If everyone can silence their cell phones, that would be great. Welcome, everyone, to Kadant Investor Day. I'm Deb Selwood, Chief Accounting Officer. Let me start with our Safe Harbor Statement. Various remarks we may make today about Kadant's future plans and expectations, financial and operating results, and prospects are forward-looking statements for purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 30, 2023, and subsequent filings with the Securities and Exchange Commission.
In addition, any forward-looking statements we make during our webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is contained in the slides to this webcast, which are available in the Investor section of our website at www.kadant.com. And now, a little bit more about Kadant.
Thanks, Deb. Good morning, everyone. I'm Jeff Powell, the President and CEO of Kadant. We welcome everyone to Kadant Investor Day today. We want to thank you for taking the time to come, for those of you that are here in person, as well as those participating via the webcast. We're going to talk today about our new five-year plan. This is our fourth five-year plan, I believe it is. These are critical to us. They form the basis for our strategic planning. They form the basis for our acquisition strategies, for our product development strategies, as well as our geographic expansion. They also form the basis for setting the objectives that all of our employees around the globe understand and work every day to try to help us to achieve.
We know a lot of companies don't do five-year detailed financial plans like this, but we found that they actually serve us quite well and are a critical part of our planning and our growth. I thought I would introduce the presenters today that are going to be speaking to you. We did something a little different this time versus our prior investor days. Kadant has grown and gotten more complex, and it gets more and more challenging to fully understand the scope of the organization, the scope of the business. So we thought that it would be helpful to invite a lot of our business leaders in to talk a little more in a little more detail about their products, the markets they serve, and the drivers that are fueling the growth. So we're going to get into a little bit of detail today.
I hope that everybody finds that helpful. And I thought it would make sense to introduce the presenters as well as some of the other corporate officers that are here today. And if you could just quickly stand when I call your name. First will be Wes Martz. He's Vice President of Flow Controls Americas. Wes is in the back of the room. I see standing there. After Wes, we'll hear from Bilal Mehmood, who's President of Kadant Solutions. And then Chad Greenfield, who's Commercial Director for Syntron Material Handling. Next, Craig Heley, President of Kadant PAAL out of Europe. Michael Colwell, Senior Vice President in charge of our Industrial Processing segment. Chris Demler, who's President of Kadant Black Clawson. Then Dara Mitchell, who's Senior Vice President of Corporate Development. Last but certainly not least, Mike McKenney, the Executive Vice President and our Chief Financial Officer.
In addition to that, some others that we have in attendance today are Stacy Krause, Senior Vice President, General Counsel, and Corporate Secretary. You just heard from Deb, Senior Vice President, Chief Accounting Officer. Andy Blanchard, who's Vice President of our Material Handling Sector. Fred Westerhout, who is Vice President of our Flow Control. And Orrin Bean, who's our Treasurer. So you'll hear from all of them today. Quickly going over the agenda. So we report three operating segments, and we've invited people from each of those segments to discuss their businesses in the markets around the world. So we'll start with the Flow Control Group, then go to the Material Handling Group, and finish with the Industrial Processing Group. After that, you'll hear from Dara on our acquisition strategy. Dara is also responsible for our 80/20 program, a very important initiative that we have undertaken.
She'll talk about that and the results associated with that. Then Mike will go over our financial performance as well as our new five-year targets and goals. I'll make a very quick kind of summary comments, and then we're going to go to questions and answers. Then we have a reception and product demonstration set up around the corner here at the end of the day. Hopefully, everybody will be able to attend that. We have a lot of products and videos there, and we also will have subject matter experts at each of those that you can ask more detailed questions about. I thought I wanted to talk a little bit about what makes Kadant what we are, our DNA. We've been around for a very long time. We have businesses actually within Kadant that are 160 years old, 165 years old.
Almost everything that we sell, we were the original inventors of, the original patent holders of. We spun off from what was then Thermo Electron, now Thermo Fisher Scientific, I guess about 23 years ago as an independent public company. But we have been around, as I mentioned, for a long time. We have very, very stable businesses that have been serving their markets for 50 or 100 years. The great thing is these markets are going to be here 50 years from now, 100 years from now. So they're very stable businesses. And as I said, we're the original inventors of almost everything we sell. So we've had very long-term relationships with our customers, what we call kind of a sticky customer relationship. And what we really are providing are components and systems that go into very expensive operations.
Our systems have a very, I would say, oversized impact on the overall operation. If you think of an automobile, you're driving it down the road and the radio quits working or the air conditioner quits working, you can still drive down the road. If the transmission goes out or the fuel pump goes out, you're on the side of the road. That's kind of the way our products serve our customers. They're very, very important. We tend to provide products and systems that go into very harsh and rugged duty environments, a lot of wear and tear and a lot of breakage. And so it's critical that we have the parts and the service available to keep our customers operating. If you shut down a large operation, it may cost hundreds of thousands of dollars a day for every day that they're down.
It's critical that we have the parts, the expertise, and the services available to keep them running at all times. And our aftermarket parts are the big focus of our business, which we'll talk about a little bit more today. One of the things that we're actually quite happy with is we have really strong, what I would call global macro trends that are driving the business. We don't really have any market segment that's in decline. They're all growing. Some of them are growing faster than others, of course, but they're all growing. I would say probably our market drivers are as strong as they've ever been for us. I mean, we were in the paper business early on. Of course, the digitalization of a lot of information with computers and iPads and phones, there was a big decline in newsprint and some other products.
Our packaging side of our business, which is about 20% of our business now, is growing. Tissues, another 20%, is growing. And really, that's kind of our exposure for the most part in the paper side of the business. So all of our kind of major markets are growing. You'll hear more about those in detail today too. We run a decentralized structure. We believe the best decisions are made as close to the customer as possible. We think the lowest risk is when locals are making decisions based on the conditions on the ground there. It also kind of harnesses the power of entrepreneurism. As I said, we spun off from Thermo, and the founder of Thermo, George Hatsopoulos, very much believed in the power of entrepreneurism. And we really try to make sure that we maximize the leverage of that. We also have an asset-light operating model.
What that means is we have tremendous operating leverage when business is strong, and you'll see the results a little later that we achieve with that. We've been a good financial performer and an improving financial performer. And we run an asset-light operating model, so we don't have to invest a lot back in the businesses. So we generate a lot of free cash flow, very strong free cash flow generation. And of course, the allocation and investment of that is very critical. And so we're fairly disciplined. We're also fairly conservative in the way we invest that capital. And you'll see what the returns have looked like over the years with that. Last, but certainly not least, you couldn't do what we've done without a very talented and committed workforce, our employees around the world, extremely talented, very committed.
have been with us for a long time, very long tenured. We just had somebody just celebrate their 50th year with us. Our turnover rate is very, very low. People tend to join Kadant and never leave. Many of us are from the Thermo days. I joined Thermo 38 years ago. We have many people who have been here longer than that. We are a global company. We operate in every country in the world with the exception of the three or four that the U.S. government says we cannot operate in. This is really an asset. Sometimes it's an underappreciated asset that we have the skill set, the capability to go to faraway places and conduct business and support our customers. Some of these places, it's not easy to do. We've been in Asia for over 30 years.
Almost every market we're in, we have dominant market share. We're number one or number two in almost every market that we serve around the world. The nice thing about being global is that you get a little bit of geographic diversity, so it tends to smooth out some of the economic cycles that we typically experience. So for instance, now North America is quite strong. Asia is quite weak. Europe's somewhere in the middle. There's been times when that's been the opposite. So our geographic diversity really helps smooth out the different economic cycles around the world. By end markets, packaging was our first and paper were our first two. We diversified into the wood product side. But you now see that our biggest market, and it's actually our fastest growing market, is what we call general industrial. And you'll hear a lot about that today.
I think some of you will probably be surprised at how many industries we now serve with our products. We've really worked hard strategically in trying to take our products into new markets, industrial markets, and you'll hear a lot about that today. We do, as I mentioned earlier, report three segments. Our Flow Control Group, a little more than a third of our business, has our largest percentage of aftermarket. Obviously, aftermarket parts tend to be more predictable, more stable, and frankly, more profitable, and so that's always a key strategic focus of ours. The Flow Control Group, you'll hear, focuses a lot on saving energy, saving water consumption, chemical consumption. One of the things that you will see that's common among all of our groups is what we do is we try to help our customers produce more while consuming less.
Most of our customers are processing natural resources, so there's a strong sustainability play to that and a strong focus from our perspective on that. Next, you'll hear from the Material Handling Group. There, our products tend to support recycling, but also the processing of natural resources in the most efficient way possible. And then the third group's our Industrial Processing. That's where our paper recycling, our fiber recovery, our stock prep business resides. It's interesting. This year, there was more paper and packaging in the world made from recycled fiber than any other year since. So recycled fiber is continuing to grow and become a larger and larger part of the production of packaging and paper. We're very strong there, very large market share around the world there. You can see there about 62% of that is in parts consumables. The other business there is our wood processing.
Wood's been around forever. It was the original material used for housing, for fuel, for transportation long ago. It is Mother Nature's most sustainable crop. You'll hear from Michael Colwell on the benefits and the growth of the wood side. More and more products now are starting to gravitate towards wood. We've grown, obviously, over the last many years, but we also thought it was strategically important to diversify because we had such large market share in our initial markets. We knew we needed to move into some adjacent areas. And so we have moved into adjacent areas, and you'll hear about those three sectors in detail today. And just kind of quickly concluding, everything we do is focused on making sure that our customers are operating and operating as efficiently as possible. And as I mentioned, it's a very rugged environment.
You'll see that in some of the videos and some of the discussions you'll hear from some of our customers today, so making sure that we've got the parts where they need to be serving these people is very critical, and you can see that year to date, about two-thirds of our business is parts and services. That varies from low 60s% to high 60s%. But this year, we're running about two-thirds parts consumables, which is a very stabilizing part of our business, and with that, we'll start the presentations. There's supposed to be a video running here, and it's supposed to have an audio.
Huge solutions and technologies that enable sustainable Industrial Processing. We design and deliver products that help manufacturers maximize productivity and efficiency. Our products help industrial customers reduce waste and use fewer inputs, including fiber, energy, and water.
Our businesses are grouped into three segments: Flow Control, Material Handling, and Industrial Processing. Each segment features multiple product lines that serve a broad range of industrial markets. Kadant's Flow Control businesses provide products and services to key market sectors, including packaging, tissue, food, metals, and energy. Our Flow Control segment keeps these industries running with many essential product lines, including rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems. Kadant's Flow Control manufacturing facilities embrace lean manufacturing principles to optimize productivity. Our assemble-to-order process enables us to respond quickly to our customers while minimizing finished goods inventory. Our quick response and application expertise ensure we can provide the best solution possible. Our material handling products move and process materials for the aggregate, mining, food processing, recycling, and waste management industries.
Key product lines in this segment include conveying equipment, vibratory sorting equipment, and high-performance balers. Since the mid-1800s, we've helped customers reduce costs in processing and transporting bulk and discrete materials and in managing waste. Our products process, convey, and screen a variety of materials, delivering exceptional results under the toughest conditions. Our Industrial Processing segment serves cellulose fiber-based industries that produce packaging, tissue, and wood products. Our businesses enable manufacturers to process wood and recycled fibers by providing innovative products, including stranders, debarkers, chippers, fiber processing systems, and fiber recycling equipment. These products support customer needs for increased efficiency, reduced inputs, and reliability. Our Industrial Processing customers rely on us for highly efficient, energy-saving solutions and technologies. Our solutions help maximize yields of their fiber-based renewable products, all with fewer inputs. We are accelerating the digital transformation of industrial manufacturing.
Our illumenX digital platform combines products, data, and analytics to enhance productivity. From machine learning and data analytics to plant automation and AI, the illumenX platform helps optimize industrial processes across multiple systems and locations. At Kadant, sustainable Industrial Processing is at our core, helping to drive the factories of the future.
Good afternoon. My name is Wes Martz. I'm the Vice President of Flow Control Americas at Kadant. And I have the opportunity this afternoon to present to you about our Flow Control operating segment, as well as some more details about our fluid handling product line within this particular segment. I thought it'd be helpful to start out by explaining what makes up our Flow Control segment. There are two major product lines, what we call fluid handling and doctoring, cleaning, and filtration.
Both of these products are custom-engineered solutions that are applied in various industries in order to help facilitate heat transfer, to increase productivity, to transfer power and data, as well as a variety of other tasks within the industry. Each product line represents approximately 50% within the Flow Control segment. There are a number of key attributes that define the Flow Control segment. You'll see them listed on the slide screen here. One that I'm going to spend quite a bit of time talking about today is the end market diversification. It is one of the things that really differentiates the Flow Control segment from other segments within Kadant, is the high number of markets that we serve. The second thing that we have is a strong aftermarket component to our business. Now, this is something that you'll hear across all operating segments.
All operating segments at Kadant have a very strong aftermarket component. For the Flow Control group, it's nearly 70% of our total revenue is made up of aftermarket parts. The third thing that you'll see as far as a key attribute is our geographic expansion opportunities. This is particularly true with our newer acquisitions, where they might only be operating in a local region or a specific country. There's opportunities to utilize the Kadant global footprint to really expand that throughout the world. The fourth thing is our market drivers are really favorable toward Kadant in this particular segment, and I'd like to share a little bit more about that with this slide here. You'll see here there's five key market drivers listed, and these are consistent across Kadant. Those that are most relevant for the Flow Control group are the first two that are listed.
Decarbonization and the shift toward electrification is really creating new opportunities for the Flow Control operating segment. In this case, as companies work to reduce their greenhouse gases, to reduce various emissions, they're coming up with either new technologies or new needs, or they're seeking ways to really minimize their energy utilization. Kadant plays a very important role in that, and particularly within our Flow Control unit, where we help our customers in their decarbonization efforts. The second aspect that's listed here is disruptive technologies. In this case, as we see the constant movement toward adopting more automation, toward advanced robotics and AI in the workplace, growing connectivity within industrial processes, what we're finding are new opportunities for Kadant, and I'll share some of those with you as I go through the presentation today. With that, I'd like to jump into the fluid handling product line.
You'll see that there are three main product categories that we have for the fluid handling product line. We have standard rotary joints, and those are products that are used on very relatively simple applications, including for steam and water transfer between some rotating device and fixed piping. It's a critical element, but it's a relatively standard application. In the center, you'll see we have custom rotary unions, and those are specific to an application. Sometimes it's a very large application with a lot of opportunities, and other times it's more focused on a specific OEM or a customer need. But in this case, it could be different types of fluids, different types of media that's traveling through the rotary joint. The third one is precision rotary unions. In this case, we're usually solving a challenge with high temperature, high speed, or high pressure, or maybe all three.
In that case, a precision rotary union is deployed. I thought it'd be helpful to illustrate what a rotary joint does by sharing this. This is a steam rotary joint that's applied on a typical packaging machine. What you'll see is that the rotary joint is mounted to the end of a rotating dryer. Now, on a typical packaging machine, there's anywhere from 50-70 of these drying cylinders. Each one of them has a rotary joint. This allows the steam to pass through the rotating joint into the dryer in order to begin the drying process. If we take a little closer look at the rotary joint, we'll illustrate how the steam enters the dryer. So we'll cut this away. You'll see steam entering this rotating cylinder. As the steam enters the cylinder, it gives up its heat energy.
It then turns into condensate or condensed water. We have to remove that condensed water to allow the steam to continue to release its heat energy. So we do that through a siphon tube. The condensate exits through the rotary joint and is returned to the boiler room. This is a closed-loop system. In fact, it's a system we design. It's a system that allows for the reuse of the processed water and of the chemicals and other heating elements that were part of this to generate the steam. Inside the rotary joint, there's a number of patented or proprietary parts, and that's what makes up our aftermarket business. And this is the part that, as we continue to see these mechanical components need to be repaired, that makes up the significant aftermarket business for us. I thought I'd share a few more examples of a rotary joint.
This one here shows an illustration of a large rotary joint installed on a very large dryer that's used to produce corn-based ethanol. In this case, this is a 15-foot diameter dryer, about 100 feet long, and the rotary joint is used to put steam into this cylinder to help with the drying process of the corn that's used to eventually turn into ethanol fuel. In this example, this is a factory automation with a robot that's used to pick and sort packages. A rotary joint is installed on the end of the arm of this robotic tool in order to read the package and then place it in the correct location. In this application, this is in the defense sector where we have a radar cooling system.
The rotary joint is applied to the radar system itself as it is rotating to help keep the internal components cool so that it's fully operational. Finally, an example from the metals industry. This is a continuous casting machine that's used to produce steel billets. In this case, you can see the steel. It's that bright yellow or orange-colored material coming off this machine. It starts out as liquid metal, molten metal, and travels across approximately 300 rolls. Each of those rolls has a Kadant rotary union. That's designed to keep the bearings cool so that as the metal flows along this machine, the rolls keep moving to allow the whole process to, at the end, turn into a solid piece of steel. I mentioned a few industries. Here are a few more.
I'm not going to go into details of each one of these, but I did want to share with you the significance of Flow Control's activity across a number of different industries. I illustrated here four different segments or four different applications. Packaging being the first, it's also the largest, representing approximately 38% of our global revenue within Flow Control. The other industries represent certain portions. And I'll go through a little more detail, but some use a lot of our product. Some use fewer. But in any case, there's a broad diversification across these segments. If we take a look at Kadant's position in each of these segments, what you'll find is that in most of these, we're either number one or number two.
That's a great place to be, especially when you're selling a premium product designed for usually a pretty challenging application where there's very high expectations on performance. And that's Kadant's sweet spot. We're a demanding application in a really challenging environment. What you'll see here on this chart also is the size and growth leading to what we believe is the opportunity for us in a specific marketplace. There's four markets in particular that we believe have some higher growth relative to the others. They're highlighted here in the bold face, but industry segments such as energy. And in energy, we span the realm from traditional energy source to transitional to renewables. Each of those segments uses Kadant's Flow Control products. In other cases, defense and aerospace, where there's a general tendency to it's very difficult and sometimes time-consuming to go through the prototyping stage and the testing and qualification.
But once you're in the program, it's generally a five to seven-year process as that program continues through. And we are extremely well-positioned to continue to grow in that particular segment. Construction and factory automation are two other areas that we believe are higher growth and areas that we are very well-positioned as well to capture that growth as the market continues to develop. Next, I'd like to run through just a few examples as I wrap up the fluid handling product line discussion about where we've seen customer-driven innovations that have allowed us to continue to grow and to find new opportunities in areas that, frankly, didn't exist even 10 years ago. The first one is in the medical industry. Here we have an image-guided radiation therapy where a rotary joint is used inside the gantry of this large machine, and it's used for radiation treatment for cancer patients.
So as the patient is moved into the radiation machine, our rotary joint allows the laser to be actuated in order to allow a very specific, highly targeted treatment. It's one that needs high reliability as well as certain other performance parameters that make this a great challenge and a great opportunity for Kadant. We're doing quite well in that particular segment. On the defense side, this is an application of a mine roller, a very challenging application in that there's a lot of stresses on the rotary joint that goes into this particular piece of equipment. And we've been able to design a product and have it not only tested but put into service, frankly, resulting in improved safety as well as accuracy when it's out in the field.
In the third case, this end-of-arm tool that was used, the customer came to us and said, "We have a need to simplify our vision system within the robot." The whole idea was to try to eliminate these hoses that were blocking the camera's view in order to scan the address information and other details about the package so that it could be quickly moved to the right place for sorting and then eventually fulfillment. In this case, we designed a product that eliminated the need for hoses, integrated a slip ring, which allowed data to be transferred from the robot's vision system back to their control system, and really allowed them to improve their productivity. In this last example, this is an example using our illumenX digital platform, specifically in the packaging industry.
In this case, we were asked to develop a way to alert the operator of some type of issue that was going on within the plant with all of the plant assets, so we monitor set points. There's a certain range when something would go either above or below. An alert is sent to the operators, and not only is it an alert, but then there's a diagnosis that says, "This is the problem," and then some suggestions on how to fix that particular problem. It was a huge success from the perspective that many of our customers today are struggling with keeping labor. There's labor shortages. There's challenges with finding people who want to do the work that they need to have done.
And this tool allowed them to kind of skill up their operators so that they didn't have to be experts in everything, but they had to know enough on what to do and where to go when they received the specific alert. With that, I'd like to hand the presentation over to Bilal Mehmood, who will go into the doctoring cleaning filtration product line.
Good afternoon, everybody. I'm excited to talk to you about the doctoring cleaning filtration product line that belongs in the flow control sector. A little bit of history. The business and the product line I'm here talking to you about has a unique story. It's actually where the genesis of Kadant started. It was one of the first acquisitions that Thermo made back in the 1960s. And as you heard earlier and you'll hear later on, it's about a 100-year-old business, stable business. It's been around.
A lot of the industry best practices, the products, and the standards that are in this product line space were set up by the DCF product line businesses across the globe. In the industry parlance of DCF, I want to make sure I explain that to you all. D stands for doctoring, cleaning, and filtration. These are products that are used in any continuous process in a variety of industries. Of course, our start in this product line was in the paper industry. Well, since then, we've taken a lot of these products across multiple industry spaces. And as mentioned earlier, the diversification of the flow control segment also is within the DCF product line. There's a variety of markets that we serve across the globe. I'll be only talking to you about three of these examples today. But as you can see, the application of our products is varied.
Some of these industries that we serve, much like in the fluid handling sector product line, we also are number one. We are either number one or number two, and a lot of these markets that we serve represent huge growth potential for Kadant's businesses going further. Just to get everybody acclimated to the concept of doctoring, the best analogy I can give you is a giant razor blade. It's a device and a system that's used to scrape either debris or an actual product that is being made in the continuous process. Doctoring is used in some cases to make the actual product or, in some cases, condition the roll surfaces or clean the roll surfaces mechanically to make sure that the process and the end product are not contaminated, and this concept of doctoring is applied, as I mentioned, across a variety of industries.
Our genesis was in the paper industry, but it has since moved on to across many different industries. The visual here that you saw was a removal and insertion of a blade. And that represents one of the largest consumable products that Kadant sells globally. We are the number one blade supplier, as it's called, in the doctoring space across the entire globe. And that represents a majority of our consumable business in the DCF product line. The first example I'd like to talk to you about, again, is true to our roots. It's in the paper market. But the two areas that have significant growth trajectories in the paper market are tissue and packaging. Within the tissue industry, if you are consuming a tissue product in your day-to-day life, there's a 99+% chance that that product was made using Kadant equipment.
There isn't a tissue machine in the world that does not have the Kadant products installed that actually make the end product. So whether it's a bathroom tissue, whether it's facial tissue, or whether it's paper towels or napkins, the actual blade material is what creates that characteristic of that tissue. And Kadant's equipment is basically the industry standard across a variety of tissue machines. The other innovation that we presented in this space over the last many decades is the type of blade material that's used. The conventional blade materials are typically carbon steel, low-end commodity type of material. But Kadant has innovated in this space with bi-metal and ceramic blades. And that, again, represents a significant payback for our customers, up to $1 million in savings if a customer switches to Kadant's blade materials.
What you also see in the picture there is the world's largest creping doctor system. That's about 25,000 lbs, about 6 ft tall, on 6-inch bearings and journals. It's installed at one of the largest tissue producers in the world on the West Coast of the U.S. So in terms of scale, keep that in mind because that's on one end of the scale. And if we talk about other applications, for example, like food, which is also where we supply doctoring equipment, again, if you're consuming any type of candy, snack, whether it be Cheez-Its, there's a good chance that that's made using Kadant equipment as well. And in this particular case, the quality of our products has to be certified through the HACCP certification, which means we are an approved supplier to the food industry. Food safety is, of course, critical.
And again, using our equipment in comparison to what the customers may get from the OEMs, typically our equipment, which is an aftermarket install, will lead to anywhere from 12% and higher in terms of production increase. In this example, as you can see, it's being used to scrape off chocolate as well as starch in the bottom-up example down there. This next example talks about our key market of nonwovens, which we address through our cleaning conditioning product line. This market is a significant growth for DCF product line because it addresses significant needs for our customers that revolve around sustainability, which is consumption of fresh water that is used in the non-woven process. By applying traditional methods, customers would end up spraying a large amount of water into the process. And the process actually requires removal of water through.
However, water is used to clean the fabrics that are used in making the non-wovens product. Kadant's innovation of what's called a single jet traversing shower applies localized water to clean the fabric surface, as can be seen in this video, and with the application of high-pressure water that is both safe for the fabric as well as the ability to clean any localized space, we're able to reduce water consumption by up to 95%. This is a significant savings both from a cost perspective but also from a sustainability impact, and again, the process equipment that's used by applying this kind of technology, the span of those fabrics, which can be in the tens of thousands of dollars, can sometimes be improved by a factor of four, so there's significant payback when Kadant equipment is utilized in this application.
The last key market I'd like to talk to you about is in the molded fiber space. As we're all aware, single-use packaging of plastic and other non-renewables is making its way towards use of molded fiber. A lot of these processes require reuse of process water. So again, reduction of use of fresh water in these applications and also returning a lot of the most expensive input into this process, which is the fiber itself, the ability for our equipment to not only filter the water but also remove and collect that fiber and return it to the customer for reuse in the process. We have a large install base of filtration equipment all across the world. We estimate close to 1.2 billion gallons of water that are filtered today, leading to about $500 million of energy savings.
Those energy savings are derived from not having to reheat fresh water to process temperatures to be able to use. So when you can reuse and filter current process water, you end up having that savings in energy. And lastly, as I mentioned, Kadant has, across all of our product lines, and has a history of innovation on the product space. Another area that we're putting a lot of resources is innovation on the service space. With our use of our illumenX and other digital technologies, we have an umbrella of products named under the K-Connect series that allow real-time information in terms of inventory tracking for a consumable product that can have a significant impact on the customer's profitability. These blades that we talked about earlier can range anywhere from a few hundred dollars to several thousand dollars.
Yet they're used in machines and processes that would cost on the upwards of tens of thousands of dollars per hour, so a lack of a blade material for a unique process at any given time can cause significant downtime for the customer. The ability to have traceability, real-time inventory on the floor, and the ability for the customer to have product delivered without having to initiate purchase orders is a unique feature that you provide with our K-Connect series of products, and with that, I'll close by reminding everybody that we have highly diversified markets, and the drivers that we've previously discussed have a significant positive impact in our growth trajectory. The DCF product line, being the original product line, has a tremendously wide geographic presence across the world. We serve every single market across the world through our many distribution and manufacturing locations in every continent.
The DCF product line is manufactured and supplied locally in a lot of the markets in the world. And as mentioned earlier, also, the blade business represents one of our largest consumable aftermarket businesses in the flow control sector. So with that, I'll hand it over to Chad Greenfield, who will talk about the material handling sector.
Good afternoon. My name is Chad Greenfield, and I'm the commercial director for Syntron Material Handling. I'm excited to be able to join you today to talk a little bit about Kadant and our material handling sector, so to begin, I want to talk a little bit about some of the key attributes as they apply to the material handling sector, so first, our products are process-critical to our customers, and many of our customers are in infrastructure-critical end markets, so those are markets like steel, cement, and aggregate, and so we have steady demand that's driven due to the importance of our equipment to those processes, but in addition to seeing steady demand from our customers in those infrastructure-critical end markets, we also see steady demand and growth opportunities from the markets actually growing themselves, and so those markets are growing to try to keep up with growing demand.
And then the increase in sustainability initiatives is also driving significant growth opportunities, especially in our baler product lines, which Craig will speak to a little bit later here in just a few minutes. And then a common theme that you've already started to hear and you'll hear throughout the day is that Kadant enjoys a strong global market share, and our businesses enjoy a strong aftermarket component that drives steady demand. So there are several favorable market trends driving demand in the material handling sector, primarily the increase in urbanization, the aging infrastructure that we see across the country, and the introduction of new and disruptive technologies. So population growth is driving demand for new and upgraded infrastructure. And that's led to the passage of several bills at the federal level over the last couple of years.
Bills like the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law have driven trillions of dollars into infrastructure advancement projects. And so those dollars have led our customers to initiate projects to prepare for and spend capital to prepare for the increased demand that they're going to see. But population growth isn't only driving demand in those infrastructure markets. It's also driving the need for greater food production. And so this growth has led our food and packaging customers to have to make the same types of plans and investments so that they can have their facilities ready to meet upcoming demands as well. And then lastly, we're going to discuss several new technologies that are disrupting the market and how we see those playing out in the future.
So the material handling product lines can be divided really into two product groups. We have our conveying and our vibratory feeding products. And those consist of about 55% of the revenue of this sector. And then we also have our baling product group. And so I have the opportunity to speak to you just a little bit more about our conveying and our vibratory feeding product line before I hand it over to Craig to talk about balers. So our products have a wide variety of uses. And they're designed to handle everything from heavy-duty rock and minerals to some of the most fragile products, so things like fruits, potato chips, medications. And so on the top row there, you'll see many of the raw materials that we help handle. And then on the bottom row, you'll see what some of those raw materials are eventually turned into.
But if you look at that top row, you have some of the materials like aggregates and cement, steel, copper, sand, and gravel. All of those markets play a significant role in everything that we touch on a day-to-day basis. They're used in. Some of those things are fairly obvious, but they're used to build roads and bridges and tunnels, our sewer systems. But they're also used for things that you might not think of, so things like our telecommunication systems or even consumer electronics, the computers and the cell phones that we use every day. To maintain our standard of living, each person in the U.S. requires over 40,000 pounds of minerals every day. So that includes over 10,000 pounds of stone, over 7,000 pounds of sand and gravel, and almost 1,000 pounds of cement.
And for every dollar of sales of one of those products, it drives roughly $4 of sales in other industries. But our products aren't, again, just infrastructure-related. Our products are also used in the agriculture and the pharmaceutical industry. So in agriculture, our products handle things like nuts and fruits and berries. But they're also used in the creation of other products, so things like fertilizers. And in the pharmaceutical industry, our products are used to help in the creation of medications and then ultimately into the packaging of those medications for consumer use. So we provide three major types of solutions with our products. We provide solutions for the conveying, the screening, and the vibratory feeding of bulk materials. And in most cases, those materials are in raw or unfinished good form. So the products that we convey, screen, and feed, as I mentioned earlier, have varied significantly.
But ultimately, the solutions that we provide allow our customers in these numerous and diverse industries to move their materials and their products through their facility so that they can process them for their ultimate end use. So when it comes to our conveying products, our companies manufacture three primary types of products. We have conveyor idlers, conveyor belt trackers, and screw conveyors, which you can see on the screen here. A screw conveyor conveys raw material from one place to another with a large spinning screw. Conveyor idlers are used to support a conveyor belt so that the conveyor belt can actually move product from one place to another. And then conveyor belt trackers are used to keep the conveyor belt where it's supposed to go. Conveyor belts have a really nasty habit of wanting to get off track.
And when they do that, they can become inefficient, and they can even cause safety risk. And so conveyor belt trackers sense where that conveyor belt is and provide course correction so that we can get that conveyor belt back where it's needed. Our products are trusted around the world by some of the world's largest mineral producers. And we've been producing a lot of these products since as early as the 1880s. But we're not just producing products that we have been producing for over 100 years. We're also pushing forward, and we're continuing to incorporate new technology into our products. And so, for example, in conveying, we're now incorporating new technology into our idler rolls that allows for 24/7 monitoring of these rolls. And that increases safety. It decreases downtime.
But it also provides a solution to our customers that have some of the labor issues that are becoming so prominent. Vibratory screens come in all shapes and sizes. So we have large screens that are often used in quarries and mines to size material. So many of our customers sell their material based on the size of the material. And so they use these screens to size the material but also to skim off material that needs to be reprocessed for efficiency's sake. When we get to food and packaging customers, they often use small screens. And they can use it to screen out material that's unwanted, so maybe things like leaves or twigs or dirt or maybe even defective product that we want to make sure it doesn't get into a bag and get sold. But they're also used for processes like seasoning processes.
As a product is going through a seasoning process, these screens will filter and collect the seasoning that doesn't attach to the product so that it can be reprocessed and used again. With all of our products, we are working to add wireless monitoring solutions. Our wireless monitoring solutions allow our customers to monitor the health and the production status of our screens. We monitor things like bearings and take metrics on things like temperature and vibration so that we can warn of potential issues before they happen and allows us to prevent unscheduled downtime. Our last product group is our vibratory feeders. We invented the electromagnetic feeder technology almost 100 years ago. We've been a leader in the industry ever since. Our feeders are used in a wide variety of industries and applications, like I've mentioned already.
But feeders are used a little bit differently than screens and conveyors. Feeders are used to efficiently and accurately feed other machines and processes. So, for example, a feeder might be commonly used to feed a crusher to size material. And it might be used to load a conveyor belt in a mine or quarry. But they're also used to meter and mix products such as you see here, like the ingredients that go into a trail mix. Or they might be used to put the Cheetos into the bag before it's sealed and sold. Or they might be used to put the two scoops of raisins in your Raisin Bran. And so, like our vibratory screens, we also have the ability to monitor the health of our feeders 24/7 with our wireless monitoring solutions. So I've mentioned wireless monitoring solutions several times.
That is one of the innovations that we're really excited about, what it's going to allow us to do. But our wireless monitoring solutions, much like the illumenX platform that we've discussed already, our asset performance monitoring ultimately allows us to provide customers with alerts of operational anomalies, potential failures before they happen so that we can, one, help them be more efficient, two, prevent unplanned downtime, and three, ultimately help them have a safer production. And so our users see increased production and decreased unplanned downtime, which ultimately saves them money. And then another innovative product that we're really excited about the future for is our Smart Idler. So traditional conveyor systems often suffer from roller failure. It's a primary cause of downtime. 50% of unscheduled conveyor downtimes from bulk material are due to roller failure.
Even just a seemingly small issue with a roller can potentially lead to a catastrophic failure and significant downtime for our customers. The downtime opportunity costs for our customers range from $100,000-$500,000 an hour when they're down. Anything that we can do to help them prevent that downtime is incredibly beneficial to them. Ultimately, what our technology does is, through the 24/7 wireless monitoring solutions, we're able to give them a heads-up days, weeks, sometimes even months before an issue may arise, which allows us to give them predictive insights so that they can have proactive maintenance so that they can run more efficiently, but ultimately so that they can also run safer. One example of where we have employed this technology is in the Dune Express project with Atlas Energy Solutions.
The Dune Express project is the largest or, excuse me, is the longest conveyor in the Western Hemisphere. It's a little bit over 42 mi long. It runs in West Texas into Eastern New Mexico. And it is one of the most technologically advanced conveyors in the world. And that's primarily due to the technology in our Smart Idler. But our Smart Idler and this project doesn't just have an impact for Atlas Sand and their production. It also is going to have a major impact on the community surrounding it because it's going to reduce emissions and road traffic by up to an estimated 70%. So in the Permian Basin, you're six times more likely to die in an automobile-related accident than anywhere else in the state due to the amount of traffic from oilfield-related business.
This automated conveyor system is going to reduce that road traffic by up to 70%. We believe it's going to take 100,000 trucks off the road every year. That just simply would not be possible without our Smart Idler technology. Given the scale of this project, traditional manual inspection methods just are not feasible. Having an individual walk the conveyor or even drive a truck along the conveyor is just not feasible due to the length of the conveyor. The introduction of our Smart Idler technology offers them some unparalleled advantages where they can wirelessly and remotely monitor the health of this entire conveyor from an office hundreds of miles away and have the insight to be able to prevent issues before they happen.
To wrap up, I just want to share this graphic because I think it does a wonderful job of highlighting many of the products that we help get into your home. Whether it's the road that you drive on to get to your home or the foundation that your home sits on or the wires in the wall or the food on your table, the electronics that sit in your house, or even the medications in your medicine cabinet, Kadant Material Handling Sector plays a pivotal role in getting those products from the manufacturer to your home. We're incredibly proud of all that we do to improve people's lives, and I'm incredibly proud to be a part of the Kadant team. I really appreciate your time. Thank you very much. I'd like to introduce Craig Heley.
Good afternoon. My name's Craig Heley.
I'm the President of the Kadant PAAL Group Companies. And I'm going to talk to you about the baler product range. The most effective way to increase recycling is to make the process as efficient and as financially attractive as possible. The job of the baler is to transform light and bulky material that is the typical material of a recyclable product into dense, heavy blocks that can then be efficiently and cost-effectively handled, stored, and most importantly, transported by our customers. When it comes to baling, there isn't a one-size-fits-all solution. Different applications, different materials require different types of baler, and in some cases, different types of pretreatment. Being able to satisfy a customer is absolutely critical. And so by offering the largest range of balers, this secures Kadant's position as the number one provider in the market.
This animation shows PET bottles, plastic bottles, going through a perforator prior to being baled. This is actually an excellent example of the way that balers transform that light and bulky material because in a single bale, which may be 1.5 cubic yards, not meters, cubic yards, then there could be upwards of 15,000 bottles. Balers are structurally very solid. They operate in demanding environments, processing abrasive material. And typically, they will be working for well over 10 years. And so during that period, there is a continual requirement for spare parts and wear parts. Any industry that needs to handle, store, and transport light and bulky material needs to consider some kind of compaction equipment. When volumes increase and become significant, then auto tie balers are definitely the most cost-effective solution. In some applications, the bale itself is the product that our customer sells.
This is the case in a material recycling facility or MRF. This type of large MRF is actually a very complex and surprisingly sophisticated operation. There's a continuous inflow of material that needs to go through several processes while it's being sorted into different material types and material grades. In a MRF, the baler is the final step in the process. This means that if the baler doesn't operate, the whole plant stops and the material backs up frighteningly quickly. Such an occurrence costs the customer a huge amount in terms of downtime. This obviously means that the customer is committed to keep the baler operating and is willing to invest in the spare parts and service support that's required to do that. In other applications, the baler may actually be processing a secondary material.
For example, in a box plant, the baler will process the offcuts from the primary production line. But even in such a facility, if the baler doesn't operate, then this will actually eventually cause the primary production line to block and stop. And again, it becomes incredibly costly and disruptive for our customers. So again, there is the opportunity to invest in spare parts and service to prevent that from happening. Some applications, the baler operates with a single type of material such as the box plant. But a MRF, Material Recovery Facility, processes a broad range of recyclable products. And so a single baler needs to be able to process and provide excellent results with a wide range of material. And this is actually one of the, I would say, the key technical sales features that help to distinguish us from most of the competition.
In addition to the baling of recyclable material, Kadant also offers balers that can bale waste. And if you combine it with a wrapping system, it provides a very clean and hygienic alternative to the classic landfill. We can bale refuse-derived fuel, which goes to waste energy applications. And we can also bale a range of agricultural products. And it's also worth emphasizing that in addition to this wide sector spread, we also are very active in all of the main geographical markets across the world. As we've seen, balers are a critical part of our customer's operations. And so when we manufacture a baler, we have to be sure that we are providing the highest repeatable quality. And this means investment in the latest technology. To guarantee the structural integrity of a baler, a lot of welding is required. A large baler may involve maybe 1,000 foot of welding.
Welding robots are really critical to that quality of the process. Kadant has invested in three such large welding robots across facilities. This investment in automation has helped the Kadant baler line to become the world leader. We manufacture around five balers a week. We offer the shortest lead times in the market. Part of the sustainability narrative concerns traceability. How does a customer, a producer, a consumer really know what happens to the material that enters the recycling stream? Bale ID offers a patented solution that automatically and securely attaches a label to a bale. This provides the opportunity to then link information with a specific bale. This could be the material composition, the bale weight, the location, the dates. This provides a lot of very, very valuable information.
And then this information can be shared by our customers with their customers. And so by doing this, this really helps close the loop in terms of traceability as to what's happening to the material. Bale ID provides data about the bale, whereas our illumenX platform provides data about the baler, which can be accessed remotely. There are several elements to this, but all are designed to help our customers to manage their operations more efficiently, more effectively. The Connex provides basic production data, which we will see on the next slide. Analytics monitors performance against prescribed targets. And then you can provide notifications if the performance levels fall outside of the agreed ranges. Predix will monitor lots of machine performance indicators and will give a warning as to when parts will need to be replaced.
Finally, our web shop is our online shop, which will provide a quick and easy way for our customers to react to the information they are gaining from the other tools. This is an example of the Connex dashboard. The user can see what's happening at any given moment, or you can put in a prescribed time period. In this case, in very, very small letters, it's between 12:00 A.M. on a Sunday up to 6:00 A.M. on a Monday. This then provides basic production data, how long the baler was available, the number of bales that were made by the different grades, whether there were any bad or scrapped bales, etc. Also accessible via the illumenX platform is our web shop, which is our online parts ordering system.
Each customer is given access to an exploded drawing of their specific baler, and they can then drill down, drill down until they find the part or parts that they want to order. They place it in a basket, and the order appears at the factory. So very similar, very, very similar to an Amazon-type experience. Finally, in terms of the key takeaways, the companies comprising the Kadant Material Handling Division are subject to different market growth drivers. Some will benefit from the planned investment in upgrading the country's infrastructure, and others will benefit from the huge commercial and political pressures linked to the sustainability agenda and particularly linked to the drive to increase recycling rates. Kadant is in a prime position to take advantage of these market growth drivers, has a very strong global presence supported by established and trusted brands.
Our large customers are growing, and their operations are becoming increasingly lean and efficient, so this means they cannot risk costly and disruptive downtime, so this means that they will be looking to partner with trusted high-quality suppliers such as Kadant, and they will be looking to partner with Kadant for the lifetime, the economic lifetime of their equipment, so long-term market growth will occur, and with Kadant's continued commitment to invest in automation and innovation, Kadant is uniquely positioned to capitalize on the opportunities that will arise. Thank you.
Thanks, Craig. Hello, everyone. My name is Michael Colwell. Pardon me. I'm the Senior Vice President for our Industrial Processing sector. It's my privilege to introduce that sector to you today. Industrial processing is sort of two groups. It includes our wood companies, which I'll talk about, and the fiber processing companies that my colleague Chris will introduce shortly. Jeff mentioned that Industrial Processing contributed about 37% of the revenue to Kadant in 2023, and that was split about 60/40 in the sector, with wood being 60% and the fiber processing 40%. The equipment we sell into this sector, similar to the other equipment you've heard about today, plays key roles in the production of the fiber-based products that you see every day. You can't walk past the construction site or through a Home Depot or a furniture store without seeing something that Kadant wood companies touched.
In a similar way, you've probably already touched something today that our fiber processing companies help to make. From paper cups to paper napkins to cardboard and facial tissues, our fiber processing companies help make products you use every day and recycle those things when you're done with them. We're the world leader in both segments with more than 100 years of market leadership. There we go. Why is Kadant so important to this market? It starts with the outsized impact that our equipment has on our customers' processes. Kadant equipment is usually found at the first stage of that process, and it's critical to get that right. Our equipment is in contact with wood and fiber all day long. In the long run, fiber beats steel. Service and replacement parts are very important to their operations.
As you heard Jeff say, more than 60% of our revenue comes from that revenue from the parts and service we provide. We're dominant in our markets with industry-leading brands and have thousands of installations which drive that repetitive parts and service revenue. Fiber has a very bright future, as you'll hear from Chris and me. So for Kadant and our investors, the end markets we serve have very attractive characteristics. Start with wood frame construction. Wood frame construction is gaining adoption worldwide. In addition to the environmental benefits of using wood, it also performs better. In Japan, for example, wood frame buildings have withstood earthquakes better than brick and concrete. And it's easier to heat and cool wood structures. Talking a bit about homes, there's a global shortage of housing units. Here in the U.S., we are several million homes short of our demand.
Population growth means that demand is only going to increase. We have here a snapshot of the U.S. housing start data from the last while from 1984 up until the Great Financial Crisis in 2008. You can see that since that time, we have significantly underbuilt the demand for houses, which leaves us with a big opportunity for housing here in the U.S. In fact, a shortage of housing is a feature you find in most Western economies. Moving from housing to commercial construction, the advent of mass timber means that wood will replace steel and concrete in many applications. I'll have more to say about that shortly. In a similar way, over on our fiber processing side, fiber is set to replace plastic, foam, and aluminum in a wide variety of applications, particularly in single-use items like in food service.
And if you think about the demand that's been driven for cardboard by the advent of e-commerce, you can see there's a bright future. In both cases, those are entirely sustainable products that Kadant can help create and recreate as time goes by. All this growth means that fiber is becoming more scarce and more valuable. And our customers have to get more from every tree and recover more fiber from waste. Kadant plays a key role in both those activities. Fiber is now seen as an entirely renewable resource, one that can be managed to provide economic and social benefits. You've heard it probably said that money doesn't grow on trees, and we say that's right. We believe money grows as trees. So I'll jump in and talk to you a little bit about our wood sector. Start with a question.
Have you ever seen a machine that's 100% solar powered, removes carbon dioxide from the air, converts it to a strong sustainable building product, and releases pure oxygen as the byproduct? The answer is you have. We call them trees. We all know that wood comes from trees, but let's talk about how you get from a tree to a product and how Kadant is involved. Kadant wood processing equipment plays key roles in the efficient manufacture of many of the wood products you see. Most important, we help our customers keep those running 24/7 in some of the harshest environments you can imagine. Kadant owns several of the world's leading equipment and technology companies, and we're global. You'll find Kadant on six continents, and everywhere you find one of our machines, you'll usually find it's the first thing a log touches when it gets to the mill.
Why does that matter? Because if you make a mistake at the beginning, it cannot be fixed downstream. So that $300 million OSB mill needs the Kadant debarkers and Kadant stranders at the front end to do their job every time, or the mill won't be profitable. So what do we do? Start with our debarking companies. Together, Kadant with our debarking companies supply 80% of the high-speed ring debarkers globally. Debarkers matter because the first thing you do with a log, no matter what you're going to make from it, is take off the bark. That has to be done perfectly. If you leave bark on the log, you reduce the value of the end product and create maintenance headaches at the mill. And if you overdo it, you waste valuable fiber. So the debarker, you saw the little video at the beginning.
In a debarker, a log enters an array of spinning arms that have carbide tips that break through the bark layer down to the surface of the log and peel that away, and the bark isn't wasted. It goes into commercial applications, everything from energy to power the mill to the bark mulch you spread around the trees in your garden. Next, our engineered wood stranders. Here, we also have an 80% market share in OSB globally. A strander is used to slice a log into thin strips the size of business cards. A specially engineered Kadant feeder stacks a batch of logs and pushes them into a cutting zone, where an eight-ton ring spinning at 400 RPM and fitted with 48 razor-sharp knives reduces those to strands. A strander shoots through wood quickly.
If you think about that 40-foot trailer of logs you see being pulled down the highway, well, we would debark that in about five minutes and turn it to business cards in about 15. Kadant also produces the chippers you'd find in sawmills, pellet mills, pulp mills, and chip plants, where they reduce raw material into small chunks that are used to make pulp, pressed into pellets for energy, or into diverse applications like animal bedding or the safety surfaces in playgrounds. A chipper has a flat disk on the front that carries between six and 12 knives that spins at about 250 RPM. As the material moves along a conveyor into it, that spinning disk has the knives fracture it and break the wood up into small chunks called chips.
The most common application you'll find for these is wastewood chippers, where in a sawmill, leftover pieces that can't really be sold for anything else are reduced into chips that provide another revenue stream for the mill and make sure that no part of the log is wasted. Finally, I'll talk about our knife systems. Kadant manufactures knife systems that are used in all of these machines. Knife technology has advanced significantly in the past 30 years. 30 years ago, mills would employ technicians and make capital investment in grinding machines to sharpen large, heavy knives that they would clamp into their machines. Handling these razor-sharp knives was somewhat dangerous and required highly skilled tradespeople to do that installation and the grinding.
In the same way that disposable razors have revolutionized home shaving, and I don't think any of us sharpened a razor before we shaved this morning, Kadant has invented disposable knife systems that revolutionized the processes at the mill. So our customers no longer have to train those technicians or buy that equipment to sharpen knives. They can simply buy knives from Kadant. Our customers like them because they're safer, they produce better product, they last longer, and we like them because they're unique to us. Some of them are patented. And once you install those Kadant systems on your machine, you have to buy your knives from us. And our customers go through knives quickly. Some knives have to be replaced in as few as eight hours. So now that you've heard a little bit about our products, let's look at one other operation.
Here's one of our customers to tell you about our debarkers.
Debarking a log is the very beginning of the process and arguably one of the most important. My name is Al Blakey. I'm the maintenance manager here at Coastland. The Nicholson debarker is as elegant as you can be with debarking a log. It's a very violent machine, typically. It has to be robust equipment. Our primary objective is to improve the recovery of fiber going through. The less damage, the better. A nick in the outside of that log affects our bottom line. It's not an exciting, glamorous piece of equipment. It's not really enjoyable to watch. It takes the bark off a log, but it runs seven days a week, 24 hours a day.
Okay, so once a log is debarked, what do you do with it? Well, Kadant customers use our equipment to make many of the wood products you know, and some you may not. Start with OSB and plywood. If you've seen a house being constructed, you've seen the panels on the outside of the house or in the floor. That's typically where OSB and plywood end up, in addition to some packaging and some concrete forms. We help make medium-density fiberboard or MDF and particleboard, which you'll find in kitchen cabinets, in furniture, and the molding that goes around your house. The byproducts of the manufacturing, bark mulch and wood chips, end up going to several uses. Sometimes they're burned at the mill to provide energy. Sometimes they can be packaged up for residential purposes. I'm sure many of us have put bark mulch around our gardens.
The wood chips are used in a variety of industries, from pulp and paper to energy. Dimensional lumber, you'll see being used all over the place, from the framing you see to your house to the oak barrels that help age your bourbon and wine to hockey sticks for your kids to play with. Lots of applications for dimensional lumber. But the one I want to talk a little bit more about today is mass timber. Mass timber is kind of the most exciting opportunity that we see lying ahead for wood. Mass timber is going to replace concrete and steel in many of the construction applications that you see. Think of mass timber as a whole bunch of two-by-fours glued together into a big block.
Some of those blocks end up being the size of a tennis court, and they're lifted by cranes into place to build buildings. The tallest building today, made entirely of wood, is in Milwaukee, Wisconsin, 25 stories. And next to it, they're building a 55-story building that will be entirely made of wood, even down to the elevator shaft. It's a carbon capture and storage solution like no other, and it's coming to a high rise near you. And added to the benefits of all that is that people, we find, love the look, smell, and even the feel of real wood in their home environments. When you put it all together, the average home contains more than 20 different types of wood products, all of which were touched at some point by Kadant in their manufacture. So we've mentioned that we're dominant.
We stay ahead of our competition by innovating all the time. And I want to talk to you about a few of the innovations we're bringing to the market to keep ourselves ahead of our competitors. The first one is our VFR, or Variable Flare Reducer. This machine helps increase fiber recovery and lowers the cost of lumber. Now, when nature grows a tree, it flares at the bottom where it goes into the ground, and that flare makes it difficult to handle in a high-speed sawing operation. Our VFR solves that problem. When the logs arrive at the mill, as you can see, they get scanned. An optical sensor scans them to figure out how large the butt of the log is and sends the information to the software that the mill will use to decide what to do about that log.
Knowing the location of the flare start and the size of the flare, a solution is sent that allows us to open the jaws of the VFR, as you see opening up there, and cut the log to the size it's needed so that it can be moved through the process quickly once the VFR is complete. That allows the mills to operate faster and get more yield from the logs. Second, our disposable knives. In the battle between wood and steel, wood wins in the long run. We work hard to design equipment that has long operational life and easy-to-replace parts. A key to our success was the creation of disposable knives, which we started back in the 1980s. Recently, Kadant has introduced a patented combination knife called the ISK, or integrated scoring knife, that's used in OSB.
It cuts OSB strands more accurately and efficiently and with less waste than re-sharpened knives or than even our first generation of disposable knives. We've revolutionized the way that mills source and use knives and created great stickiness with our customers. These knives are patent-protected, proprietary, and once you install the Kadant system, you have no choice but to come back and use our knives to operate. Finally, I'd like to talk about a new vision and IIoT system called Argus. We're happy to say it won the Innovation of the Year award at the American Panelboard Association just a couple of months ago. Our Argus system combines custom cameras, our illumenX data system, and PLC software to help our customers increase production, use less energy, and lower the labor costs at their OSB mill. Argus makes sure of two things.
On the load side, what you see happening here, we ensure that the machine gets the maximum amount of wood into the cutting chamber. The more you load a machine, obviously, the more strands you'll make, but also the better quality you'll have because logs that are held together tightly cut better. Then, on the outfeed of the strander, as you see the ring cutting through, the strands drop down onto an outfeed conveyor, and we use a high-speed camera to measure the relationship between the large strands, which they want, and the small ones it finds that they don't want. It's important to keep that ratio below about 20% to make efficient use of the strander and to have a productive mill. And we're able to give our customers direct feedback in real time as to what's happening with their strander.
In closing, I thought it would be useful to hear from one more of our customers about why Kadant is a key to their success. So here's what the RoyOMartin Company from Louisiana says about Kadant.
One word I would use to describe Kadant Carmanah is easy.
I'm Terry Secrest. I am the Executive Vice President of manufacturing and sales here at RoyOMartin. We manufacture OSB, plywood, and timbers. We have three of the largest and best panel-producing mills in the industry. Kadant Carmanah is a primary partner of ours that provides all of our stranding equipment at our two OSB facilities. Our relationship goes back very far back to our LeMoyen facility, where we had disc-style stranders. Today, we employ all ring-style stranders, and we're starting up two new ones with our Corrigan expansion.
Kadant Carmanah brings a reliability factor to the table that we have not found in any other equipment manufacturers. Without using Kadant Carmanah equipment, I don't know that we would have been able to achieve the production results that we have over the years.
Now, I'll turn it over to Chris to talk about our fiber processing.
Hello. I'm Chris Demler, President and a 28-year veteran of Kadant Black Clawson, and I'd like to introduce you to our fiber processing business. Kadant Fiberline designs custom systems and machinery for the global pulp and paper industry. Pulp and paper, as you know, is a capital-intensive industry with stable growth globally. Paper, packaging, tissue, and similar products are made of virgin and recycled fibers. We're specialists in both the virgin and recycled businesses, with recycling being our biggest group. Interestingly, the global production of recycled paperboard exceeded that of virgin fiber the first time last year. You should know that the recycled part of our business is our biggest part in that recycled fibers can be used six or seven times. So there's space for the recycling business to continue to grow.
We recently launched a new division called Upcycling that is focused on turning the reject material from a recycling system that's mostly the plastics and metals into sustainable and marketable revenue streams. Now, as fiber processing experts, we help clients make boxes, packaging, tissue, and those types of products and more. We have adjacencies available to us as well. Now, all of these products that you see here are made in large 24/7 continuous processes. We help our clients optimize their product quality, process yield, energy consumption, those types of things as long as we're there. Now, a paper recycling plant is made up of a number of connected subsystems of machines shown as islands here. We are experts with over 150 years of experience and have optimized solutions for every grade of paper, tissue, and raw material blend.
We design systems and select equipment to meet the client demand based on their raw material and end product specifications. And depending on what we're removing, we need to clean the cellulose fiber and handle those rejects. And that's where our reject handling or upcycling business and the recycling business go hand in glove with one another. Whatever is being removed from that raw material that's fed to the recycling center needs to be processed, and we do that. Now, today, more often than not, our clients are working in brownfield installations. It brings a lot of opportunity, but some challenges as well. Now, this is a photo of a mill a client purchased to convert it to make a new profitable grade of paper. They made a significant investment.
Our contribution was design and supply of two stock systems, a brown fiber and a flyleaf recycling system that integrated really strategically into this old plant. I should note that this plant has the same feedstock, the bales of paper that Craig was showing you, or what generally come into a recycling center. On this photo, you see about half the buildings there are new, but there are many older ones that are kind of hidden in this photo, but we have machines and tanks all strategically placed for that machine through that system to minimize the investment for this client. This project was a big success. This mill makes the highest quality paper in their industry, and we do it with less than 1.5% of usable fiber loss. Now, recovered papers often contain up to 10% contamination by weight.
For every 1,000 tons a day of production at a plant, there's maybe 100 tons a day of reject material that's coming off that needs to be cleaned, dewatered, and removed. Now, traditionally, it's mostly plastic. This material will be landfilled. We are now able to dewater it very efficiently using our Mix-6 screw press. This keeps the water on site and in use. I'll show you a video in a moment, but you can see the material comes out very dry and ready to be incinerated. You can take it even further and dry it and create salable and reusable plastic pellets. Now, in this case, our client was landfilling, like I said, 100 tons a day of wet plastics at a cost of EUR 1.5 million per year.
We're able to take this and press it and save them over EUR 1 million in just savings. As Bilal was talking about, energy and water costs are kind of hand in glove, and they're very expensive. There's a lot of value in the water. You see in this video how dry this is rejects from our paper recycling system. Again, we save them EUR 1 million a year. Simple payback on this project is about six months. We also supply several lines of equipment used in the production of virgin fiber. I'd like to share a client story in this space. This client recognized a foundation failure in an old clarifier. A clarifier is basically a large caustic settling tank with an underflow scraping system. When they noticed this failure, they had to shut it down immediately.
Shutting this unit cost the mill about 300 tons per day of lost production and required, in the beginning, using fresh lime because they weren't making up what they were with the machine down. In total, they were losing about $75,000 a day. Design and installation of a new clarifier is usually a 12-month or longer process. You can consider it $75,000 a day. That's a lot of expense they're looking at. Now we are known for our patented clarifier technology, but obviously this client was having major cost issues, and the best technical solution might not win. This failure was found on a Friday afternoon, and we were on the phone immediately with them and we had people on site that Monday. Our competition did not arrive until Thursday. That gave us a little bit of a leg up.
Thankfully, we had the longest lead time materials already in process for another client that we were able to flex to this job. And so that was obviously a big advantage for us. But take it further, we took responsibility for all the detail engineering, the sourcing, the project management, in addition to our equipment supply. So you see some photos of this machine going together and all the intricacies of it. In the end result, it was a $10 million project completed on time and budget in 28 weeks. So this is about two times faster than the traditional construction process, and it saved them more than $5 million in lost sales and operating cost increase. Now, in addition to our service, we take pride in our innovation. It's core to being people who lead our industry.
One of the tools we use to consistently deliver new and elegant products is called Systematic Inventive Thinking, or SIT. Now, we've been using SIT for many years to break down mental fixedness and have used it to produce the ideas for the world's first continuous detrashing system, the first ever inverted cleaner, and other products as well. Now, SIT uses a toolbox of thinking tools to help anyone develop new and innovative ideas. There are five tools in the process, but I'm going to share a subtraction with you. The basic idea of SIT is to apply one of the thinking tools to create a virtual product that you consider without emotion. And doing R&D without emotion is the real trick to the deal. Using an example of an airplane, the pilot is a critical component.
If we subtract that pilot from the aircraft, we end up with a virtual product we call a pilotless airplane. So if you consider the benefits of that virtual product, a plane with no pilot, it can be smaller, it can be safer to use, it can be less expensive produced, et cetera, et cetera. So obviously, we call these UAVs or drones today, and there are many benefits to them, and that is why they exist. So if we use this idea of subtraction on one of our standard products, this is a cleaner bank. Each of these cleaners is processing about 100 gallons a minute and removing sand from the process. And along the top, you can see the pictures of the piping. Well, if we remove that pipe, our virtual product is a cleaner with no pipes. You kind of think about how does that work?
A cleaner with no pipes, if it did work, costs less, takes up less space, should be easier to be assembled, et cetera, et cetera. That's the idea of the benefit. The third step then of the SIT process is to decide should it be done. In this case, we said, yes, this should be done. We created what we call our Excel NT Cleaner. This cleaner basically has all the heads of the cleaners all joined together to create the pipe, to recreate the function of that pipe. In total, this product has four features that were all developed from SIT. With some partial replacement, we can now do very large systems and a higher density with the partial replacement of piping as well. That's our experience with the subtraction tool.
I should mention that SIT is a lot of fun to do. We do it in little teams of two people, all kind of multidisciplinary, and we've taught it to many of the Kadant divisions now who are also using it. Let's discuss a few industry trends and stats that influence us as well. The first, paper is one of the most recycled products in the world. It's the most recycled packaging material in Europe. In the U.S., 94% of people have access to either curbside or recycling centers. Last year, Americans recycled almost 70% of paper and over 70% of paperboard products. So we are highly engaged in this entrenched and sustainable industry. One trend everyone is aware of is the increased use of online shipments and the growth of boxes. So fiber-based containers are very sustainable and have been a consistent growth industry for many years.
Although there's been some slight consolidation and some destocking recently, we know the business grows with the economy and standards of living. Kadant Fiber Processing has also been a consistent performer, and we expect to continue to grow as well. Everyone knows the egg carton, probably the best-known molded fiber product in the world. There are many other molded products we use every day, like paper plates, product packaging for your computers, all forms of industrial parts. If you've been to Chipotle recently, Chipotle, right? This business is expected to grow up to 8% per year as 100% sustainable fiber from both trees and many agricultural residues are used to replace single-use plastics. We're currently providing fiber recycling systems in this industry and are helping the technology to advance with fiber-based coatings like our bio-fiber.
Bio-fiber improves the oil and water resistance of molded products to make them more higher performance and able to replace more plastic uses for food, trays, bags, and similar utensils, things like that. So we're excited to see this business grow. So most of us are aware of the environmental impact of single-use plastics. Again, it's driving a lot of molded fiber. But did you know that 60% of garments today are made from plastic? The vast majority of them are only worn a handful of times, and almost none of them are recycled, let alone made into new clothing. So Kadant is a fiber processing experts, and there's regulation growing to address the textile industry issues. We have machinery installed in these first systems that are recovering the cotton and recycling the plastics contained in this waste stream. I'd like to highlight three trends supporting our organic growth.
Our illumenX Cloud connectivity system provides us machine and process health monitoring capabilities. Our PaperFront dynamic process modeling software allows our engineers and clients to create digital twins of their processes, so we can do training before startup. We can troubleshoot issues, and in the future, we'll be able to predictably optimize their processes. Demographics have created a gap in skills within our industry and created an opportunity for us to expand our services and become more than a machinery supplier. Today, we're providing annual service contracts and machinery fully installed. Of course, sustainability is driving businesses to do more with their raw material, and we are creating new and valuable revenue streams from what has often been considered a reject, and our experience as fiber processing experts has us well positioned to support the emerging textile recycling industry. I'm sorry, I got back here.
In total, the Industrial Processing segment has many companies serving many different segments of the forest products industry. The companies that make up our Industrial Processing segment have many similarities. Fundamentally, we are providing strategic and critical front-end solutions that drive plant yield and process efficiency. Our clients depend on us to provide highly reliable performance machinery, but also flexible, efficient systems. All Kadant Industrial Processing businesses have large installed bases of equipment needing regular parts and services, and they are in high-wear environments that demand rugged design and quality service to maintain peak performance, and our businesses are offering stable and growing markets that produce sustainable cellulose-based products we use every day. Thank you.
And as the slide shows, we're going to take a 10-minute break. So we'll start back up at 1:25 P.M.
Hold me close and hold me fast. The magic's bell, you cast. This is love beyond rose. When you kiss me heaven-sized, and though I close my eyes, I see love beyond rose. When you press me to your heart, an inner world apart, a world where roses bloom. And when you speak, angels sing from above. Every day void seems to turn into love's own. Give your heart and soul to me, and life will always be. La Vie En Rose. There was a boy, a very strange enchanted boy. They say he wandered very far, very far, over land and sea. A little shy and sad of eye, but very wise was he. And then one day, a magic day he passed my way.
And while we spoke of many things, fools and kings, this he said to me, "The greatest thing you'll ever learn is just to love and be loved in return." The greatest thing you'll ever learn is just to love and be loved in return.
We're going to try to get started now.
Okay, I think I'm good to go. All right. Hi, everyone. I'm Dara Mitchell. I'm the Senior Vice President of Corporate Development, and I'm also responsible for our 80/20 activities. Today, I'm doing a double header. First, I'm going to talk to you about our acquisition strategy, and then I'm going to spend some time talking about where we are with 80/20. I have to say, a couple of days ago, I completely lost my voice. So that's why I have this water up here, in case I lose it. But Jeff doesn't know this.
I was actually kind of concerned that I was going to be up here. Jeff was going to be next to me, and I was going to be whispering my speech into his ear. He was going to have to be saying it louder. That's how bad it was. But I'm glad to be here and with a somewhat OK voice. So I'm going to start with one of my favorite slides. You guys might be familiar with this one. This is a slide that shows the logos of all the deals that we've done. And when I look at it, I'm just impressed at how many different geographies that we're in. If you notice all those flags for different countries we've done deals, I'm often asked by bankers, do we have a preference for a particular geography? And I can honestly say that we don't.
We look at every deal through the lens of how good a deal it is and whether it makes sense for us to do. And of course, there are some geographies that are a little bit more challenging than others, but we factor those in. So I want to spend a little bit of time talking about how we think about acquisitions, the different categories, and then also where they come from. A lot of people ask us, how do we find our deals? So I'll spend a little bit of time on that. The first category are tuck-ins. So what are tuck-ins? They're smaller businesses that fit discreetly into one of our divisions. Oftentimes, they're a product line, or they might be a set of customers.
They're businesses that allow our divisions to ramp their growth a little bit faster than they could do if they were doing it with their own resources. A great example of this is a business called Conveyors Plus. When Chad Greenfield was giving his presentation on Syntron earlier, he mentioned one of the products was the belt alignment product. That came through a small acquisition that we made with this business called Conveyors Plus. Syntron actually found that company. Corporate Development didn't do that. They were out. They were at a trade show. They thought it would be a really cool and complementary product for them, and they fostered that relationship. And that's how we find those tuck-ins. We use our operations. We educate them on the types of deals that we're looking for, what makes it an attractive acquisition, and they go out and form those relationships.
It really is a force multiplier for our Corporate Development team. The second category are strategic standalones. These are similar in that they're in markets that we already know, but they're large enough to be a standalone business. A great example of a strategic standalone is Balemaster. When we acquired Balemaster, it was just very complementary to our European baling business. It was the North American market leader in horizontal balers, and so it complemented it very well, but it was large enough to be its own business. Where do we find these strategic standalones? We spend, again, a lot of time with our operations.
One of the first things that we do when we make an acquisition is we sit down with the management team there, and we ask them who we should acquire, what are the businesses that they think are great. And these guys know best because they're out in the market. They know the markets really well. They know the brands that are the best brands there and who customers respect. And so we have 500 or more identified targets that we spend time forming relationships with. And we spend time with the operations to prioritize those. And we have what are known as our AAA targets. And those are the ones that we try and build really, really strong relationships with. It takes time to build those relationships.
We try and do them across Kadant, so not just with our Corporate Development team, but with Jeff and Mike and with the guys in our operations. So when the seller decides that they want to sell that business, they've already done their research to know that Kadant makes a great home for their business. And it's a long game. We have to play the long game. You never know when somebody's going to want to sell their business or they're going to want to pass it on to their sons or daughters. In the case of Clouth, I think that was the longest one. We've been courting that business, I'm told, from the seller for 30 years. Just to be clear, that was well before my time. But I mean, that just goes to show how long these relationships take. And then the third category is new platforms.
So these are ancillary markets for us. Syntron is a great example of this. Syntron started our material handling segment. Carmanah is another great example. We didn't have anything in wood processing before we acquired Carmanah. We don't do a lot of new platforms. And the reason for that is we don't want to become too diverse. It has to make really good strategic sense for us to acquire a business that's outside of the area. And so we spend a lot of time thinking about that. I like to think of it as like a big jigsaw puzzle. So for me, if we're going to acquire this business over here, there has to be a logic for the rest of our business, and it has to be able to kind of tie back in some form or another. It's like we're creating a big picture.
What it does is it makes our business more robust. As Jeff was talking about, our roots being in pulp and paper, and we've grown, it's made us a more robust business. And because these new platforms are in areas that sometimes we're less familiar with, they tend to come from bankers. They tend to be ideas that bankers bring to us. And so our Corporate Development team has relationships with over 150 bankers worldwide, and we educate them on what we're looking for in an acquisition. And that's really important. So for example, when Syntron was being sold, we knew a little bit about material handling because we had material handling in mills and paper mills and saw mills, et cetera. But we didn't know the Syntron name.
It came to us from a banker who called me up and said, "I have a perfect business for you. It meets all the criteria that you guys are looking for." That's what we want to do. We want to have them bringing us ideas for these types of businesses. Excuse me. I wanted to kind of convey what a typical year looks like for us. In a typical year, these are very rough numbers. We maybe have 120 actionable opportunities. When I say actionable, that means that the business owners have decided to sell in the near term. Of those 100, I should point out, some of those will come from our list. Those might be ones where we're talking to a business directly, and some will come from bankers. Of those, we'll maybe put in 15 indications of interest.
So I mean, it really starts. The funnel starts to narrow down pretty quickly. And so why wouldn't we put in an indication of interest? So one of the hardest parts about my job is we'll identify a company that looks great. We'll spend time knocking on the door, getting the owner to talk to us. And then they say, "Okay, we're ready to sell," and they give us the financials, and it's like, "Yeah, no, I don't think that this business is right for Kadant," or it'll have some other factor that makes it not an attractive business for us, and we won't bother putting in an offer. And of the 15 that we put offers on, we maybe do three in a year. Sometimes we do more. Sometimes we do less.
I don't think there's been a year where we haven't done any deals since I've been here, but there have been years when we've just done one small tuck-in, and this year we did seven, so it was a busy year for us. And why might we not do a deal? I mean, the worst ones for me are when we put in an indication of interest, and it's a business that we really like, and we think Kadant would be a great home for it, but we're outbid. And we're very disciplined about the price we'll pay. And so that happens, and it's frustrating, but you can see it really narrows down quickly, and our goal is to see as broad a range of actionable opportunities as we can so that we can pick the very best opportunities, so this slide is a really important slide.
The reason for that is of the 16 deals that we did over the last five years, 14 of them were proprietary. Why is that important? I mean, if you think about it, if you're buying a house and you have the opportunity to negotiate directly with the seller and to form a relationship with that seller, and the seller cares about who they're selling their house to for whatever reason, you're much more likely to get a better price for that than if you go to an open house that's thronging with people and you have to put in a sealed bid. The more that you can form those relationships and not have it be a huge banker-led competitive process, the better the situation is for us.
And then the other thing I wanted to point out on the slide is you can see tuck-ins, strategic standalones, and new platforms. And as I said, we've done very few new platforms intentionally. And then you can also see the segments that we've done them under. And the reason why I wanted to show that is, again, bankers, like they ask about geographies, will ask us if there's any particular area that we really want to grow. And I can honestly say that no. There's great opportunities in each of our segments, and that's why you see it pretty evenly balanced. And again, for each opportunity, we look at how good a deal it is and whether it makes sense for us. So why do I think Kadant has been pretty successful at acquisitions? It comes down to really three things. The first is we're very discerning.
We have very clear acquisition criteria that we stick to when we're making an acquisition, and I'm going to talk you through that in a little bit. Second, we're also, for lack of a better word, discerning on the price that we're willing to pay. Does that mean we won't pay a higher price for a business that we really want? Yeah, but the returns have to work, and we're very focused on making sure the returns work. And then finally, we want to preserve and unlock value in the businesses that we acquire. So I'll touch on each of these. So I thought in terms of taking a look at the acquisition criteria, it would be nice to use a real example. And this is Key Knife, which we acquired in 2024, so this year. First and fundamental is about making sure that we buy a strong business.
What does that mean, buying a robust business? It needs to have a—I mean, I think you've probably heard this from all of the previous presentations, but it needs to have a mission-critical role in a process industry. It needs to have a large and sticky customer base, and it needs to be in a market-leading position. It also needs to have very robust financials. If we look at Key Knife, they make chipper heads. They're the market leader in making chipper heads and knives for sawmills. They have a very large customer base that's very loyal to them, and they're the market leader in that position. If you're a sawmill and you don't have access to Key Knife's products, you basically can't produce dimensional lumber. We're talking about a really core role that they carry out.
In terms of having robust financials, Key Knife's products are 100% consumable. So that makes for very, very steady revenue. So that's all good. This would be like one of the businesses where we get there and we'd be courting it, whatever, and then we couldn't get it for the right price. But we were able to get it for the right price. And the reason we were able to get it for the right price was we were able to leverage relationships. So Carmanah had a long-term relationship with Key Knife, and they were very good about maintaining that. They were able to introduce our Corporate Development team and our executive team to the business. And the reason why it worked so well with Key Knife is they were an ESOP.
I don't know how much you guys know about ESOPs, but the culture is really, really important. Everybody in that business owns a part of the business, and they're very focused on creating value in that business. And it has that culture, and they didn't want to lose that culture. And so Kadant, one, they had seen Carmanah succeed under Kadant, and they had followed the story. They stayed in touch with Michael, and they knew that we were a good home for businesses. And second, our decentralized operating model meant that they would be able to retain their culture and to continue to do what they do best, which is what we wanted them to do. And so that allowed us to avoid a process. And then finally, it's about preserving and enhancing value.
Again, I touched on our decentralized operating model, and I'm going to talk next about how we enhance value of the businesses we acquire. So it's really the best of both worlds. Actually, I think it's a great model because I love that we let the businesses decide what they want to do. We're not taking a top-down approach and saying, "This is what you need to do to increase value." But we have a whole range of levers and programs that we can use in which the businesses can decide what makes the most sense and the timing for those to increase their value. So an example is the 80/20 program, which I'm going to talk about next.
But also things like illumenX. You've been able to hear that our businesses have been able to share the resources that came from our Cogent acquisition and to develop illumenX to meet their needs. And then also just the geographic footprint and internal networking. We really encourage our businesses to talk to each other and to learn from each other. So whether that's about entering a new market like India or South America, or whether it's about learning about using cobots or 3D printing, they're able to talk to each other and to network with each other to enhance their own value. And again, it's very bottom-up as opposed to top-down, but with support from the top as well. So I wanted to talk a little bit about the financial impact of acquisitions. Since 2013, we've completed 24 acquisitions.
That's 56% of our forecasted revenue for 2024 and 64% of our Adjusted EBITDA. I mean, as you can see, it's our biggest use of free cash flow, and we're very careful about what we do with that. We want to be good stewards of that money. Our average deal multiple is 8.8 times through that period, which I know is pretty impressive. I know because I talk to my peers, and I see what other industrial public companies are paying for acquisitions and what sponsors are paying. And I just can't get my head around it sometimes in terms of how they can create value from acquiring businesses at such high multiples. But anybody can buy revenue. If you pay a high enough multiple, you can buy revenue, you can buy earnings. But what it comes down to really is how good a return you're getting for it.
And if you take the average adjusted return on invested capital since 2023, ours is 15%, which I think is really quite impressive. So what's the future hold for our acquisition strategy? I don't think you guys will be surprised to hear more of the same. We intend to stick to our knitting, to be very disciplined in what we do, to be very conscious of the prices that we pay. I think it's likely that we'll continue to do more deals and to do larger deals because that's the course we've been on over the last 10 years, but we'll do it very carefully and in a measured way. Next, I'm going to talk about 80/20. Sorry, excuse me for a sec. I just need a little sip.
Before I start talking about our 80/20 activities, I thought it was worth explaining why I'm up here, why the person running Corporate Development is also running 80/20, and that's because when we first started this process in 2016 and brought in outside consultants, I actually asked if I could go along and just watch what they were doing, and I did that, one, because I just thought it was interesting, and two, I thought it might be able to apply to our acquisitions, and it might be a way that we could get more out of our acquisitions, so I spent a year. I was lucky, I should mention. The first one we did was in Massachusetts. It was actually Bilal's business, and so it was easy for me to get to.
I spent a year just shadowing what they did and going along every month and hearing their meetings. What I thought was really cool is it was kind of like doing an MBA all over again because each part of the business is put under a microscope and examined, looking for what the key value drivers are and focusing on those. It's about doing a small set of things exceptionally well, and that's really, really powerful. So I think most people here probably know about 80/20 and the Pareto Principle. But just in a really, really short, it basically is 80% of results come from 20%, and that holds true everywhere. It was originally discovered by this guy, Pareto, in Italy in the 1800s. He noticed that 80% of his wealth, not his wealth, 80% of the wealth in his principality, was controlled by 20% of the people.
And then he went to the next principality, and it was the same thing. And the next, and the same thing. And then he started looking around him, and he was noticing this held true for a whole range of different things. So if you want to think about a personal one, most people wear 20% of the clothes in their wardrobe 80% of the time. And I bet if you think about it, that's probably true with your favorite shirts and whatever. I know I do that. Or one that's kind of closer to my heart is golf. I'm not a very good golfer, but a very enthusiastic golfer. And if I look at my score and my shots, the bulk of them are my putts.
So if I really wanted to lower my score, I could focus on putting and stop three-putting all the time, and it would be the most impactful to my score. From a business perspective, we focus on products and customers. And I find this amazing. You kind of don't believe it at first, but if you actually go out and run the data for different businesses, it holds true. 80% of your revenue comes from 20% of your products, and 80% of your revenue comes from 20% of your customers. And we've run the data for most of our businesses, and it's, within a couple of percentage points, always true. So the idea of 80/20 is all about simplifying your business to focus on the most important things.
From a product perspective, you can't really get rid of 80% of your products, but you can try and simplify all the SKUs that you have. Same thing with your customers. There, what you want to try and do is focus on treating your best customers even better and to maximize that. Oops. What are the benefits from reducing complexity? For a start, it deepens customer relationships. You're really focused on your best customers and driving those relationships. By reducing complexity, whether it's in your manufacturing processes or through your products, you're driving profitable revenue growth. That's the goal here, to focus all the energy on improving the results and improving the bottom line and expanding growth through profitable revenue growth. Not only that, it also really empowers employees.
I'm going to touch on that in a little bit just in terms of some of the broader things that we see from 80/20. That all sounds kind of simple, but how does the process actually work from that kind of high-concept thing of focusing on the most important things? First, it's heavily data-driven. You don't make any decisions without first pouring over the data. None of it is gut instinct. All decisions are made with detailed data analysis. The process has a very methodical tempo to it, an operational tempo. The meetings are carried out every month. The management team is a steering committee, and there's a series of five or six different teams that are analyzing data to come up with recommendations.
Those teams are cross-functional, so they may be people on the sales side, they may be people in manufacturing, right across different levels and right across the whole business. And those recommendations are driven from the bottom up. And that's why it's so empowering because these guys are taking the data and they're saying, "This is what we recommend that you do." And they're doing that in front of the management team. And I've rarely seen the management team turn a decision down because it's so well thought through. If anything, they're more likely to say, "We want you to dig a bit deeper," or, "We want you to modify it slightly." But that's very empowering. And I think the thing that I want to drive home the most is it's not a project. You don't go in and do an 80/20 project. It's a process.
You're changing the culture of the business to focus on the things that are most important. So I thought I would try and bring this home to you by focusing on an actual team and the results. So every 80/20 process will have a product simplification team. As I said, it's one of the areas that you want to focus on is to take complexity out. And the product simplification team for our North American doctor blade business focused on—you always want to focus on the biggest things. They focused on the blade materials. So you heard Bilal earlier explaining about these blade materials or about doctor blades in general. Over the years of running this business, they had accumulated a large mass of different kinds of materials and different configurations. And that's just from the nature of doing what different customers wanted over time and not simplifying it.
They put together a multi-function team that included people from applications and sales and even the stockroom. These guys systematically analyzed the data and made recommendations about how to reduce it. We were then able to, when we started the 80/20 process for our European Blade business, they didn't have to recreate the wheel. They didn't necessarily take the same results that the American business did. But what they were able to do is to go through the same process and to use a lot of the same types of analysis. It got them up the road faster. Let's take a look at the results from that. These are actual results. Our North American business was able to reduce materials by 37% and configurations by 50%. In Europe, that went even more so.
So they actually reduced materials by 74% and configurations by 85%. So pretty impressive results. And again, those were not top-down, anyone telling them what to do. This was suggested in-house by their teams and their guys. And so what are the results of that? Well, it's a hugely simplified manufacturing process if you don't have to constantly change the setup for different configurations and different materials. It's a much easier sales process because your guys don't have to go out and learn all the different properties of different materials and why they're better or worse. It streamlines the supply chain and it reduces inventory. And I threw a quote up there that you guys can read from one of the guys. So I mentioned earlier, in part, you're doing 80/20 because you want to improve the financial results, but there's a huge amount of qualitative benefits as well.
Every single President that we've done this with has noted that one of the great things about 80/20 is it allows you to identify really good talent, the hidden diamonds that are in your business that may not ever have a chance to engage with the management team. That's been huge in terms of thinking about succession for different roles, and that's been really beneficial to us. As I said, it's also got this whole employee engagement angle to it. I think about myself, who doesn't want to work on something that's of value? You don't want to be doing things that are meaningless and that no one pays attention to. These are business drivers. These are things that have a material impact to the business.
And so it's a lot of extra work for these guys to be involved in these teams, but they get a lot of value out of it as well. They enjoy doing it. And then finally, it increases communication across business functions. So because you have all these cross-functional teams, it's like every time you go into any business and you ask people, "How good is communication?" 9 times out of 10. In fact, 10 times out of 10, they say communication isn't very good. They always want more. But 80/20, they're getting involved in the things that are directly impactful to the business. And so they kind of know what's going on a lot more. So people ask us how much of our business is currently under the 80/20 program. Right now, it's about 50%.
I was asked to put up a slide to try and show where we would be, and I can't, and the reason why I can't is as we continue to do acquisitions, it changes when we're going to do them next, which businesses will 80/20 next, and so 80/20 tells us we should be starting with our businesses that are the largest in terms of EBITDA and that have the greatest potential from 80/20, and that's what we'll continue to do, so if we make an acquisition where there's great potential, that will come up before something that maybe we already have. What I can tell you is that we're going as fast as we can, but it is a time-intensive process, and we want to make sure that we do it so that it's embedded in the culture, so finally, I just want to touch on the fit.
I want to wrap it all around and the fit between acquisitions and 80/20. So I know you guys have heard in the past that when we make acquisitions, we don't factor in synergies. And the reason why we don't factor synergies in is they're so elusive. I think oftentimes people think they're going to get much more out of their synergies than those synergies actually result in. And also, it kind of goes against our ethos. For us to be sitting in a corporate office and deciding where we're going to get synergies from a business as opposed to letting the business decide how to most impact their value, it doesn't fit well with us. So 80/20 fits really well with that. It allows us to improve businesses, but the businesses are doing it in their own way.
Their guys are the guys who are coming up with how to improve the business, and it's their management team that's deciding which of those decisions make the most sense. So it really lets us enhance our businesses, but in a way that fits with our decentralized operating structure. And so my last slide, I'm going to show you what the impact is. These are actual results. This is a business we acquired in 2019. We started the 80/20 process in 2020. So you can see we always start with the year that we started the process, what the numbers were, and then where they are now. And what I want to really draw your attention to is the 450 basis points change in gross margin and the 660 basis points change in EBITDA.
Now, of course, some of this is operating leverage in market conditions, but the largest portion of it is down to 80/20. And the reason that I know that is because we have done analysis to look at all the businesses that are under 80/20 and the businesses that were not under 80/20 during the same time period. And all of the businesses under 80/20 had much larger improvement to both gross margin and to EBITDA. And so it's really pretty powerful stuff. And just one last thing I want to say is if you're wondering why did we choose 2020 because that was a bad year? No. If we'd put 2019, it wouldn't have been any different in terms of the changes. We did 2020 because then you can see the parts as well. And that's all I have for you. There are two topics that I love.
I'm more than happy to talk to anybody about it later in the Q&A, and I'm going to pass over to Mike because I know you're all dying to hear about the financials.
Hi, everyone. I'm Mike McKenney, Chief Financial Officer. Since several folks took the opportunity to introduce themselves and talk about how long they've been with Kadant, I'll start out with my tenure. I've been with Kadant for 31 years. I came in through an acquisition in 1993. So Dara had a slide up that showed all the acquisitions we've done. I've been here for all but two, Lamort and Vickery, all the others I've been around for. So thanks for putting that up, Dara. So I'm a great historian. This shows some of the topics I'll be reviewing today. I'd say these tend to be some of the areas that I most commonly get questions on. So I'll kind of cycle through and touch on each one of these and, of course, ending with our new five-year plan targets. Here's our performance from 2018 to 2023.
So this is over our last five-year plan. And as you can see, on revenue, we grew a little over 50%. On operating income and Adjusted EPS, we grew almost 90%. And the two that I'm most proud of are our growth in Adjusted EBITDA, 75%, and our improvement in Adjusted EBITDA margins, 280 basis points from 18.2% to 21%. So that was absolutely fantastic. And of course, that improvement in EBITDA margins contributes to the growth in cash flow and the growth in EPS. So I'm very proud to be standing here and telling you that when we did our last five-year plan, we were at 18.2. We are targeting growing to 20%, and we beat that target. That is absolutely fantastic. And all the folks that have already come up and presented, that's all due to their hard work, the folks in the field.
I'm the lucky guy who gets to come up here and show what all those folks have done. So we're often asked, "What companies can we compare Kadant to?" And I think, as you probably saw today, that's a bit of a challenge because we're in a lot of different industries. But what I do have for you is that Baird produces Baird Industrial Company Composite, which represents 484 companies, which Baird views as indicative of the publicly traded industrial company universe. So let's take a look and see how Kadant stacks up. The first chart on the left is our forecasted revenue growth for 2024 at 9.7%. And you can see that Kadant is firmly in the top quartile. Now, that's the only chart that will reference 2024 because in their analytics, everything was really focused on 2023.
The next chart to the right of that is Kadant's gross margins for 2023 were 43.5%. That puts us firmly in the top quartile and better than 85% of industrials. Now, looking at adjusted EBITDA margin and return on invested capital, excluding goodwill, that's the way Baird does it. It's not my standard calculation, but we just followed along. You can see here on both metrics, Kadant is firmly in the top quartile. I'd say here, as proud as I am of what we've achieved on our improved EBITDA margins, this shows that to be a top industrial, there's still room for improvement. Finally, looking at total shareholder return over a one, three, and five-year period and comparing that to the Russell 3000 and Dow Jones US Industrial Machinery Indexes, you can see that Kadant outperforms quite handily in all three periods.
Parts and consumables, near and dear to my heart. We pay a lot of attention to our parts and consumable business. It's very important to us. Kadant businesses have been around for a long time, as you've heard from many people, so we have a large installed base, and we are often the inventors of the technology being deployed, and why are we so focused? Why is everybody in Kadant so focused on parts and consumables? The answer is pretty straightforward. It's a more predictable revenue stream that yields higher gross margins than our capital business, and by focusing on your parts and consumable business, it also keeps you very close to your customer.
Now, this is a slide that Jeff also showed, but I essentially wanted to make the same point that steady, more predictable revenue stream that parts and consumables gives us. I could extend that to our geographic footprint. That also can act as a buffer. So let's say one region is down, maybe offset by another region. As currently is the case, North America is performing better than both Europe and Asia. And I'd make that same point on our end market diversity. As you saw today, we are in a lot of different end markets. Free cash flow. There's a reason that this comes just a couple of slides after the parts and consumable business. The parts and consumable business is a significant contributor to our strong free cash flows.
In addition, other attributes that Kadant has that contribute to our strong free cash flows are our CapEx requirements run at approximately 2-2.5% of revenue. Our working capital requirements run at about 12-15% of revenue, which I believe generally tends to be lower than other industrials. Our R&D requirements to support and grow our business run at 1.5% of revenue. Capital deployment. Dara helps me out with this quite a bit. As Dara mentioned, we're quite acquisitive, and as you can see on this chart, 62% of the capital that we've deployed over the last five years has been on M&A. Now, we know acquisitions are risky, and what we try to do is we try to de-risk them by sticking to our criteria that Dara laid out and also, frankly, being willing to pass on transactions.
Some of the other areas which I've already covered are CapEx and R&D. And I wanted to touch on dividends. We instituted a dividend in 2013, and we're not striving to achieve a certain yield, but we would like to increase the dividend every year. And we've been able to do that every year since we started paying a dividend. And finally, I'd make the point on what's missing from this five-year chart is stock buybacks. And I occasionally get asked that question. We always have an open stock buyback authorization, but we really feel that we can create more value via acquisitions that we can on stock buybacks. Five-year financial targets. This is a historical walkthrough. This was our first five-year plan. The base year is 2012.
The reason I wanted to walk through our past three five-year plans was to demonstrate our track record of setting challenging goals and achieving them. You'll see these are if you look at the base year on the left and you look at the targets we set, I don't think anybody would say that's like falling off a log. But I can tell you when we set our targets, we always feel we have a path to get there. So the middle is the target, and the last column shows where we landed after five years. This slide shows our second five-year plan. Again, left column showing where we set it. One thing I'd mention, we do five-year plans. You may notice that the base period increment is not five years.
That's because if we're progressing well against our five-year plan, we'll challenge ourselves and reset and do another five-year plan, reset our goals. That's what you see here. We are doing quite well against the 2012 plan, and we reset our goals in 2016. Again, I'd point to the middle column, as you can see, not like falling off a log. The last column, what we actually achieved, and frankly, our performance on this five-year plan, I think was phenomenal. I will use the phrase, "We beat the pants off of the Adjusted EBITDA and Adjusted EPS and free cash flows." Just phenomenal, phenomenal performance on this one. Finally, our last five-year plan that we set in 2018. You can see in the last column our performance. Now, of course, this five-year plan was during the pandemic.
I can tell you, as much as Dara would hate to admit it, it was a challenge on the M&A front. Our memories are quite short, but I can remember for a year and a half or so, it was just Jeff and I going into the office because everybody had to be working remote, which was crazy. Nonetheless, even during the pandemic, we did a couple of transactions, which I think is quite impressive. We came in a little under on our revenue and adjusted EBITDA dollars targets. You can see on adjusted EBITDA margin, adjusted EPS, and adjusted free cash flow, we are in the target range or above the target range. Interestingly enough, at the end of that five-year period, we were almost net cash positive.
We took care of that quickly in the first quarter of 2024 with a couple of transactions, and here's a chart that shows over our last five-year plan our revenue and adjusted EPS. I think that's a pretty impressive chart. One of our focus areas has been improving our adjusted EBITDA margins, and you can see here our track record over that five-year period where we improved the EBITDA margins by 280 basis points, but I do want to emphasize that that's been on our radar screen for more than just a five-year period, and as you noticed that third bullet point, over the last 10 years, we've improved our EBITDA margins by 800 basis points, and here, I'm showing my hand a little bit early. For our next five-year plan, our new EBITDA target will be 23% or better.
Now, looking at our SG&A spend, as you can see here, we've been able to improve our SG&A, leverage our SG&A much better over the last five years, and we've improved by 320 basis points. Again, as was the case with the EBITDA, if you look over a 10-year period, we improved by 880 basis points. Everyone in Kadant is focused on getting better leverage out of their SG&A because if you're going to hit those EBITDA targets, you're either going to have to do it through gross margin, which isn't always totally in your control, or through SG&A, which we do control. So I can tell you in our next five-year plan, we'll continue to be quite focused on this area. And finally, the moment we've all been waiting for, our new five-year goals.
As I said at the beginning here when I was rolling through our last three five-year plans, these are never like falling off a log. These are always a challenge, but we always feel we have a path to get there. So as you can see on the revenue front, our new targets will be to grow to $1.5 billion-$1.8 billion. On adjusted EBITDA dollars, we're targeting to grow to $340 million-$405 million. On our EBITDA margin, we're targeting to grow to 23% plus, as I had covered on an earlier slide. On adjusted EPS, we're looking to grow to $15-$18. And our adjusted free cash flow, looking to grow to $240 million-$280 million. Now, one point that I wanted to make here for the folks who are going to do some modeling off this number, all right, Ross, looking at you specifically.
On the SG&A front, currently, at the end of 2023, our amortizable amortization expense was about $18 million. That comes from acquisitions. So from 2023, if we meet these targets, we're projecting from 2023 that $18 million in amortization expense will grow to about $63 million. And the reason I make that important point is because that is in 2023, that is $1 a share. By 2028, that'll be $4 a share of a non-cash expense. So I wanted to make sure that people understood that's a significant factor and it has, of course, a very meaningful impact on the EPS range we've put forth here. And finally, this is just a chart that shows our revenue and adjusted EBITDA dollars at the midpoint of the targets we set, what the CAGR would be. So with that, I will turn the floor over to Jeff.
Thanks, Mike.
So, I just wanted to. We're kind of at the end of the meeting here. I appreciate everybody again coming. I know we got into more detail than we have in the past, and we often do, but we thought that there was some value in doing that, so just a quick couple of comments. I hope today you got a sense of why we're excited about the secular trends, the things that are driving our business, that's fueling our growth. As I mentioned earlier, they're all growing, and we're quite well positioned, we believe, to serve those markets as they grow. Our decentralized structure. The great thing about that is these individuals that are running these companies, and you saw many of them today. They get quite excited about growing their businesses.
And it's entirely incumbent upon them and their management teams and their employee base to serve these growing markets and make sure we're well positioned. And I can tell you that they take that very seriously, and they do a great job of it. At the end of every year, we kind of have a little strategic planning session. It takes about a week. And at the closing dinner, we show the performance of all the different businesses, and we give out numerous awards for performance. And there's friendly competition there, and it is friendly, but everybody wants to do better. And everybody realizes it's incumbent upon them and their management teams to continue to improve their businesses, to continue to improve their performance, to optimize their businesses. The decentralized structure, I think, does that. Our employees are very talented. Equally important, they work really hard running their own businesses.
You saw in Mike's presentation that we've had good financial performance, but there's still more opportunity to even perform better, and our new five-year targets require us to continue to improve our operating performance, continue to take advantage of the operating leverage that we have to improve our metrics. Doing that, obviously, generates a tremendous amount of free cash flow because we don't have to invest much back into our businesses relative to a lot of others. Our product lifecycles are very long. Our manufacturing assets can produce a tremendous amount of revenue without a lot of investments in them, so we have great operating leverage, and then, of course, it's critical that you properly allocate that cash and make sure you're getting an above-market return on it, and that's very much a discipline criteria that we really try to stay focused on. Couldn't do it without employees.
You got a sense today of some of the employees. Obviously, we have thousands of employees around the world. These ladies and gentlemen represented them today. I would tell you, and of course, I'm highly biased, but we have really talented people, and they work really hard. They work harder than our competitors, and that's why we perform much better than our competitors. So looking a little more long-term, Mike showed you kind of the last five years and some of the five-year plans. But the progress that Kadant has made really in transforming the business, I would tell you, has been pretty impactful, I think, and quite impressive. So you can see that our EBITDA margin, and of course, 2009 was the end of the financial crisis, so it was obviously a little depressed because of that.
But you can see that we've made tremendous progress in improving our EBITDA margin. And Mike just showed you that our next five years, we're going to make more progress, get that north of 23%. We have sectors. Our flow control sectors, the EBITDA margin is about 29%, just slightly under 30%. Our Industrial Processing, I think last quarter was above 25%. So all of our sectors have EBITDA margins that are higher than we report as a public company because we got public company expense. But as we continue to grow and leverage that, our EBITDA margin is going to improve. And we won't be happy at 23%. The five-year plan after that will have it going even higher. We're always looking to try to optimize our operations, and that's why our SG&A has come down substantially.
One of the challenges when you run a decentralized structure, and you've got 23 companies all around the world, you have 23 presidents, 23 VPs of sales, engineering, manufacturing. So there's a lot of SG&A associated with that. We believe ultimately that we generate a higher return, and it justifies that investment, but that being said, we're always working hard to try to reduce that down, and you can see that we've reduced it down substantially over the last 15 years. Again, we'll continue to drive that even lower. I wanted to take a kind of a longer look at the performance, and you can see one of the things this really demonstrates is the operating leverage that Kadant has, so over this longer period of time, in nearly 15 years, our revenue grew about 11% a year.
You can see our Adjusted EBITDA grew twice that, grew at 22% a year. So we were able to get tremendous leverage on that revenue growth. But more importantly, our Adjusted EPS grew more than three times that at over 36% over that period of time. So our business model, our strategies, our structure, the markets we go to, the products, the systems we offer give us tremendous operating leverage and tremendous opportunities to drive more and more profitability, more and more cash flow, which, of course, then we invest back in the business. So this is really the end of the formal presentations. We're going to open it up for questions.
I think we have, because we were also showing this as a webcast, we'll take questions in the audience, and then we'll take a couple from people that are participating via the web, and then we'll come back to the audience. And with that, I'd like Mike and maybe Dara to come up to answer questions. We put Dara on the end because she's still slightly sick. And Jeff's a germaphobe. On the buffer. All right, so we've got Mike here for anybody that might have questions. Ross?
Hey, guys. Ross Sparenblek, William Blair. Thinking about the organic growth targets, could you maybe just piece out the price and the volume contribution there and then just kind of think about the cadence? I know we're looking for a second-half acceleration in 2025. 2024 is down low single digits.
It kind of implies maybe high single digits in 2026, 2027, but if that pipeline gets pushed out, how does that maybe change your assessment between that 3%-5%? Yeah, I would say, Ross, the price will be a smaller component of it. I'd lean more towards volume and mix on that. And then just anything around the cadence there?
Excuse me?
But the cadence of it? I mean, I don't expect to be very linear, but.
We'll slow it to a beginning of 2025, picking up. I think. 2026, 2027. Yeah, it's, of course, end market conditions are going to dictate where we go here. But I think I kind of think of that as standardly, that's how we'll progress. So kind of a smooth, it's always in the perfect world.
Our capital equipment business has been, I think, challenged over the last two years, last seven quarters. I almost view it as an industrial recession. If you look at the economies around the world, North America in particular is doing pretty well compared to Asia and Europe, but it's been a lot more on the service and the experience side. If you look at the industrial markets and the capital, it's actually been quite sluggish. Because we have such high parts and consumables, we've been able to do well, and through our optimization programs, increasing our profitability, we've been able to continue to grow and post record results during that period of time, but our capital demand has been pretty sluggish. I think most of our divisions believe that things will start to improve as 2025 goes on, more in the back half of the year.
And then all the kind of economic forecasters that we work with indicate that from 2025, the back half of 2025 on, things should start to get quite strong again. We monitor the average age of our equipment in the field. It's quite old. And the history tells us that at some point, they're going to have to start reinvesting back in that business again. So we expect a pretty decent acceleration to start beginning of next year and go into the following years.
It's very helpful. A question we often get is kind of the internal growth engines for Kadant. And OSB's 10% of sales. I think outlook is for 15% growth, balanced supply chain there. Can you maybe help frame the OCC contribution to the business and how you guys are thinking about the growth within the U.S. and Europe?
The fiber recovery and fiber processing part of our business is about 20% of our business. It's probably the largest market globally. It's the most mature market. It is, I would say, of many of the markets we're in, one of the slower growing. It's interesting. 2022, coming out of the recession, there was a lot of stocking that took place during the pandemic. Coming out of that, there was so much built-up inventory, there was a bit of a recession. For the first time ever, paper demand dropped in 2022 and 2023. In all the recorded history, we've never seen demand drop. It continues to grow kind of around GDP level around the world, sometimes slightly higher because of kind of the migration away from plastics and non-renewables. This year, things bounced back a little bit from last year.
And the belief is it'll continue to grow. But the numbers you see tend to be, I would say, 2.5%-3.5% organic growth on the OCC side, depending on the region of the world you're looking in. Some places it's higher. Places like India, the fastest growing economy, it'll be higher. But that's a pretty small base. If you look at the mature base, America, Europe, and particularly China, I think it's growing kind of around GDP level. Gary.
Hi, Gary Prestopino, Barrington Research. In your plan, you're about 65% aftermarket year to date. So where do you think you'll be in terms of the consumables as a percentage of sales as you project out to 2028? Good question, Gary.
We're, of course, very focused on parts and consumables, and we love to be able to acquire businesses that are accretive to that metric, as we did earlier this year with Key Knife that was basically all parts and consumables, as was DSTI. But they're hard to find. They're hard to find. I think we'll be able to incrementally improve that. So we may get it up a couple points. But as much as I'd love to see us in the mid-70s or 80%, I think realistically, we're talking about something that maybe we can move to the high 60s. It's a challenge in the industry. When you look at industrials, we're a bit of an anomaly in terms of the amount of parts and consumables.
Are you at liberty to kind of tell us what the flow-through is to EBITDA on a dollar of consumables versus capital?
I would say no. But broadly, I would say what we get for operating leverage with parts and consumables and capital with that mix, that blends out at somewhere between, say, 25% to 35%.
Thank you. Great.
Thank you. Kurt Yinger, D.A. Davidson, maybe three wrapped into one. Mike, just in terms of the M&A contributions, can you talk about what's implicit within that in terms of the multiples you're going to pay, cost to borrow? And second, in the past, part of the margin expansion was assumed to come through some of the acquisitions. Is that the case in this plan? And then third, for Dara, 6% to 8% revenue growth from acquisitions is different in terms of the revenue base today than in the past.
What are kind of the key challenges you think to generating that type of deal flow, maybe having to go out and do larger deals to reach those type of numbers?
Okay, Kurt, so let's start with your first one. Kurt, restate that one more time, and I'll.
Just in terms of kind of implicit within the EBITDA targets and the acquisition contributions, what kind of multiples are you assuming you're going to pay?
So we've built in the model a multiple of 10. And in terms of cost, we built in the model 5.4%, figuring there'll be some kind of blend between Europe and North America.
In terms of margin expansion, do you expect any of that to come through the acquisitions, or is that primarily?
I think what we're really counting on is our internal initiatives for margin expansions. It's at the level we've reached.
From so many companies that we've looked at, when we did our last one, I did say, "Hey, half of this will be from accretive transactions." I think it's going to be more from internal initiatives.
And then in terms of the inorganic growth that we're targeting, when they put the plan out and when I saw it, I do think it's very achievable. I also do think, though, as we do larger deals, we will have to pay higher multiples. And I think that's why they raised it to 10. We're not going to continue to pay 8.8 that we paid over the last 10 years. And the larger deals also, by nature, tend to be the ones that go to an auction process. They'll be harder to get from a proprietary perspective. But we'll supplement those with the kind of the single hits as well.
We'll continue to do both, and that will bring the multiple down.
Got it. Thank you.
It was interesting to see kind of illumenX across the different business segments and products. I think most of that stems back to Cogent, which wasn't a tremendously large deal. Can you just talk about what that business has brought you guys over the last couple of years, kind of the level of digitalization that you're kind of implementing across the portfolio and whether our customers are adopting that at a high rate?
Yeah, so we initially tried to internally develop our own digital platform. We put a group together, spent several years and some money doing that, and realized that we weren't going to get where we wanted to be doing that. We had known Cogent. Cogent was really strong on the wood side of the business.
We had a relationship with them, and even though they were a nice little company on their own, we really acquired them because they were kind of one of the top automation companies in Canada, and we knew they had the capabilities and the base, kind of the bones of putting together a digital platform for us. We bought them for that reason and have spent a lot of money with them over the last several years developing that platform. I would say almost every division we have has an active project with them. We are trying to embed smart technology into all our products and connect them together. Some lend themselves to that more than others. Some are further ahead. Michael showed you that we won a technology award on the OSB system, and we're selling that system now, and it's being very well received.
Others are earlier in the process. Some are further along. But it's one of those things where the customers, sometimes they expect it as a feature set, just as you do when you buy a new product. You expect enhanced features. With others, it's pretty innovative, and they're willing to pay for it. What we're really trying to do is figure out how to maximize the monetization of it. So for instance, Chad showed you that 42-mile-long conveying system with all those smart sensors. There's 66,000 rolls. We don't make conveyor belts, by the way. We make the rollers that those belts will ride on. On that particular project, there were approximately 66,000 of those idlers that it rolls on. And we embedded smart technology in each one of those. They signed up for a 10-year subscription on that.
So they're paying an annual subscription fee for 10 years for the management of that data and that software. And we have other projects where we've done that too. So in some cases, we'll monetize it through a subscription. Others, there'll be a one-off sale. And frankly, there'll be others where it'll just be a feature set that's expected in the product to stay ahead of the competition. But it's been pretty impactful for us. And as you saw, almost every division has an active project with it.
Hey, guys. Yep. Thank you for the time Nate Burggraf from Capital Group. Two questions. One, I think if I read it right, the working capital target, I think, is 12%-15% of sales. Yes, correct. Different people include different things in working capital. What is the baseline right now so that we know what that is relative to the current?
Current assets, current liabilities. That's it. Okay. Just the textbook definition. Okay. And right now, we're probably in that range. Yeah, we're a little bit running that range. Yeah, we're a little above the 15% currently.
Got it. And then second question is, for each of the different three segments, you guys had a chart that had the market trends, and it had a future CAGR going forward. And every single one of them had above 5% CAGR. And your internal projection is not above 5%. Is that just, hey, consultants sometimes are a little overly optimistic? Is it you guys are generally overly conservative? Is it?
Both. Probably a little all the above. It's both of those. The last five-year plan, I think our assumptions were like 2.5%-3.5% organic growth. And in fact, I think we grew at 6.6%. From 2019 forward, we were at 6.4%.
From 2018 forward, we were at 5.8%. In both of those, we had a headwind of 1%-1.25% on FX, so we kind of did probably about twice as well as we had forecasted, so we tried to be somewhat conservative. One of the things if you followed Kadant for very long, we've been independently public from Thermo for 23 years. We've never missed a single quarter guidance ever, and part of that is because our divisions are really on top of their businesses and their numbers very well. Part of it is we're kind of a fairly conservative organization. Our goal is to always kind of underpromise and overdeliver, and so we build that into our assumptions quite often also. I'll be thrilled if I'm sitting here a few years from now reporting that we handily beat the three to five.
Stacy, let's take a couple of the online questions.
Sure. The first question is from William Hiler from WDH Capital. Excluding acquisitions, annual capital spending has remained low for the past 15-20 years. Looking forward, is there a need to grow the manufacturing footprint in select divisions or product lines to meet rising demand or optimize distribution? Or is current capacity viewed as adequate? For the right product lines, I would assume this would not be a negative. Yeah, so Mike mentioned that we spend a couple% on CapEx.
One of the great things, as I mentioned, is we have very long product life cycles. It's not like we're selling products where the customer expects you to reinvent it every few years with new feature sets, new looks, new feel. So our products last 30 years, anywhere from 10-30 years.
So we're not having to retool our facilities. You put a machine center into your facility, you can spend $1.5 million on it and just run tens of millions of dollars of revenue across it for a very long period of time. So we have great operating leverage, which you saw there in some of our numbers. That being said, we built a brand new facility outside of Cincinnati a few years ago and consolidated facilities from Alabama and from Sweden into that. We just cut the ribbon in Finland this summer on a major expansion of a manufacturing facility there because of the introduction of the new VFR that Michael talked about, that variable flare reducer. And then in China, we were forced to build an entirely new facility because the residential area built up around our factory.
In that case, the Chinese bought our facility for what it cost to build the new one, but we built a brand new state-of-the-art facility, which we just opened up in the last year. So we have made selective investments to make sure that we're properly positioned for growth going forward. But we do enjoy the fact that we have great operating leverage and we don't have to invest a lot of money in on a given year. You had another question?
Yes, I have a few more. Another one from William Hiler from WDH Capital. Given the substantial multiple expansion of Kadant shares the past few years, improved cost of capital, would management be more open to using some equity to finance acquisitions, allowing for more flexibility in pursuing larger deals?
Yeah, I would say that's always on the table.
It's actually a very good question given the goals that we've set, because I believe to accomplish those goals, we will have to acquire, I calculated, two larger businesses. So we may decide to use equity, but the cost of equity is expensive. Our preference is not to do that. But if we found a great business that we felt we could bring into the Kadant family and create value with, we would certainly consider that option.
Okay, the next question is from Walter Liptak from Seaport Research. Hi, Mike. What is your assumption for the five-year targets for organic sales growth, M&A and FX? What do you assume the gross margin should get to by year five? What do you see the SG&A percent by year five from the 24.5%? Do you want me to repeat it? I'll just say, any other questions?
No, those are all good questions. On the organic revenue growth, the plan is 3%-5%. The M&A is 6%-8%. So that's going to give you a CAGR of 9%-13%. Regarding FX, no crystal ball on that. So I can tell you that when we were developing the model, I did think a lot about it because it's been a persistent headwind. So I would say I was a little more cautious on the organic because it's been a headwind for 10-plus years for us. Can you give me? I can tackle the other ones there. Give me the SG&A.
I think you talked about M&A, FX, gross margin. What do you assume the gross margin would get to by year five? Gross margin, SG&A, good question. I think that we can get some incremental gross margin expansion.
In our last five-year plan, we really didn't model in any improvement. But in this one, we've modeled in about 100 basis point improvement in gross margins and 100 basis point improvement in SG&A spend. Now, keeping in mind, that's to the EBITDA target. And that's why I took the time to mention that our amortizable intangibles in this plan would grow from 18 million to 63 million. And that's $1 to a little under $4 a share. So what you may see then is just a pure percentage of revenue is you may see us kind of maintaining or slightly increasing as a % of revenue. But a meaningful component of that is non-cash. And if you trim that out, we're looking to decrease our actual cash spend by 100 basis points.
Okay, another question from Walter Liptak from Seaport. Hi, Dara. This is an 80/20 process question.
Did you create a monthly process for the businesses to run the 80/20 data and report on the 80/20 projects being worked on? Does the 80/20 review process get to Jeff and Mike on a regular basis?
The answer is yes. So all of our businesses that are doing 80/20 report on standardized KPIs that show how they're doing from a revenue perspective, gross margin perspective, numbers of products, customers, etc. And as I said, we standardize those KPIs. And we have a quarterly meeting where Jeff and Mike and the rest of the management team, including the sector heads, review those. I think that was that all the question? Did I get all that?
Yes, monthly process to run the data and reports, projects being worked on, review process with Jeff and Mike. Yep. Okay, another question from Walt Liptak at Seaport.
What is the penetration of illumenX in the Kadant installation base? Are some products automatically sold with it, request only or request only?
So I would say we're in the very early stages of that. So we're not generating a lot of revenue from that. We do have products out there that are running it. In some cases, it's a beta. In others, it actually is commercialized. And we're taking orders for them. But generally speaking, we're in the very early stages of our kind of Internet of Things developmental work. It goes slower than you would hope. And frankly, it gets adopted by the customer base slower than you would hope. They're always cautious, especially when it comes to data, who controls it, cybersecurity, access, all those different things. So it's a process.
But we're pleased with where we are in it, but we're definitely in the very early stages.
Okay, another question from Walt. Is the web shop working? When was it started? What are the sales that are generated from web shop? Are customers using it?
Where's Craig at? Right there. Craig, you might get a mic. We'll get you a mic. You can kind of answer that.
So we are at the final stages. We went through an ERP change. And so the web shop talks to the ERP system. And so when we changed the ERP, all of the links, all of the connections fell down. So we've got our final testing next week before we go live. So we had sales through the web shop prior to the ERP change, which was through our agents and distributors, so connected parties rather than external companies.
But we will be ready to go live early 2025.
Okay, the next question is from Sid Ramesh from Janus Henderson. Where can SG&A as a % of sales go to? What are the primary drivers?
Well, as I mentioned, we're looking at trimming 100 basis points out of the spend, excluding the non-cash items. And how was that question phrased again, Stacy? How low can it go, he said? I think the issue is part of it, as I mentioned, is the public company expense. So as we continue to grow, we'll get additional leverage from that. There's a certain amount of SG&A just required at the business level to run the business, to make the sales, to count the revenue and report the financials. We're always looking for ways to optimize that.
Dara went into great lengths, I think, talking about how simplification of your business through 80/20 allows you to reduce that cost. But there is some minimum cost that is required to do that. I think some will come from the internal initiatives, and others will just come from the leverage we get on the public company expense. I would say all of our numbers, be it revenue, profitability, SG&A cost, it's kind of like continuous processes that you have in your manufacturing operation. You're never done. The increments might get smaller, and it gets harder and harder to squeeze it out. But we will never be done trying to increase revenue, increase our profitability, and decrease our operating cost. So it's just an ongoing process that never stops.
Those are all the questions I have online. But if there are any others, please submit them. Thank you.
So we'll open it back up for the audience if there's any additional questions.
All right, thank you. Kurt Yinger again. Mike, you mentioned maybe two larger deals. In terms of platform step-outs, is that a situation where in the back of your mind you have a product line or an end market that you don't currently serve that you would love to be in? Or is it really business-led where if a Syntron comes along? I don't know if you were thinking about infrastructure and those types of markets. But how should we think about that going forward in terms of potentially another platform expansion type deal?
Yeah, as we thought through it, I think, as you said, it's kind of more business-led.
As I thought through larger transactions that we've looked at and whatnot, some have been outside, but almost all have been within our current product offerings.
Got it. Okay. There has been a tremendous level of consolidation, at least on the forest products side, over the last number of years. Can you maybe just talk about whether that enhances the relationships that you tend to have with your major customers, maybe how that impacts conversations around exclusivity or usage of Kadant across the entire platform, and maybe how that factors into what you see in the future if we were to see that trend continue?
Sure. There has actually been a decent amount of consolidation in several of our markets. We always say we'd much rather have 10 profitable customers than 20 break even. Profitable companies tend to invest in their businesses.
And so generally speaking, we're for that. On the wood processing side, specifically that you addressed, we have very, very high market share. You'll remember Michael talked about we have 80%, sometimes 90% market share there. So from that standpoint, we don't believe we're hurt by the consolidation that's occurring. To the extent that that makes it better balance supply and demand, makes them more profitable, and enables them to invest more back in their business, we actually think it's a positive for us.
And then maybe just one more going back to illumenX and Cogent. Is that something over time? Obviously, there's a cost impact to adding these features on to different products and whatnot.
But where the dollar value of a product just has a natural kind of inflation above and beyond price, where you see that as something that could potentially accelerate organic top-line growth to a greater extent than you've seen?
Yeah, I mean, it's going to be important, and it's going to be expected. I don't know relative to our size and the cost of our equipment that it will ever have an outsized impact on our business. I doubt that's the case. Where I think there is some opportunity is on these monthly and annual subscriptions, because that essentially is like a consumable. And if anybody follows the software, the SaaS models, or anything, you know that once you get those signed up for, obviously, they're very steady. They commit to long-term contracts. And you don't have a lot of additional selling expense. It's just a maintenance expense with those.
So that could be pretty impactful, I think, to the bottom line. But we're so large, and our equipment is so large in dollar amount that it's unlikely that we're going to see any of this kind of digital technology start to outweigh what we generally generate with our business.
Thank you, guys.
Any others? All right. Oh, we got one here. Okay.
Hi, Derek Johnston, Conestoga Capital. Just a question on what your customers might be saying about potential tariffs in Canada and the impact on that lumber supply. We have enough housing headwinds from affordability, from higher rates. What could that impact be like?
Yeah, I mean, of course, there's been tariffs on wood coming in, softwood coming in from Canada for a long time.
In fact, between that and the stumpage fee that the Canadian government's charging, and then the pine beetle out in the west, an awful lot of the Canadian mills have moved down or bought companies in the southeastern United States, so an awful lot of that capacity has already moved down, but it's something to watch. I mean, obviously, we have a new administration coming in, and his favorite word other than the border is tariffs, so it's our hope that an awful lot of that is negotiating. He'll use that as leveraging, as bargaining power, but it's something that we always keep a close eye on, but I think the Canadian companies have done a pretty good job in getting assets, putting assets in place in the U.S. to offset that if need be. All right.
If there's no more questions, then we do have reception and product demonstration set up around the corner here. I think there'll be somebody to guide you if you're available. I would encourage you to stop by. You can talk to some of these subject matter experts that we have here. You can take a closer look at some of the products and just mingle with the crowd. So thank you very much again for coming today. We really appreciate that. We know it was a long day, a lot of information. So we really appreciate you taking the time to do that. We thank you for your interest in Kadant. And we look forward to reporting back over the next many years as we reach our next five-year targets. Thank you.