling machine, etc. A lot of industrial automation opportunities here.
As you can see, our share is very low in this billion-dollar market, although we've got pretty strong product capabilities and commercial capabilities here as well. On the product side, we're expanding our portfolio of products by expanding our reinforcement materials, some higher strength, some lower strength, some tougher, some stiffer. We're also expanding our elastomer formulations to provide different chemical properties, different temperature resistances. Really, again, all these are efforts to expand this product portfolio and the applications we cover. Importantly, and this is an important theme in all of our product development, is the process technology that goes behind these products.
In this case, we're developing processes that allow us to make more product in a given square footage of facility and add more automation because, as you'll see in some of the product examples we have for TPU, there's a lot of customization that goes into these belts. On the demand generation side, again, we're extending our commercial footprint here, focused application engineering, and then we're also adding a number of customized solutions that you'll see will help us drive specification into OEM markets. In this product line in particular, that feeds the replacement business quite nicely. Ivo mentioned personal mobility. We have a fair number of examples around the room and out in the lobby.
This is a really fun segment that covers everything from the powered skateboard that almost ran you over this morning on the way into the office through bikes, scooters, motorcycles, and so on. It's another billion-dollar opportunity where there is a lot of chain to go after in this space today. We see some really positive tailwinds behind this market as well. Personal mobility demand is being generated in emerging economies where more and more people are trying to get from the place they live to the place they work. In mature markets, power sports and recreation are growing quite nicely, as well as the demand generated by the desire for environmentally friendly commuting or finding another way to work beyond sitting in traffic. As Ivo said, there's a really interesting electrification trend here too.
Who wants to put a dirty, greasy chain on their nice new eBike or e-scooter or e-motorcycle? Quite frankly, not many people do. We will show you some examples in the demo today, including a scooter over here from a company in India called Aether Energy. I actually rode one of these in Bangalore a few weeks ago, and I did wear a helmet, and it was quite exciting. I think a great opportunity there in India for that vehicle. Hopefully, by now, you have seen the recurring theme here in terms of our focus on new product development and demand creation. In this area, there is some technology carryover from the work we do on industrial chain-to-belt.
Some of the materials technologies are similar, but we've also got application-specific variants for bikes, for entry-level bikes and high-performance bikes, and we're expanding our CVT belt portfolio for really high-performance power sports as well as lower-performance scooter applications that you might see all across Southeast Asia. Regarding demand creation, we've created a dedicated commercial team for global personal mobility to drive focus and application expertise to serve everything from a small bike OEM to the largest motorcycle OEMs on the planet. As it turns out, in many markets, we're also able to leverage our existing replacement channels to feed these products into replacement applications. We don't have to build a completely new channel to really go after this market. The final category here in PT is our industrial asynchronous belts. These are belts without teeth that are used in applications where synchronization isn't really a requirement.
A number of applications across ag, construction, power sports, all sorts of industrial drives. You also have CVT applications where a variable dimension pulley is used to change the gear ratio continuously in industrial applications. You see a lot of those on combine harvesters and in construction equipment, lawn and garden equipment as well. This is actually the product category that Gates was founded on back in the early 1900s. We were a leader then, obviously. We started the industry, and we've grown and maintained leadership since then. It's another $2 billion market opportunity. Our share here is a little bit higher than some of the other segments we've talked about, but still quite a bit of opportunity to grow here.
We're going to do that through deploying similar ethylene elastomer technologies that I talked about on the synchronous side, as well as new processing techniques that are enabling new constructions. The goal here is really to simplify our portfolio into a good, better, best catalog that will help not only simplify our operations, but also simplify our customers' operations. They'll have less complexity to choose from to cover their applications. With that, let me— there's been a lot of discussion around our automotive end market, so I wanted to spend a few minutes diving deeper into that and share some of our thoughts on how we're thinking about the propulsion trends and our product portfolio with respect to those propulsion trends. We use a service from IHS Markit for our market research data in the automotive sector.
This is their view of how propulsion technologies will play out between now and 2050. I'll explain what these are quickly. Many of you may be familiar with these already, but ICE, internal combustion engines, that's the traditional combustion engines that many of us still have. Mild hybrids, these are applications that have an internal combustion engine but have some sort of start-stop functionality. There are cases where the alternator is actually acting as a generator and a motor to both start the engine again after it's stopped at the stop sign, but in some cases, it's also used to provide boost back to the engine to give you a little bit more oomph in certain applications. What that allows you to do is start with a smaller ICE engine and make the overall platform more efficient.
Full hybrid here are applications that can run on full electric, full ICE, or both, depending on the application. FEVs are full electric vehicles that operate completely on battery and electric power. This is how IHS sees the market rolling out over the next 30+ years. Obviously, ICEs shrink, no surprise there. Full electric vehicles in their model ramp to about 18%, or in this case, 7 or 8% of new vehicle sales by 2030 and 20-25% by 2050. As Ivo mentioned, what you may find interesting in the column on the right here shows the relative content per vehicle. This holds true whether it's a first-fit application or a replacement application.
As Ivo mentioned, as you go from ICE to hybrid into electric, our content per vehicle is significantly higher, and we hope to prove that to you today in the coming slides and in the showcase at the back of the room later this morning. Content for all propulsion types. If we talk about internal combustion engines for a second, the content mix here is weighted more towards power transmission. There are more belts driving either cam drive or the accessory belt drive in these platforms. There is some basic cooling. Again, we will show, I think, a really powerful example in the back of the room of a traditional coolant hose used on an ICE engine compared to a modular coolant hose that might be used on a hybrid vehicle or a full electric vehicle.
As you move from internal combustion to mild and full hybrid, the mix shifts much more towards fluid power. Why is that? Not only do you need to cool the internal combustion engine on those platforms, there is a lot of additional electronics, battery charging, etc., in those platforms, so you will see a lot more cooling content there. As you shift over to full electric vehicles, I think you would be quite surprised to see the amount of cooling and heating content on those platforms. Those batteries need to be cooled. The charging systems need to be cooled. When it is really cold outside, I think, as we heard a few weeks ago in parts of the U.S., the opposite is true. You need to heat those batteries to keep them effective.
There is significant fluid power content on electric vehicle platforms and a number of electric water pumps as well. We put out a press release a couple of weeks ago on some of the new technologies we are developing that cut across these platforms. On the internal combustion side, our alternator isolator decoupler is an important part that, as engines become smaller and more dynamic, there is a lot more vibration going on in engines, a lot more noise, a lot more harshness. What an alternator isolator decoupler does is decouples a lot of that vibration from important components of the system, which not only helps improve the life of those components like the alternator, it also improves the efficiency of the overall engine platform.
Our next generation timing belts fit into smaller engine packages, and because belts don't stretch over time as they wear like chains do, engine timing accuracy actually holds over the life of the vehicle. In a chain-driven cam drive, chains wear out. You get timing migration over time, and that affects fuel efficiency as well. That doesn't get talked about a lot in engines, but that's an important factor in terms of the efficiency of a platform over its life. I also show here our recently launched Extend Series Micro V-Belts. This product is for traditional ICE applications in the retail and emerging market category. We continue to expand our portfolio there as well. In the hybrid space, we've launched a highly engineered tensioner family we call Sidewinder.
In these start-stop and hybrid applications I mentioned, the belt drive actually has to operate in both directions, so we need a different tensioner technology than what's traditionally used on ICE engines. We'll show this to you in the back of the room as well. It's a much more sophisticated device, much more highly engineered, and with that comes higher price points and ultimately higher margin points. With those systems, you also are now using the belt to start and stop the engine and to provide boost. The belt goes from just having to spin an alternator to having to actually start the engine. The load requirements on those belts are much higher than our traditional belts, also driving more ability to differentiate higher price points and more margin.
If you look at our Extend Series of Micro V-belt and these new belts for start-stop applications called our EMD QMT belts, it's another example of where we're developing products that cover some of maybe the emerging market requirements or fit-for-purpose requirements, as well as products that are pushing the performance envelope at the high end of the market. It's a really important part of our product roadmap strategy. For electric vehicles and the complex cooling systems of hybrids, we've developed and launched an electric water pump platform. In April of last year, we purchased Wrapro, a Turkish manufacturer of complex modular hose. That not only brought us capability just to cover European models, both in the European market and around the world, but also the capability to develop the complex cooling systems that go into hybrids and full electric vehicles.
Just a few weeks ago, and I won't name names yet, but a few weeks ago, we were awarded a new program on a full electric Class 8 truck with the cooling hose technology that we acquired via Wrapro. Pretty excited about that as well. All of these applications are highly engineered. This has a few benefits. First of all, there's more opportunity to differentiate with technology, which generally leads to higher price points and better margins. I've also heard concerns that as our products get better and better, the replacement opportunity might decrease because, hey, better products might last longer. Actually, the application requirements are accelerating as well. We're fighting hard to stay ahead of those and develop products that meet the needs of these more dynamic, higher temperature, harsher applications in vehicles.
Yes, our QMT EMD belts are stronger, meant higher performance than, say, our Extend Series belts, but they're being used to start the engine, not just run the alternator. A much more severe application. We expect to see similar replacement cycles with these higher performance products. As I said several times today, we will selectively participate in the automotive first-fit markets where we can differentiate with technology and to realize attractive margins and also where it feeds the emerging market opportunity in places like China and India. The sweet spot, as Ivo mentioned, this is how the sweet spot plays out over the next 30+ years in terms of propulsion types and by region. What ends up happening is as you ship a new vehicle, it enters the car park.
Seven to twelve years later, it enters the sweet spot of the car park where it tends to need to be repaired. You will see sort of a lag between new vehicle shipment penetration and when it shows up in the replacement part. The nice thing about the replacement market is it is fairly predictable because the cars today that are being repaired were shipped seven to twelve years ago, and you have a pretty good line of sight into what was done seven or twelve years ago. On the left, as we have talked about, efficiency and emission trends are driving the mix towards these new propulsion technologies. Hybrid and full electric platforms will overtake ICE after 2025, which is, again, really good for us as we mix the content per vehicle up over time.
On the regional side of the chart, U.S. and Europe still see modest growth, and especially in the near term as those cars that were shipped after the last, the 2008, 2009 recession start to enter the sweet spot, and we're kind of in the middle of that phase right now. You'll start to see a ramp back up in sort of fundamental vehicles and operation in the sweet spot in the U.S. and Europe over the next 5 to 10 years. China has been growing at double digit and will continue that for a fair amount of time. As Ivo mentioned, China's sweet spot overtook the U.S. in 2018, and out by 2050, China's sweet spot will be larger than the U.S. and Europe combined. We view it as very important that we continue to drive the initiatives in China that we've been driving.
The rest of the world has experienced and will continue to see good solid growth rates, and this portion of the car park will actually grow faster than China out past 2030. We kind of have this nice sequencing of market development here over the next 30+ years that we think is pretty exciting. What are we doing to capitalize on these opportunities? New products and catalog coverage. I won't spend too much time talking about this, but we are developing this good, better, best portfolio of products so that we're covering applications at the high end of the market and across market requirements in emerging markets, etc. Things like the kit concept, which we haven't talked too much about, and we have an example in the back of the room.
This is a package of all the parts a service technician needs to perform the repair job, makes their life easier, drives more revenue for us, quite frankly, and ultimately for the end user, the vehicle operator, the vehicle owner. It actually improves the likelihood that they have a good service experience. For our distribution channel partners, we provide a number of value-added services such as digital selling tools, cataloging tools, merchandising, a lot of training. I think Dave will show us our Navigate app that helps you find the right parts for the right vehicle anywhere in the world. On the geographic expansion side of things, Ivo mentioned doubling our coverage of storage carrying Gates in 2018 and continuing that momentum going forward.
We continue to build out our product catalog in China, and the number of demand creation opportunities on the ground in China as well through digital marketing, social media. We've got a number of direct salespeople that call on shops every day, as well as the e-commerce partnerships that Ivo referred to. In the rest of Asia, India, South America, it's similar. Expand our product catalog, expand our channel coverage, and there's more opportunity to build out in those markets as well. Let me switch over for a few minutes and talk about our fluid power segment. Our fluid power business is just a little over $1.2 billion in 2018 and performed well, driven by strength across really all of our end markets for these products.
Historically, it's been heavily weighted towards North America with about two-thirds of our revenue there and the balance spread across the rest of the world. As Ivo mentioned, we see significant opportunity to continue to penetrate two of the world's largest markets for hydraulics, Europe and China, with our capacity additions. In terms of end market, fluid power is a bit over 60% going through replacement channels, with the balance being mostly industrial first-fit. Much like PT, the end markets we serve for these products are similarly diverse. We are a leader in this space too, providing mission-critical products for a wide range of applications across numerous end markets. The overall fluid power market is essentially the same size as our PT opportunity. Whether you're talking about the automotive end markets or the industrial ones, we're a relatively small share player despite our leadership positions.
We have a lot of runway to continue to grow. Fluid power, the summary of strategic initiatives here, there's three. I'll talk about these in more detail on the coming slides, but first and foremost is extending our industrial hydraulics portfolio. In the middle here, shifting our engine hose capability to address the evolving trends in engine propulsion systems, and then globalizing industrial and oil and gas. We've been traditionally fairly North America-centric in those product categories, so there's opportunity to push those into other regions as well. Let me talk a little bit more about the hydraulic hose market and how we segment it. Ivo mentioned earlier roughly a $3 billion opportunity, a $3 billion market in the extreme performance segment, and another $3 billion in the standard performance segment. I think you showed our relative shares in those markets before as well.
On the extreme performance side of the market, this is another example where we're investing in new product technologies, a number of new products here such as MXT that we'll show you later, where we're extending our performance leadership. We're adding features and functionality and benefits to our customers to both meet their application requirements but also to stay ahead of the competition. On the standard performance side of the market, as Ivo mentioned, this roughly doubles our served market opportunity. We didn't really serve this in the past, and I'll talk a little bit more in a second here about what we're doing to specifically serve it, but this leverages our existing channels. It relies upon our product development capabilities and our manufacturing capabilities.
You'll see in the bold red here a number of new products that either have launched or will be launching over the next 12 or so months to serve this half of the market. In terms of extending our leadership on that extreme performance end of the market, you'll recognize the graphic on the left here. This is our product design, process design, and material science capabilities feeding into what in this case we're referring to as our X technology. You'll see a number of new products come out that have X in their title: MXT, MXG, Pro XT. These are leveraging some new reinforcement technology and polymer technology that we've developed to enable the performance.
Some of you will get a chance later this morning in the demo over here to route, as though you're an operator on a shop floor at an OEM, route a hose assembly with our old product and then route the same hose assembly with our new product. I'm pretty confident you'll feel the difference that this technology is delivering. Increased flexibility. It's 40% easier to bend, lighter weight. Some of these large machines have hundreds and hundreds of feet of hose on them. These new products save on the order of 10 lbs per 100 ft. You can end up saving tens, if not hundreds, of pounds of weight on a large machine, which is becoming more and more important as efficiency regulations drive improvements there. Smaller outside diameters of these products mean you can put more of them in a smaller space.
You'll see in the hydraulics booth later a customer testimonial where someone's routing a bundle of hoses through a pretty complex machine, and it's making a big impact on her job in particular, as well as many others. We've also simplified the product portfolio. With these new technologies, we're able to cover more industry standards. We've gone from, say, 20 hose constructions in this given product category down to 6, covering actually a broader set of applications than we were able to cover before. We're able to also supply these products globally out of all of our factories. That'll help mitigate supply and demand peaks in one region versus another and really allow us some flexibility in our supply chain. Extending our application coverage with Pro Series. I talked about this.
This line drawing here is of a skid steer that you might see on a variety of construction projects pretty much anywhere in the world. Historically, we provided the circuits that were in blue. These were high impulse requirements, high pressure applications, and we were leaving the rest of the machine, quite frankly, on the table for someone else to go after. We have those products now. We've been launching them again over the past several months, and we'll continue over the next year or so to build out that portfolio. These products leverage our same production capabilities. They also leverage our same channels and then customers. This is just a great example of expanding our product portfolio to offer more to our customers in both the OEM channels and the replacement channels. Crimpers.
Ivo alluded to our digital crimper, our connected crimper over here in the hydraulic showcase. One of the things that really differentiates Gates in the hydraulic market, where there aren't many people that do this, is provide a hose and coupling system and the equipment and essentially the instructions or specifications to put those products together. It's really critical. You can have a great hose or a great coupling, but if you don't put them together well, they may not perform well in the application. To help make sure our customers build a good assembly, we also provide the crimping system and pre-qualified crimp specifications. In a few minutes, Cindy and Grant will show you how this works.
I'm going to try not to steal too much of their thunder here, but by digitizing and connecting these systems, we are improving the crimping process itself, making it more user-friendly, and creating a window into our customers' assembly operations that will help us help them. On the demand generation side of things, we can use these crimpers to push training content and information about our new products. We can also make sure that customers always have the most up-to-date and accurate crimp specs. When we do launch a new product, it may come with new crimp specs, and we want to make sure people in the field have that data instantaneously. On the demand fulfillment side of things, we can create all sorts of value-added services, from auto replenishment and inventory management services to printing a custom label that's specific to the parts that that distributor just created.
When that farmer or that business owner comes back a year later and needs a replacement part, they've got the label of what they bought last time and a record of doing it. Our distributor can make them that part again just like that. I'll stop there before I take too much away from the demo coming up, but this is an exciting opportunity for us to really continue to serve our customers and engage them in unique ways. Engine systems, fluid conveyance. I won't touch on this too much because I think we covered it quite a bit in the automotive end segment. This is another area where we're a leader in a highly fragmented market with significant room to grow.
As I mentioned, the Wrapro acquisition accelerated our modular coolant hose capability, but we also have a number of purely organic developments ongoing around products that support emissions trends globally, such as our heated selective catalytic reduction hoses that are used in a lot of Class A trucks and other heavy-duty equipment to mitigate emissions. Regarding demand creation, the key here, again, is application engineering and catalog coverage. This is another area where Wrapro helped us by expanding our catalog to better coverage of European models. I'd be remiss if I didn't mention all the work we're doing around heavy-duty, both on the OEM side as well as the aftermarket side, including examples like the all-electric Class A truck that will be on in the not-too-distant future. The final category here is around our industrial hose and oil and gas hose. This is another one, a highly fragmented market globally.
These industrial hoses tend to be hoses that are used in lower pressure applications to convey fluids, milk, oil, fuel, chemicals, steam, water, you name it. The neat thing about this product portfolio is the application requirements are exceedingly diverse, which also provides an opportunity to differentiate through material science. We spend a lot of time working on temperature and chemical compatibility with these product lines. On the oil and gas drilling hose side, these are high-pressure, high-performance hoses used in rotary drilling, choke and kill, cementing, and other upstream applications on land and sea. This week, if it hasn't come out already, later today, we'll be announcing our API 16C hose launch. This is a 10,000 PSI choke and kill hose that gives us another important platform for growth in the global oil and gas markets.
Grant will share more on his talk later after the break on our focused commercial efforts to create demand in the upstream, midstream, and downstream markets, not just for our drilling hoses, but also for our hydraulics, industrial hose, and our power transmission products as well. With that, we're going to get you up and have you walk around and spend a little time in our product showcases to try to make this a bit more tangible. Let me walk you through how the showcases are going to work. Each of you should have received a letter on the back of your badge, A, B, C, or D. If your letter says A, you'll start in station A and rotate to B, then C, then D.
If you happen to have a D on the back of your card, you'll go D, then A, then B, then C. I think we've got the pattern right. Station A is over here on my right. It's the industrial hydraulics showcase where Cindy Cookson and Grant Kronick will provide a deeper dive on our hydraulics technologies. Station B is over here to my left, where Taylor Young and I will talk about our chain-to-belt opportunities and some of the technologies we're deploying there. Station C is in the back of the room. It's our automotive transportation and mobility station where Dave Miller and Bill Waelke will give you some more background there. If you're on group D, you are on break for your first rotation. That'll be out in the foyer. The rough timing here, not the rough time.
We're going to try to keep this to 20 minutes per station with five minutes to rotate. There'll be time in there for Q&A. We hope you enjoy it, and maybe a few of you will get your hands dirty in the process. Thank you. With that, please head to your showcase, and we'll get started here in a few minutes. Thank you. I hope you all found that informative and insightful. I don't know. I'm a mechanical engineer, so I always like to touch and feel and see things. Hopefully, it brings it home more than we can accomplish in a PowerPoint. We're a little bit behind schedule, so Grant and Dave are going to do their best to catch up here. Next, we have Grant Kronick, who is our Chief Commercial Officer.
He's going to talk about commercial execution in the Americas for the next 15 or 20 minutes. Thanks a lot.
Yeah, I'll try to use the—it's fine. I'm going to try to use the speaker here, so I guess I'll be trapped to the podium, which I think is okay. Welcome back to the general session. I hope everybody had the opportunity to enjoy seeing some of the products we had out. Again, I'm Grant Kronick. I'm EVP and Chief Commercial Officer. I came to Gates in late 2017, and at this point, I have overall commercial responsibility for the Americas and Europe and then our oil and gas operations worldwide. Today, I'm going to take the opportunity to give you a commercial update on the Americas, North America and South America, and then maybe just one page on oil and gas as well.
Our customers tell us that Gates is the strongest provider of fluid power and power transmission in the Americas. Hopefully, with the innovation that you got to see today, you can understand and appreciate that. The strength of our position has been established on four main pillars, and these give us really an unmatched platform for growth. The first is that the more than 100-year-old Gates brand is synonymous with quality and reliability. There is no question that we are recognized and preferred everywhere. Our Gates brand is known everywhere in the world. The second thing is our brand is strengthened by the fact that we are, in fact, the innovator. Again, what you saw today should help drive that point home, but nobody is either investing more or introducing more, and our customers, again, recognize this.
To strengthen our brand and our product offering has put us in a long-term and preferred position with our distribution and OEM partners, and it also gives us the opportunity to be selective with the partners that we deal with. Finally, the breadth of our offering, which again, in Gates, we have both power transmission and fluid power products, gives us a huge differentiating advantage with our customers. We have been able to leverage those four attributes on that platform to give us a unique commercial position across the Americas. Specifically, in the case that you see on the chart above, it is North America. We are almost perfectly balanced in North America, about 50/50 power transmission and fluid power. Our differentiated product portfolio gives us a much deeper penetration in a preferred replacement market.
As you can see, we're just a little under 70% from a replacement standpoint in North America. We've got 18 manufacturing locations in the Americas, along with our core product development folks, and you got to meet a few of them this morning. This has helped us create a number one position in power transmission. We also have a top three position in fluid power, and we only count ourselves as top three because we prefer to define the market with the widest possible aperture. We don't limit it to simply what we have today. We look at the market in terms of what we can have for the long term. Most importantly, we still have a significant remaining growth opportunity, which we will penetrate with some of the products that you saw earlier through our top-tier channel partners.
The key for us is to take the structure that we have in place, and Ivo talked a little bit about in region for region, and use that to drive demand creation, which for us is our best path forward. The chart you see here, while it's pretty simple, provides a very good illustration of why we are successful with demand creation. Recall that we talked about primarily two things today. Number one, innovation. Number two, demand creation, because those are the things that are going to fuel our growth long term. The fundamental takeaway you should have by looking at this chart is that we don't need anything additional to grow. We have what we need today to continue with aggressive growth. We don't have any gaps holding us back from continuing to expand our base and gain market share.
Over the course of the morning, we mentioned the strength of our foundation. We mentioned our brand, more than 100 years old. We mentioned quality and reliability, and you saw that in the video where we had a customer give us a pretty good testimonial on the quality and reliability of Gates' product. We also talked about our manufacturing and service footprint. We talked about our very tight linkage with not just distribution partners, but with end users and OEMs as well. Our foundation really does not have any gaps. We are well positioned to grow. This chart is just a little bit busy. It explains demand creation, so I will try to break it into a few pieces. I will start with the middle where we have the customer. In this case, the customer actually represents the end user.
For the purposes of this model, we would take our distribution partners and have them as just an extension of Gates. From a pure product standpoint, our customers need to satisfy things like pressure and torque and weight and life and impulse cycles, which are all vital to the mission-critical applications that we're installed in. By the way, what we tried to display earlier in the showcase. There is also the cost of ownership model, which is critical, maintenance, ease of installation, and then customized applications for which Gates has been known for a very long period of time, over a century. Further, in the case of our product being a component in a larger product or service application, there's the need for revenue and profit maximization.
A good example of this would be if you think of an auto service center, the revenue per dollar—I'm sorry, the revenue dollars per hour in a service shop would be a good way for them to look at revenue maximization. To continue with the chart explanation, Gates would be positioned on the left and the right of the customer that you see in the center. On the left, you've got a real-time view of the differentiated position that we offer today: our products, our application solutions, and then, of course, the opportunity to grow in the markets. We start with the unmatched innovation and the highest number of product offerings. Oh, sorry. Next, we have application solutions, which go out and meet the exacting technical specifications that our customers require, by the way, as well as simplifying the requirements for a comprehensive understanding.
Third, we have the fact that we can collectively apply all of this to the remaining underpenetrated markets that we have. We do that collectively, both with OEMs as well as our most important piece, which is our distribution partners. That position that you see on the left is what we promote to drive demand creation. Demand creation generates the pull from our customers, which you see represented by the gray arrow on this chart. Pull occurs when our brand and our products are specified by name. At Gates, we enjoy that every day. The best way to translate pull is to call it end user preference. Excuse me. This has resulted in us getting a preferred specification position almost across the board in fluid power and power transmission applications.
Our position and the demand creation pull from our customer base lead to the outcome that you see on the right side of the chart. This is what we experience and how we drive growth. The strength of our portfolio is a key part of the foundation that our commercial teams go out and leverage every day to generate this demand creation. Again, two key themes: innovation and demand creation, helping us drive growth. When we combine this with our engineering expertise and our preferred position with distribution and OEM partners as well, we successfully drive growth and share gain. This is true in our industrial replacement markets, our industrial first fit, and our automotive replacement channels. The following pages will give you some more detail. Let's start with a look at our industrial replacement markets.
Number one, we have an outstanding position in industrial replacement markets, simply the best in the industry. We have commented on our value proposition, which includes an unmatched product offering, innovation, end-to-end value with solutions as well as products. This is what makes us the partner that industrial distributors want to be with. On the right, you see a very small sampling of the distribution partners that we have. You should not be surprised that it contains the premier distribution partners in the industry. Our value proposition, combined with the best distribution partners, collectively deriving demand creation, provides us growth in excess of the market and share gains opportunity that we believe are limitless. We are going to pick up share through key initiatives in each of the channels that we attack.
For North American replacement markets, our highly engineered line of fluid power products allows us to become positioned where application expertise matters. Remember, 100 years of experience, 100 years of outstanding application engineers positioned with end users that help us drive demand. Nobody is bringing forth the innovation that we're bringing forth in Gates. On the right side of the chart, moving all the way to the right, you see our expanded line of engine cooling and brake hoses that has provided us the opportunity to earn our entitlement in the heavy truck space, which is a profitable and high-growth market for us. If we switch back to the middle, and we've talked a little bit about chain to belt, that is the single largest long-term growth opportunity that we have. It is flush with products that allow us to be disruptive to historical chain applications.
We've got a portfolio of efficient, clean, and maintenance-free solutions, and we're going to go through a couple of examples over the next two pages. In every part of the country, you can see aggregate and cement processing facilities. The picture on the left is one of these cement processing facilities. Now, cement and concrete facilities move large and very heavy volumes of limestone, shale, clay, and other additives through numerous lift and drive systems like mixers, batchers, conveyors, and elevators. For these operations, uptime and safety are key, and they provide a perfect opportunity for us to drive our Poly Chain Carbon belts. The cement facility that you see on the left in the photo, which happens to be in Georgia, utilized a chain system for a heavy lift bucket elevator.
Now, to keep the chain functioning smoothly, it required constant lubrication, so it ran through an oil bath. As with all oil baths, it had difficulty containing the fluids. You end up with an environmental risk as well as the opportunity to lose lubrication on your belt. When maintenance had to be done from time to time for either stretching of the chain or link repair, due to its length and position and weight, a crane or hoist would have to be put in place to lift and manage the weight. The Gates solution, which you see on the right, was to replace the chain with our Poly Chain belt, with the result being the customer has a maintenance-free, environmentally safe solution that increases uptime and de-risks the facility from an environmental standpoint.
By the way, there are literally thousands of these opportunities remaining for us to capitalize on. The second example is from a packaging factory. Now, most companies that purchase packaging consider at least some, if not most, of that spend to be a commodity purchase. Commodity suppliers are continually faced with downward price pressure from their customer base. If you're building packaging, your customers are forever coming to you and saying, "Look, I need you to drive efficiency. I need a 2% or 3% or 5% reduction from an annual cost standpoint." With that reality in mind, it's imperative for manufacturers of commodities to focus on that efficiency and productivity. By the way, running their existing machines faster and with additional uptime is one simple way to accomplish that productivity.
In the picture on the left, the primary drive in this packaging machine is utilizing a chain to transfer power. Now, chain drives are most practical on a lower speed drive, usually topping out at about 500 RPM. They simply don't have the capability to ramp those up to run at much higher speeds. Productivity in terms of running your machine faster on a base chain drive system can be limited. Our synchronous belts run at 5,000-6,000 RPM, with speeds oftentimes going well beyond that. A 10x improvement in speed of our belt versus the chain is not unheard of. In the image on the right, the chain drive has been replaced with our Poly Chain belt. The result for the customer is a faster running, quieter, maintenance-free drive that can bring them immediate productivity simply by being able to run their machine faster.
That helps them address a significant internal and external ongoing challenge. You have just seen two of the virtually endless opportunities that we have for belt drive solutions. Hopefully, it helps explain why we are so excited about the long-term growth opportunities for chain to belt. Now, continuing with industrial, we also have an outstanding first fit OEM business that has plenty of room to grow. Remember, we have a broad and differentiated product line. We can go to OEMs with both fluid power and power transmission opportunities. What we like about this space is the opportunity to jointly develop technical solutions with our customer base. When we talked about MXT earlier, MXT is a product that we were able to take to our customer base very early in the process before we even had it launched.
It's a huge advantage to us to test, certify, and install our first-to-market products on the newest machinery platforms. Not only do we get them launched in those platforms, but we get the annuity for the long term as well. Being part of those new applications, regardless of where they are in the world they are introduced, is a huge deal to us. By the way, again, we're having terrific success with the MXT product you saw during the showcase. The same benefits you were able to see are being enjoyed by our OEM customers, and we've passed the most stringent requirements such as JDS 240, and I think we mentioned that in the showcase. Now we have the product being sold not just to OEMs in North America, but globally as well.
It is a real testament to our engineering and manufacturing expertise and the ability to take our next-generation customer needs and be first to market with products that meet those requirements. Because our first fit markets require highly engineered products where our recognized excellence in application solutions makes the difference, we can similarly implement the initiatives we drive in our replacement channel. You see extending fluid power, chain to belt, and we will add precision motion control on this one, but very similar from an initiative standpoint. The investment we made in fluid power innovation has positioned us to be the only supplier coming in with a new and differentiated offering. We know this because we hear it from the customers. When we bring them ergonomic benefits, reduced maintenance, increased productivity, and overall cost savings, we get huge opportunity for both growth and margin expansion.
A similar story to replacement markets and chain to belt. Our teams are working very closely on initial drive designs, which increase the reliability of the OEM product. There's a huge market penetration opportunity remaining with our thermoplastic polyurethane belts, similar to those that you saw during the product demonstration. Initiatives that can drive continued conversions and platform wins in a space where we have high credibility. Now, let's look at an example of how we position ourselves in industrial first fit. Our diversified product line offering, along with the deep application expertise that we have from over 100 years of experience, makes Gates the go-to partner for our customers with their toughest challenges. The application you see in the photo is a rock drilling apparatus in an open pit mining application.
It's a harsh environment with heavy vibration, high temperatures from stress on the machinery, pressure spikes from variation in materials at the drill head, and continuous abrasion from hose to hose and hose to metal contact. All of this in typically a remote area where downtime usually means a lost day and then, of course, lost dollars. This is where Gates fluid power lives. This is exactly where we want to compete. This is where Gates wins. This is the perfect opportunity for us to design and develop solutions with our customer base, and you see those highlighted in the boxes on the right. Our hose with extra tough covers, mega tough temperature endurance, mega system design in both braid and spiral specifications is what makes us so difficult to displace. We don't typically lose customers.
This is what we want to provide for our OEM partners, and this is what we are so often recognized for over the 100-year history of our company. While our replacement business is the largest piece of our revenue, we highly value the selective piece of the OEM market we participate in, and we use that partnership to help us grow across our total portfolio. The final piece I'll cover for North America is our automotive replacement business. It's a huge and growing market, and in it, we sit positioned with the history of one of the strongest and most trusted brands in the industry. We've got a distributor network that's second to none, and we talked a little bit about that during the Crimper demonstration. We've got repair shops and consumers that demand us by name.
We have close to a 200-person selling staff in our automotive replacement business, and we have exponentially more distributor partner selling resources, and together, they continue driving our brand strength. We feed this sales network a continuous stream of new products and customer-friendly solutions like belt and pump kits, and all this helps them add value. We think we're in a great position to continue growing and expanding margins in a space that hasn't yet peaked. Why do we talk about that space not yet peaking? You saw a similar chart, I believe, from Ivo and from Tom Pitstick, and this is a deeper look at why we're going to continue to see growth. Look, first, let me give you a couple of quick facts on automotive replacement. Number one, total miles driven is increasing on an annual basis.
Second, the average age of vehicles on the road in the U.S. remains above 11 years. It's hard to believe, but above 11 years for the average vehicle age. Third, the majority of repairs are done at independent repair shops. All three of these favor Gates. Now, when you look at the chart represented in gray, the largest variable for automotive replacement parts is the number of available vehicles on the road by age. For the last several years, we've leveled at just about 72 million vehicles that were aged between seven and 12 years, with, again, an average age of about 11.7. That seven to 12-year age spike is the sweet spot that Ivo referred to for auto repairs, and by the way, that number is about to spike. Now, here's why. Since 2011, light vehicle production has picked up dramatically.
Those vehicles that went into production after 2011 are now hitting that zone of seven-12 years of age. The next five-seven years represents significant growth for those vehicles in the auto repair marketplace. Our legacy brand, the one that's called out by customers, our new products and our kitted solutions, plus our position with the top distributors, has us so well positioned as we are just now entering what should be a prolonged growth cycle in this segment. We are very excited about the continuing opportunity in automotive replacement. We continue to refresh our product offering, as we mentioned several times, combined with the high-value services we provide to set us apart from the competitors. One example would be the kits for accessory belt drive systems or water pumps. Belt-driven systems have a finite life.
Instead of simply replacing the belt or a pump at the time of failure, repair shops want to replace the entire system. The reason they want to do that is they save the consumer a return trip in the future, and also, they dramatically increase the parts revenue per hour of service. Once they have something in their bay, it's better to fix more than just a single item. The kits that we've launched simplify the effort in both procuring and selling the total solution, and they're in high favor by all of our distribution partners. Another growth item comes from the evolution of engine hose, which you see in the middle. Earlier, Tom talked about the fact that as features and complexity of engine hose gain, the cost and the margin opportunity does as well.
An engine hose today is three times the cost of a traditional formed hose, three times the cost. It is good for us as a manufacturer, it is good for the distribution partner, and it is good for the repair service as well. A win for all of us. Finally, to help our partners understand the value of kits and systems, as well as focusing on increasing their returns, we set ourselves apart with continuous live mobile and electronically delivered training to help them realize increased efficiency. To summarize North America, and this was the last piece with automotive replacement, we could say that in Gates, we believe we have the best brand. We know from our customers that we have unequaled innovation. We have a fantastic network of partners, and collectively, we are capitalizing on the significant growth opportunities.
We are very bullish on our North American business. Now, we will move on to a couple of pages on South America, the bottom half of the Americas. I want to say this is a very great market for us. Number one, we are growing. Number two, we are profitable in every country in Latin America, profitable in every single country. We have been present in Brazil for more than 50 years. We have a loyal and growing distribution network there. Our plants in Brazil make both fluid power and power transmission products. We are identified as a clear local manufacturer in the local markets. Our customers range from application-specific replacement distributors to industrial and automotive OEMs as well. The end markets that we see in Latin America, and particularly South America, are attractive to us as well.
Recall the earlier slide that we had on the challenging rock drilling operation. When you think about South America, we have similar harsh opportunities in mining, agriculture, and harsh industrial spaces. That gives us the perfect platform to expand the penetration of our broad product offering. Our position today, while strong, is relatively concentrated. We have great remaining opportunity, both geographically and through vertical segment growth, to expand as we attack it with our initiatives. This page provides an overview of a few of those initiatives. Not surprisingly, the formula for growth is very similar in South America to what we have globally with one addition, and that is represented on the piece that you see to the right.
I mentioned on the prior page that we have the opportunity to expand our distribution network geographically, and we're attacking that by taking our technical expertise with application engineers into added heavy industry and forestry markets. From the map, you can see that we're expanding our presence north in Brazil, and we expect to capture double-digit growth in that area. We'll accomplish this through existing distribution as well as expanding in specific spaces where we need. We could paint a similar picture, by the way, in the mining markets in Chile and Peru, again, spaces where once we're in, we are very tough to displace. Again, for South America, we're going to continue to leverage our legacy brand, which is considered local. We will leverage our legacy presence, which we have with local manufacturers, to continue to expand our revenue and profitability.
If we had to summarize South America similar to the way that we summarize North America, this is a profitable business with double-digit growth. We have a series of newly minted resources to make sure that we expand our technical and application expertise in the region. We are very happy with our South America platform, both from a growth and a profitability standpoint. The final business segment that we'll talk about, and we'll do this in just one page, is our oil and gas business, which is headquartered in Houston. This is a business focused primarily on high-pressure hoses for drilling control, both onshore and offshore. By the way, our Houston hose assembly facility is the largest of its kind in the area. We like the oil and gas space because it fits into the niche that we are best at.
Again, we talked about it. Mission-critical work, harsh and hazardous environments with the most challenging applications, and a space where your reputation matters. Historically, we focused primarily on land drilling, but with the acquisition of TechFlow in 2017, we expanded the offering, including the API 16C choke and kill hose, which we announced in a press release today. After a year of implementing Gates practices and quite a bit of investment into our U.K. manufacturing facility, we now have a much broader product offering and increased opportunity to grow. This segment will achieve double-digit growth this year, and it also helps drive pull-through of some of the lower-pressure hydraulic and industrial hoses as well. It is a terrific business for us. It is poised for growth. It is in a space that we like, and it is another example of how our focus on innovation will lead to future share gains.
To wrap up the overview on the Americas, number one, we've got a leading position on a century-old foundation of quality and reliability. Our Gates brand is known and respected. Second, we're solidifying that position with innovation that is running well ahead of our competitors, and we're creating new opportunities for our distribution partners and end customers, and they recognize that and feel that they are rewarded for that. Next, we have significant untapped growth opportunity in both application penetration and share gain. We expect to capitalize on that, and you'll hear from Dave about some of the projected growth rates that we have going forward. Our demand creation initiatives continue gaining traction. We are positioned for growth and profit expansion in 2019 and beyond. Thanks very much for your attention on this overview, and I'll now turn it over to David Nomura.
Thanks, buddy.
We're quite a bit behind schedule, but I'm going to zip through a bunch of this, hopefully a little faster than not. A lot of this, since we were just out with earnings a couple of weeks ago, maybe a lot of this stuff you've heard recently. Starting on slide 71. Slide 71 shows our revenue growth performance, which reflects a 6.8% total growth CAGR from 2015 to 2018, and on a core basis, a revenue CAGR of about 4%. In 2015 and 2016, our revenues were affected by the industrial recession, but our diversified end market exposure, replacement channel focus, and emerging market presence helped us offset most of that impact. In 2015, we were down only 140 basis points, and in 2016, we were up 250 basis points, both on a core basis.
In 2017, we benefited from the broad-based recovery in many of the end markets that we serve, which continued into 2018, where, despite automotive first-fit headwinds in the second half of the year, we saw 5.9% core growth. Our revenue guidance for 2019 is 3-5% core growth, with lower growth expected in the first half of the year, particularly in Q1, as we continue to see a difficult environment in China, as well as in EMEA, similar to what we experienced in Q4 of last year. As the year develops, we will see additional contributions from our initiatives, and to some degree, the compare will get easier as well, which will help the second-half growth rate. I should also note that at today's currency exchange rates, we would see about a 175 basis point headwind from currency in 2019.
Moving to slide 72 here, the revenue growth that we discussed on the previous slide is falling through to Adjusted EBITDA dollars and margin expansion. First and foremost, our Adjusted EBITDA margin expansion from 2015 to 2018 was driven primarily by sustainable productivity improvements, resulting in 290 basis points of gross margin expansion over this period, excluding the impact of acquisitions. These improvements were primarily driven by manufacturing productivity initiatives as part of our implementation of the Gates operating system. Our gross margin was about flat in 2018, as continued productivity was offset by new plant startup costs, as well as some inefficiencies of running our existing hydraulics capacity at full utilization. Our larger gains under the implementation of manufacturing productivity initiatives have moved to more of a steady-state environment.
We now anticipate seeing increased benefits from VAVE programs, as well as a series of other actions, including new products that are designed to be manufactured in a more efficient manner. Accordingly, we feel that we still have a good runway of margin improvement opportunity. I noted earlier that foreign currency is a headwind to 2019 at today's exchange rates. The Adjusted EBITDA guidance already reflects a negative EBITDA impact from FX of about $10 million. You should find that given the FX impact to revenue at the midpoint of the guidance, we would expect about 50 basis points of Adjusted EBITDA margin expansion for 2019, consistent with our long-term objectives. This chart reflects our recent history of capital expenditures and really aligns with the timing of the development of our strategy and the large organic growth initiatives that Ivo discussed.
In 2016, we invested below our historic levels as we worked to determine exactly where to target capital deployment. In 2017, and particularly 2018, it reflects our ramp-up in spending, mostly driven by our investment in additional hydraulics manufacturing capacity. Our commitment to this capacity is driven by our conviction in the related growth initiatives, including our new products and our opportunities to further penetrate international markets. For 2019, we continue to have some final spend related to the new fluid power capacity, but mostly we will see a shift of investment to a number of power transmission-related projects, including investment in our chain-to-belt manufacturing technologies. We are reducing our CapEx spend from the prior year and anticipate that we will work back towards around 3% of sales over the next few years. Turning to the next slide, I'd like to address cash generation.
We measure cash generation as a percentage of our adjusted net income. Our historically strong cash generation was lower in 2018 as a result of two factors. First, at a working capital requirement still of around 25% of sales, we provided a lot of working capital dollars associated with our total revenue growth of 10.1% last year. Second, we had the elevated CapEx levels associated with the new capacity additions, as I talked about previously. I would note that we had strong cash flow conversion in 2015 and 2016 during the industrial recession. This is in part a result of our higher working capital requirement, somewhat benefiting us when revenue reflects lower growth. Further, during this period, we consistently increased our working capital efficiency, reduced working capital dollars as a percent of sales by about 300 basis points from 2015 to 2017, excluding the impacts of the recent acquisitions.
In 2018, our working capital efficiency was basically flat, but we continued to target about 50 basis points of improvement per year of working capital as a percentage of sales. Although we had lower cash conversion in 2018 due to the previously described items, we have line of sight to improving our free cash flow conversion during 2019 back towards historic levels. In the next few slides, we'll address our current leverage and our debt structure. The initial LBO of Gates was at over seven times leverage. From that period through the end of 2017, we reduced leverage to 5.1 times by growing our EBITDA dollars and increasing cash conversion.
We used the net proceeds from the primary IPO, as well as an additional $150 million of cash on hand to reduce gross debt during 2018, while continuing to grow Adjusted EBITDA, and we ended the year with a net debt leverage ratio of 3.4 times. I should note that this deleveraging was accomplished while deploying over $160 million of acquisition capital and managing the elevated level of CapEx associated with the capacity additions. Based on our 2019 outlook for further Adjusted EBITDA growth and cash conversion, we have line of sight to achieving leverage below three times towards the end of this year, which we view as an important level for us to achieve. We should note that our working capital requirement does have a typical seasonality, which can impact net debt and therefore leverage during the year, but we are comfortable with this year-end target.
On this slide, we're reminding folks of the debt structure and the components of our leverage as of the end of 2018. Our average cost of debt currently is about 4.6% and is about 58% effectively fixed as of the year-end, and this will increase to about 75% effectively fixed in July of 2019 when additional interest rate caps on the Euro term loans go into effect. Generally speaking, our philosophy has been to try to maintain a ratio of around two-thirds fixed. We have no meaningful principal repayment requirements prior to 2022, other than about $25 million per year of term loan principal reduction. As you can see on the chart to the right, the term loans, which is about 80% of our debt, do not come due until 2024, offering us quite a lot of flexibility.
As I mentioned, last year we made significant reductions to principal using the proceeds from the IPO, plus an additional $150 million of cash on hand. We may likely use further cash this year for principal reduction, and we should note that the bonds are callable at par as of July of 2019, which provides us some additional flexibility. As part of our year-end earnings call, we mentioned the opportunity for additional self-help actions. We believe that this is an ongoing opportunity for our business that has been a bit misperceived. Many have mentioned over the past few years that they assume all of the excess cost has been rung out of the business to drive the margin expansion that we have seen. To the contrary, the margin expansion that we saw since 2014 has been driven by sustainable operating improvements to the business.
Now that we are operating the existing footprint more efficiently, we believe we have the opportunity to further streamline the rooftops, not to take capacity offline, but rather to drive further productivity. In addition to rooftop consolidation, we believe that we have the opportunity in a number of other areas as well. We're in the process of implementing a new business model in Europe that will improve our operations in the region and will also improve our tax posture. Also, the development of shared service centers will provide an opportunity to increase efficiency in certain SG&A functions. We anticipate that we will bring out a more specific plan in the next quarter or two, and we will address the general sizing and scoping of probable future self-help actions.
Given the highly fragmented nature of the core markets that we serve, M&A can provide opportunities to accelerate our organic growth strategies. We're constantly building our funnel of opportunities and screening deals that may make sense for Gates. We look for a number of attributes, but four of our primary filters are presented here: vertical integration opportunities, expansion of our industrial product lines, replacement portfolio breadth, and geographic expansion. During 2017 and 2018, we completed three deals deploying about $160 million of net capital. These were all rather classic bolt-on deals and met multiple of the criteria presented on the left side of this slide.
There will be many opportunities for M&A to be a value-adding path for Gates, but we will remain a selective and disciplined acquirer as we have to date, and as our leverage profile improves over the near term, we would anticipate having increased flexibility to do accretive M&A. We have consistently said that we will invest appropriately for the long-term benefit of the business while being mindful of deleveraging. I believe that our performance over the past few years has been consistent with that approach. We increased our CapEx spending in 2018 to build our new fluid power capacity, and during 2017 and 2018, acquired the three businesses. While doing this, we have continued to deleverage, and we ended 2018 at 3.4 times, as I mentioned, with line of sight to below three times toward the end of this year.
We believe that our approach to capital deployment has been balanced, allowing us to continue to drive organic growth while proceeding towards our near-term deleveraging goals. Our revenue has a direct correlation to global industrial production. We have stated our target model for revenue growth as global industrial production plus. The plus would generally be a couple of points and is representative of our large organic growth initiatives that we believe will provide us the opportunity to outperform the market. Assuming a reasonable end market environment, this would imply a growth rate of around 5%, which you've heard us mention before. Our long-term target is fundamentally another representation of this same model. Given the opportunities that we have to drive growth, we believe that this model of IP plus remains appropriate.
Assuming a reasonable market backdrop, that would result in revenues of $4 billion plus in the three to five-year time horizon. You will also see that we reflect M&A as likely contributing additional revenues in this period. It is, of course, not really possible to quantify the future contribution from M&A, but given the attractive and highly fragmented nature of our market and the increased flexibility that we will have as we continue to deleverage, we believe that there likely will be some opportunity to augment our organic growth. We have also reflected Adjusted EBITDA margin of 24% plus, reflecting additional EBITDA margin expansion as we continue to grow the business, again, consistent with our stated model. We also have included our ROIC measure, which is calculated by excluding the intangibles associated with the Blackstone acquisition in 2014.
This measure of ROIC has been above 20% for the last few years, and we intend to remain above 20% in our three to five-year target period. Finally, we noted net leverage below three times. We, of course, have line of sight to achieving this level towards the end of this year, as I mentioned, but we reflect it here as part of our longer-term target as we see this as an important threshold to be below in the future as well. Quickly summarizing, we believe that the opportunity for Gates is large, and it translates through to a compelling financial opportunity. We have large organic growth initiatives that we believe provide us the opportunity to grow at above-market rates.
We have demonstrated a track record of translating revenue growth through to earnings growth and margin expansion, and this has allowed us to consistently deleverage the business over recent years, and that will continue in 2019. Finally, we have very attractive markets for M&A, which we believe will provide us the opportunities to further accelerate our organic growth. I know that was a little fast, but that'll turn it back over to Ivo.
Sliding back to the home base. No pun intended in here. In summary, we share with you today our unique position as a global leader in businesses we operate, highly diversified across end markets, geographies, and applications, with an outsized presence in replacement markets. Organic growth opportunities fueled by differentiated innovation and supported by long-term secular trends around the world. Over and above our organic and inorganic growth opportunities, we have a runway to improve the overall efficiency of our business, optimize our footprint, and continue our relentless drive to improve profitability. The Gates management team is focused on delivering differentiated results, and our short-term as well as long-term incentives are well aligned to the interests of our shareholders. We believe that Gates presents a terrific investment opportunity for our shareholders over the long term. With that, it concludes our prepared remarks, and we'll open it up for Q&A.
Dave, I would like you to join me and Tom as well, please. Happy to take any questions. Yes.
Thank you.
Yeah. On the subject of distribution points, we've shared at the early part of the presentation that we have about 9,000 channel partners around the globe that service about 100,000 various locations to support our customers. When we talk about our ability to drive a greater presence in the automotive replacement market in China in particular, there we believe that as the market is evolving, it is critical for us to have a greater ability to service a much larger volume of vehicles, and that's where we are targeting to double up our presence from about 100,000 vehicles distribution support infrastructure to about 50,000. That would put us clearly into an undisputed number one position in there. Frankly, we are already in that position today, but it will just continue to drive the differentiation in that set of market attributes in China.
As to the question towards the $4 billion target, look, I think that we have always committed to deliver 2% plus points over global industrial production. We believe that these industrial, in particular, initiatives, large initiatives that we have shared with you today will support our ability to deliver that growth and deliver on the trajectory towards the $4 billion. Yes, sir.
You know, it's a very rigorous question, but your new product value index is not going to be.
Your new product value index, you talked about being around 10%, right, going to 25%, but a lot of today was spent talking about the X-Series, hoses, and Pro Series, chain-to-belt, so on. When do you see the maximum impact from these rollouts? It feels like it's kind of now, but I don't want to put words in your mouth. What does it look like over the next couple of years? When's the peak sort of tailwind from this new product rollout?
Thanks, Andy. I think that the way that we think about it is when we came out public, we said, "Look, we had a kind of a five-year plan." The first three years were associated with driving productivity improvements in our factories, then moving about 18 months later into VAVE, which we believe is going to jumpstart our ability to drive that innovation forward. It's played out exactly that way, and we are now in that year four, year five, where we start to introduce the new technologies that we have discussed. We have launched a number of these technologies last year and early this year. We certainly believe that we will continue to launch with a very high frequency additional technologies that we have in development.
My view is that we will start seeing very nice contribution of revenue as we exit 2019, with the highest efficacy of all of those technologies contributing revenue generation kind of in that late 2020, beginning of 2021, as those technologies take hold and we have been able to convert our customers to derive those benefits from those technologies.
Got it. I wanted to ask you kind of a similar question on the margin side. It might be for Dave, I do not know, but like 50 basis points of margin improvement, right, is expected. You talked about sort of telling us within the next couple of quarters about sort of additional self-help. You mentioned on the call for rationalization. You talked about a new business system. You have got VAVE. Is that part of the 50 basis points, or is it potentially additive to the 50 basis points if I think over the next few years?
I think it could be potentially additive somewhat. But Andy, I don't know that all of our self-help would be to just naturally try to drop it all through to the bottom line. I think there are opportunities for us to drive some productivity to invest more back in the business. Again, more to come over the next few quarters. I think it'll be a multi-year opportunity that we'll be kind of rolling out and talking with folks, but I would anticipate, yeah, some tailwinds to our margin expansion, but also some opportunities to go drive some additional organic growth.
Dean.
Thank you. It was interesting if you look back a year ago when you guys embarked on this, all the capacity additions and all the plants simultaneously with your ongoing business, it would have been easy to come back with an excuse of some kind of hiccup, but there was not. Where do you stand on your plant utilization today for both fluid and power? Looking out on all these growth aspirations, are you going to run into capacity issues, and how does that look the next couple of years?
I apologize. Yeah, sure. Our utilization is really starting to come back in line, Deane, with the addition of the new fluid power hydraulics capacity. There's still a few constrained product lines, but on the power transmission side of the business, we have a number of projects I think Tom talked about in his section where we're really looking to decrease the number of factory sq ft utilization per manufacturing dollar. We believe that we'll be bringing these new process techniques to bear that'll allow us to, frankly, that'll help facilitate part of that rooftop consolidation, driving additional productivity. Not taking capacity offline, but rather using the capacity more efficiently. With the addition of the fluid power plants, as we continue to ramp those plants, really the highest runner hydraulic categories we have, we call it wire spiral. It's the MXT products.
has really come back into balance now. I think we feel we're pretty well positioned for the next number of years, and we're not going to be standing up doing what we did last year again for at least a while.
Just a quick follow-up on the free cash flow conversion. Could you talk about what sort of incentives you have within the organization and how deep do those incentives go regarding working capital efficiency and targets that might be not a year-end target, but maybe quarterly and along those lines? Thanks.
There are really two primary measures for folks. One, anyone who gets part of our global bonus program is compensated based on free cash flow. That goes all the way to the senior manager ranks, and that obviously translates through to people understanding what impacts that has on their day-to-day lives. The other side is their performance, right? The personal performance goals, we make sure we properly charter those people to have an influence on those areas of the company. We think we're well aligned throughout the organization to the top of the house, and it remains a good opportunity for the business.
Thank you, Julian.
Thanks. Maybe a first question around margins. You talked about the 50 basis points operating margin expansion goal. Maybe parse that out between COGS and SG&A just so we get some understanding as to that flywheel of fixed cost savings and then reinvestment. Also, if you think about a future downturn scenario at some point, what kind of decremental margins firm-wide should we expect at Gates?
I think we'll see the 50 basis points per year. Look, in my mind, we always have to have gross margin expansion. To us, that's a little bit to help the business and how we afford to invest in new products and R&D and the selling effort. We would look for probably 30-40 basis points and then a little bit of SG&A leverage to help drive the 50 basis points plus or minus. Sorry, Julian, what was the second part of your question?
Downturn.
Yeah. We would expect to have decrementals that are favorable to what we see as incrementals. Admittedly, we have not run the business kind of through that level of cycle yet, but we have done a good job expanding our Adjusted EBITDA margin into the low 20s here, and we would look to, I am sure, maintain something with a 2 on it as the business turned down, I guess, depending on the severity. We have not worked, frankly, been through that part of the cycle yet, so it is a little tough to say.
Sure. Just a second quick one on capital deployment. You've announced three acquisitions the last 18 months or so. Maybe give us some perspective on what the sort of financial returns, three or five years, you think you'll get from those deals in aggregate. When we think about future free cash flow usage, trying to gauge the degree of M&A appetite, should we expect that sort of 80% plus in a normal year would go on M&A?
From a returns perspective, I'll use Wrapro as an example. All three of the deals were very different, frankly. Wrapro, we paid about 8.5 times for Wrapro. With synergies, it was probably more like 5.5 times. It would be double-digit ROIC in the second year, and it would be leverage neutral in about 18 months. It was highly, highly synergistic. With TechFlow, it was a little different. We were looking to add some technology that we didn't have, and Atlas was yet again different. We were rounding out our product portfolio.
We tend to think of that double-digit ROIC in the second or third year is what we would look to achieve, but frankly, every deal has a little bit of a different dynamic to it and a little bit of a different strategic element, so they all need to be analyzed individually. Going forward, I think we're sticking with 100%, and 100% probably allows some level of M&A, albeit smaller type bolt-on deals. In a case, obviously, if we were to do something large, it might be a different scenario. From a pure operating cash flow or operating cash flows with CapEx, that's 100%, and then leverage might be a little different depending on the deals we do. For now, we're kind of sticking to what you guys are seeing.
Yeah. Just on the auto business, I mean, there seems to be this misunderstanding or skepticism about your auto business. You tell a really good story about growing car park, higher content as the mix changes, and higher margin. Maybe just talk about, one, what could go wrong in that model, and two, kind of how you continue to tell the story to make it a little more believable or where people worry less. Thanks.
Look, I think it's a little bit difficult to, I guess, further drive the understanding about that auto business. I think we have been pretty consistent with our message. We, frankly, like the automotive replacement side of the business. As we discussed today, there are a number of very positive dynamics about that automotive replacement side of the business, both from aging car fleet, miles driven, frankly, in the developed markets, the tailwind that we will receive from the downturn in registrations from 2008, 2009, 2010 timeframe. We feel that we have a very positive set of dynamics in the developed market side, as well as the positive attributes in the emerging economies, particularly in places like China.
We're not at least the fact that it becomes the biggest car park in the world that has become in 2018, or the fact that we have a terrific presence both with respect to the product line coverage that's Barton on best in class today across our main product lines, or the expansion of our commercial coverage in that country. We feel really good about what that business has to offer. What can go wrong? We really speak a lot more about what can go right and the focus on developing technology. We continue to be the best in class supplier of choice as these technologies evolve is where our focus resides. We are quite constructive about what's happening in the automotive replacement market, and we are probably more bullish on that market than not. Cherry, yeah.
It was nice to see on the MKT, the SKU consolidation moving from 20 to 6 that you folks laid out from pretty high volume product line. Do you have more opportunities like that? How significant is that opportunity set? Does that translate for the company as a whole, having more A lots, if you will, out of that 370,000 SKU?
Yeah. I'll let Tom answer that question a little more, but Cherry, that is at the core of everything that we do. We certainly put that as one of the key objectives of new product development to drive the disruption into the marketplace from the construction of the products themselves, but also to have the opportunity to simplify our core portfolio under the skin.
Yeah. The thing I'll add to that, I think I mentioned in the maybe it was the V-belt section, this good, better, best approach. In V-belts, we have 12 or 15 different constructions and brand names in that portfolio today that we're setting a stretch objective to get down to three. Now, we'll end up being five or six. Time will tell when we work out all the details, but over the years, there has been a proliferation of some of our fundamental constructions that technologies like MXT and what we're doing in V-belts will start to reduce. As I said, that'll help reduce the complexity for us as a manufacturer, but also for our customers who are stocking those products and figuring out, do I deploy product A, B, or C in my application? It's a fundamental philosophy of how we're approaching our product roadmaps.
What's the order of magnitude? Are we talking about moving from 10% to 20%, or can you just give us some context?
I think the 370,000 SKU number, I mean, that gets into the variety of tensioner variants for a given application or different lengths. I think more about it in the belt or hose context from a construction standpoint. If we can take 20 constructions, which might contribute to 10,000 SKUs by the time different lengths, different diameters, different couplings on the ends, et cetera. If we're fundamentally reducing the underlying platform complexity, that'll spread out and reduce the complexity across the 370,000 SKUs.
On electric vehicles, really nice to see the broader market size opportunity than I think what you folks laid out at the time of the IPO. Kudos on putting out a number that has ultimately been revised higher. Can you talk about your path to market? Because for the traditional products, it's been more replacement. How big is the focus on OE on the electric vehicle side? What's the margin expectation as you've had more and more of these conversations? Can you get a gate-type margin on first-fit OE on electric vehicle?
We believe we can on the fluid power front in general. I think Dave showed some of just the differences in complexity from the old two coolant hoses between the radiator and engine block and what you see on an electric vehicle. We've done a number of tear-downs over the past year, and I think every time we do one, we're surprised by the complexity and the magnitude of content on those vehicles. Yeah, historically, in automotive engine hoses in particular, we've been more focused on the replacement market, in part because it's largely been focused on North America and Western Europe, where we have the brand and the channel already. This Class A truck example that I mentioned is a perfect example of where we're starting to go after first-fit opportunities in the EV space with, quite frankly, the technology we acquired with Wrapro.
Maybe if I can add, Tom, to what you said, and that's that, look, as these technologies evolve, they become dramatically more complex in nature, and there becomes a fewer and fewer number of partners that can actually support the development of these next-generation platforms because you're not only now dealing with the complexity associated with the longevity of your product or the quality of your products. Now you also need to be able to fine-tune the overall engine system, as an example, so that you fulfill the requirements associated with emission testings and/or the requirements associated with reduced fuel consumption. Frankly, that's why these people put these complex systems in there. As a result of that complexity, we're frankly getting paid better for that, and that's really the desire.
Not only do we see as a trajectory being positive for us in terms of the underlying profitability of those more complex technologies, because as you saw, the underlying market opportunity becomes bigger for us as a company.
Josh.
You know, there was a big push today clearly around innovation and differentiating in your core markets. I guess two questions related to that. First, is the sales force or sales capability a governing factor to adoption? Either from a direct standpoint or educating the customer and distribution, can you just speak to some of the efforts around that and whether or not there needs to be more investment to get this product out in the marketplace? A follow-on question related to that.
Thanks, Josh.
Absolutely. I think that as we try to describe in our business model, and I believe the question either that Deane or Andy asked, not everything can be incremental. We have to create our own headroom to be able to make these investments. I think that our history, as brief as it may be, demonstrates that we are finding ways of being able to drive productivity and then funnel some of that improvement into these investments that we need to make, whether it's R&D or commercial capabilities. That is, frankly, part of our operational DNA. To the underlying question, the answer is yes, you have to, especially when you consider the complexity of driving adoption of a different technology, right? You are not competing in chain to belt with somebody that is making the same type of products.
You are fundamentally trying to offer a better, more efficient solution to an end user that really has not maybe had the experience with that application in the past. We have got to, and we are building out under Grant's leadership, we are building out a much broader capability of field application engineers. Those are our technical experts that interact with the end users that facilitate the ability to, frankly, switch from a technology to technology. Those are things that we have got to drive that investment forward, and we are finding ways to be able to do that without necessarily penalizing our shareholders. Again, think about driving productivity, funding these needs that you have, whether or not they are R&D or a commercial capability built out.
Got it. Just related to that on the R&D side, I mean, it seems like having differentiated product is not throttling back the business and growth whatsoever. It's how quickly does that get pulled out or pushed out into the field. Given there's so much new product in the portfolio right now, is there room for R&D to step down a little bit as that gets digested? I mean, I guess as a non-engineer, I'm not familiar with how long all these product cycles are, but it doesn't seem like there are industries where there's a constant clamor for differentiation that you innovate, it gets out in the marketplace, then you can innovate a few years later. Is there room for R&D to come down?
I think that the issue is we've been asked a question about, well, you're a material science company and you want to innovate. Don't you think that you should be spending more on R&D, which is the opposite of the questions that you have asked? At that point in time, we said, hey, look, we believe that we have a really good scope on how much investment we want to make in R&D. We don't believe that we are spending significantly more on R&D than kind of our peer group does. We believe that we are actually driving pretty high efficacy of that R&D investment. As we think about what we could do on the analogous side, hey, do you think maybe you should step it down?
The answer is really no, because what we want to do is we want to disrupt all of the product lines and the markets where we participate. To your point, yes, maybe we will slow down the investment somewhat into fluid power 18 months out when we have revamped that portfolio. Remember, we started earlier on fluid power and redirect more of that investment into things like building out a really endless loop industrial belt for chain-to-belt applications, developing new type of sprockets so that we can offer a more efficient design and infrastructure for some of these large industrial drives. I do not think that we have run up yet to a shortage of ideas.
We believe that we can continue to drive that investment into very productive things, but we also believe that we're going to be measured so that we can give ourselves the time to have market adapt these new solutions, and we can generate returns that will reward our shareholders.
Thanks, Josh. Great question there.
Jake Fryer here, Lapidus Asset Management. For the Pro Series, the standard hoses, can you just talk about what goes into displacing an incumbent here, switching costs, anything like that? Maybe why now, or rather, why has this taken so long? Why were we not already doing this?
Great question.
I think a couple of things in terms of displacement. If we talk about the replacement markets, we've been in these channels for a long time with our Megasys product, right? We show up and we see our product on the shelves, and then we look over and we might see somebody else's product serving that portion of the market. We just go into those same distributors and say, look, we've got a broader portfolio now. It's not an immediate check the box, switch it over, but we can go in and have that conversation. Look, we've served you well with these Megasys products for a long time. Here's another line of products from Gates called Pro Series, which fits this application space. That's one example. Going into an OEM, OEMs bid all sorts of different systems.
Now we just show up at the bid for the applications that are for Pro Series products, where maybe in the past we didn't. I think it's a pretty classic product line extension. Now, why didn't we serve it in the past? I mean, I guess that'd be a question for former management, but we came in and looked at it and said, here's the market. I should point out, we didn't really have a strong product management function three years ago that looked at markets, that looked at applications, that built product line strategies, looked at competitive analysis. We're doing all of that classic industrial company product line management stuff now, and we're identifying these opportunities that just were ignored in the past. I don't know.
I don't know what was inside the former management team's heads, but they just chose not to investigate that part of the market.
Yeah, Tom, maybe let me add to your answer in why so much then for this management team, because you guys have been here for four years, right? Why did it take you so much time? Look, one of the reasons that it took us so much time is, A, because we started our process again driving improvements across our factories. We believe that that's where you need to start to develop a strong base of operational capability. Two, we needed to develop a pretty disruptive set of manufacturing processes because we're not interested in just incremental improvements in performance of our products. What we are interested in is to have a highly differentiated product, just as you have seen on that MXT there, lighter, more flexible, more efficient. That is something that pretty significantly differentiates you from your competitors.
That takes a pretty disruptive level of innovation that you can put forward.
Are these industrial distributors exclusive for certain products, or are you replacing someone that has this industrial distributor that's their customer for the standard hose, or do they carry three, four, five brands?
They serve their customers by having a broad portfolio of products. Typically, they are filling in their portfolio gaps with multiple vendors if they cannot get it from one place or fewer places. I think if a Gates shows up with this portfolio extension, it is a natural conversation to have. Why not Gates, right? We are known for quality. We are known for our product innovation over many years. We are known for our service levels, et cetera, et cetera. Why would you not at least consider Gates? Oh, by the way, we have this great product line that you have loved for the past, whatever, several years.
Again, if I can maybe supplement with some of our biggest distributors, we have an exclusive relationship on the vast majority of the product line. Tom is correct. Some of the maybe smaller, some of the independent, some of the specialty distributors, they'll carry specialty products that we do not manufacture, but in the main product lines that we manufacture, we have exclusive relationships with our distributors. Good question. Anything else that we can answer tonight? Oh, today, sorry.
That's great.
Very good. Thank you very much for attending. We truly appreciate your time, and we look forward to doing it again. Thank you.
Thank you, guys.