CGTech, Inc. (SAND) Earnings Call Transcript & Summary

Hello, everyone, and welcome. And thank you all for joining us today on this call about Sandvik's recently announced acquisition of the software company, CGTech. So during this hour, we will go through a presentation followed by a Q&A session. My name is Emelie Alm, and I'm joined here today by our President and CEO, Stefan Widing; our CFO, Tomas Eliasson; and Sandvik Machining Solutions President, Nadine Crauwels. With that, I would like to hand the call over to Stefan.

Thank you, Emelie, and hello, everyone. Hello, everyone, again if you joined us on Friday as well. So I'll start, kick things off with a few slides regarding our overall strategy and then I'll let Nadine comment on the company itself. And Tomas will comment a little bit on the financials. But let's get started. So next slide, please. We'd like to start by doing a recap from our Capital Markets Day in 2019 when, in a way, that the updated strategy for SMS then were launched with the statement that it's our vision to become the world-leading solutions provider to the wider component manufacturing industry. And this broadly still holds, something we have done now, some updates to the structure, which is more related to how we intend to execute on this. And I think we are gradually, as through this as well, maybe being a little bit more focused on narrowing a little bit what we mean by this. But the direction still stands and that is in the light that we should see the acquisition today. Next slide, please. This is what we talked about already back then, but we look at the component manufacturing value chain as being 2 main parts -- sorry, 4 main parts. We have the component design stage, production preparation stage, the machining and then verification. We aim to address all of these, although I've been saying also since I joined that I believe the component design part will probably be not fully in focus, but that the 2, the step before and the step after machining are the ones we will focus the most of on this. But there might also be aspects of components design that will come into play eventually. And we will address this through both our own solutions that we develop in-house through acquisitions and through partnerships. So far, today, we have done one, I would say, more significant acquisition here with Metrologic in the verification space a couple of years ago. We have our own solutions in both product preparation and machining, of course, and we also have a number of partnerships. And now today then, we announce the intention to close the next acquisition in the space. Take the next slide, please. This, you might also have seen before, when we these different steps in the value chain and allocate them out on an illustrative machine shop floor and the workflow here. Obviously, our real core is in the machining in the middle, and then we have the various steps surrounding that. Now if we take the next slide, please. What we're focused on today is going to be around the product preparation because this is where this acquisition fits in. And also product preparation, there are several steps. And should be noted here that I would say most of these steps will actually be part of what Sandvik manufacturing solutions will focus on. But the steps that are close to machining, also SMS, will be focusing on. And that is the case then today. If we take the next slide, please. This acquisition is active in the simulation, verification, optimization part of product preparation. And there are also various tools or solutions here. This in particular is very close to the machining. It basically takes the code that is being put into the machine, matching it with the selected tool and the selected machine and do a simulation, verification and potential optimization of that. This is very close to the machining process, which is, first of all, where we believe we can add a lot of value. But it also means that the competence and skills in our tooling divisions become very important. And this is why in this case, we believe that is even better than in the SMS part of the business. But this might be even more clear when we go through the actual acquisition. So if we take the next slide, please. We will now have a few slides on CGTech and I will let Nadine talk to that in more detail. So Nadine, please.

Yes. Thank you, Stefan. And also hello to everyone on the call. My name is Nadine Crauwels. And said before by Emelie in the introduction, I am the President of Sandvik Machining Solutions, but that is very recently so since the 1st of October. Before that, I have been the President for Sandvik Coromant for the past 3.5 years. So let's dive into then CGTech. What is this company about? And let's go to the next slide to see some more details. So CGTech is a global market leader in software for this numerical control, simulation, verification and optimization. CGTech is a company established in 1988, has the main headquarter office in the U.S., in California, and is founded by Jon Prun and he as well is current owner and CEO. CGTech is a company that has around 180 employees with a very strong also part in R&D. So from the 180, there are 36 who work in R&D. But also very much shows that this is a technology leader and also a market leader in their product. On the revenue side, in 2019, it was a USD 49 million, and they have a truly also global footprint. So you see it a bit on the picture on the right. So the global footprint goes into the main areas, Americas, Europe and Asia. So they are having also there a very good complementary fit to our global footprint. When we think about the customers, it's also a very good spread. So when you think here, Americas, 44%; Europe, 32%; and Asia, 23%. So also not only the global footprint, but also the spread of the business is very well balanced. From an industry segment perspective, they have activities in quite a spread of segments, but they also have a large presence in aerospace and defense. But also very active in machinery and tooling, automotive, mold and die and also medical. So they have a broad coverage. What they are developing and introducing is products that are extremely important for us as well to be CAM machine tool and cutting tool neutral. So they are able to work as a stand-alone or in conjunction with all the major CAM suppliers. So that makes, of course, the reach very large into the market. Their way of doing business is a modular pricing strategy with maintenance recurring revenues, and that has an account for about 51% of the sales. So that is describing a bit who CGTech is as a company. When we look then on the next slide, we go a bit more into what is it that they are really contributing with. So explaining a bit more the product and their value proposition related to this. The product that CGTech is very much known and very much putting an industry standard into the market is what we call the VERICUT product. And that is industry standard for the simulation and also for the verification. So what we really aim here is to detect errors, potential collisions and a lot of areas of inefficiencies, so how can we optimize the process. So that brings us to the value proposition, what is really related to increasing productivity, increasing efficiency or, in other words, reducing waste in the value chain of the customers. And that can be done in different ways as we put here into a few bullet points by eliminating the process of this manually proving out and NC programs that is still happening quite often in our industry. Then reducing scrap loss and rework. So it is a lot of cost avoidance that can be realized with the VERICUT products. And also the next that is not only kind of avoiding or eliminating, but it's also optimizing. So really to gain productivity. So optimizing programs, what is really an ability to differentiate from a customer perspective and to create added value, save time and produce higher quality. As we said before, it is ability to simulate all types of CNC machine tools. So it has really a broad coverage from all the leading manufacturers that can be reached into the total market. So we have VERICUT as simulation, verification and optimization software, so covering the 3 different parts of it. And then also with different modules that is also designed versus different processes in the manufacturing and including, for instance, also additive and drilling and also materials that can be optimized. There is a part of, of course, maintenance and training and other services that also provides a part of the revenue stream. So this is the value from the product and the value proposition. If we would go to the next slide. Then we can see how does this company have a strategic fit with Sandvik Coromant and Sandvik Machining Solutions. Well, CGTech is, as also Stefan highlighted, it is the closest to the machining part that it can be and also to put the machining knowledge into kind of an extra dimension to create productivity and reduce waste. But CGTech is a Sandvik Coromant market leader. So we are adding here a leading player as close to the core of what we are realizing in Sandvik Machining Solutions. It is a premium offering with a very strong brand. So CGTech has a strong brand with a strong brand name on the product, being VERICUT, with also a very good name and same on customer reliability and also service levels. Also, the platform to provide machining strategies. What is a differentiator for productivity in the future, not only purely the product is, of course, a very good strategic fit. Healthy profitability, source of recurring revenues is of course also a part that is in our strategy to move forward and have a combined offer and revenue streams that will be established. And then we all talk about digitalization. So in this strategic fit, we also need to say that it is a huge opportunity for a digital twin leadership in diverse applications. And then we talk about feedback loops. So by having this in the portfolio, it's the ability to have feedback loops that increases the efficiency from the machining into back the recommendations of the tools for a customer in their processes. So it is extremely important strategic fit that relates to product preparation much closer to the absolute and the machining effect. So that is my part of who is CGTech and how does it have a value proposition and a strategic fit with us. So by that, I want to hand over to you, Tomas.

Thank you, Nadine. Just a few words on the transaction as such and a little bit on the financial impact. So next slide, please. Thank you. About the transaction. We have agreed with the seller not to disclose the consideration. So no information on the enterprise value as such. The sole seller is Jon Prun, also the founder of the company. We estimate the deal to close at the end of the fourth quarter this year, this quarter, of course, subject to normal or customary regulatory approvals. When it comes to the financial impact, CGTech will be slightly margin dilutive to Sandvik manufacturing and machining solutions. But having said that, of course, this is a very healthy company. It has a customer base, it has earnings, it has a good cash flow, et cetera. The EPS impact for the group will be neutral, including PPA amortization. Of course, as this is a software company, it comes with a software company multiples. A little bit different compared to normal bolt-on acquisitions. That means that there will be quite some bit of goodwill and materials in this, and there will be a PPA amortization. And of course, we don't know what that PPA amortization will be. We just have assumptions at this stage. We will, of course, know more when we close. But our assumption right now today is that it will be neutral. It's a plain cash deal, nothing strange about that. And then if we look at the impact on the group balance sheet, Sandvik today has a very strong balance sheet. The gearing is very low, 5% or 0.05. Net debt over EBITDA is barely measurable. Of course, this deal will have an impact on the debt KPIs, but they will be very limited and they will not, in any way, jeopardize our credit rating KPIS. So with that, we can move on. Emelie?

Let's do a summary then. So let's go to the next slide. Just to summarize then. We believe that this is a very strategic acquisition for us. It adds a market-leading software player very close to the core machining part of the business. It will also, as part of that, I believe, add in a way a bridge from the core machining to manufacturing solutions. So it's a very important piece of the puzzle to add to the business. Notwithstanding that it's a really nice company on its own as well. So it's a strong strategic fit. It has grown nicely historically, and we expect it to continue to have a healthy long-term growth prospect for sure. And of course, it takes then us one step further on the journey to expand into adjacent areas, especially around software and services. So we are really happy to be able to announce this acquisition today. So thank you. With that, I think we'll go to Q&A to open up for questions.

[Operator Instructions] Our first question comes from Magnus Kruber from UBS.

Stefan, Tomas and Nadine, I'm Magnus Kruber from UBS. First, of course, you haven't said anything about the price. But is it reasonable to assume it's not too far away from what you paid in 2018?

Well, I'll pass on that since I wasn't here. Tomas, do you have any comments?

Well, we have agreed not to disclose the price, but I was alluding a little bit to that. As this is a software company, it comes with software multiples. So of course, it -- without comparing to Metrologic, which I guess you're thinking of, but it's up in those neighborhoods. But we can't talk about it exactly. Yes, we can't talk about it exactly.

Absolutely.

I would say, I mean, there are no -- all the multiples are what you would expect versus what the trading and so on. So there's nothing, I would say, newsworthy about it in that sense.

No, it's nothing strange. No, nothing that sticks out really.

And secondly, could you comment a little bit how fast the company has grown in the past? And sort of where you expect revenues and margins to be in this business in, say, 3 years or so?

The -- historically, they have grown in the high single digits, and that's approximately where the market is as well in terms of growth rate. We expect them to continue with that. On top of that, we expect some synergies on the go-to-market. Then the case is also built on that some of these synergies are, quite a lot of them actually, will also be in other parts of the business. So we expect that this can also drive hardware sales and so on. So when we look at this company 3 years from now, we will not see all the benefits in this company P&L only, so to say. But even, let's say, stand-alone, we expect the synergies we can bring to them to increase their market rate going forward as well. And of course, the good thing, is I can say that with PPA is that it's a fixed cost, which means when you grow, you gradually get leverage on it. So of course, now you start to improve the margins as well.

Absolutely. And just finally, what kind of market share would you say you take that? You mentioned they have a strong brand and a good position. But is it possible to be a bit more specific?

I don't think we can -- I don't think we want to comment specifically, but it's very high. Let's phrase it like that. It's multiples on the #2 in the industry. There are really no strong competitors then.

Okay. That sounds promising.

Our next question comes from Andreas Koski from Nordea.

You mentioned that 50% of sales are recurring revenues but could you please give us a sense of how it has performed in Q2, in Q3 now during 2020 to better understand the cyclicality of this business?

Nadine, you want to take that a little bit how they have managed through COVID?

Yes. Partly, they have had -- as they have been very active in aerospace, they have had the same impact as other companies in the software, but there has been a good holding on to the recurring revenues on the maintenance. So they have a good pipeline on that. They have been diversifying into different other segments. So to kind of also compensate on the change that is happening in aerospace, so to say.

Okay. Yes, because I saw that you mentioned aerospace and defense as a key end market, and automotive was also on there. So how much of sales is aerospace and how much is automotive?

It's not going to be in the percentages. I mean it's -- aerospace isn't important, but we also need to divide aerospace into different blocks. There are the space part and the defense part is still going well. So it's a mix of good and parts that has been suffering. And then, of course, in the automotive also they have elements that are still holding up and also having the recovery as we see in other areas at this point in time. And then they have been working also on other segments, as we talked about as in the medical and the die and mold to diversify in their approach.

I was probably a bit unclear. How much of sales in 2019 was to the aerospace industry? And how much was to the automotive industry?

I don't have those exact numbers available.

We can come back with something there.

We can.

Our next question comes from Klas Bergelind from Citi.

Yes. Stefan, Tomas, Nadine, this is Klas Bergelind from Citi. A couple of questions, please. First, on the relationship in the past. Did you say that you bought this technology from them before? So it was a supplier. So it says that the software is sold as a license. I'm just trying to understand more how it will become a Sandvik proprietary solution or if the software will be sold outside as well.

You can take that, Nadine. And you can also comment on the historic relationship that you have with them.

Yes, there is a collaboration with CGTech and the VERICUT product. As we say, VERICUT is a market-leading product, so we have been using it in our own premises. And that is also in, for instance, in the EMO production unit that has been highlighted as a lighthouse by the west in recent times. So that is also part of optimizing the flow and optimizing how we are moving with the production units into the future of 4.0 lighthouse, so to say. So there has been a very good collaboration, and that also goes into other parts of the production units as we serve our own industry. So that is extremely important. And we are, of course, moving ahead with CGTech has as owned strong brand. So we will, of course, keep it also at supporting 2 strong brands, Sandvik Coromant on its own and CGTech on its own. And then, of course, we see synergies of leveraging on the go-to-market and the leads. But as CGTech is, as we said before, CAM and tooling supply neutral, of course, they will also have and continue on that path.

Okay. My second one is on -- for you, Stefan, on product preparation and verification with machining in the middle. And you say that obviously, now we're closing the gap in machining. It's the bridge over, and that's really interesting. But you indicate that there is more M&A to do in preparation and verification. And obviously, we have Metrologic on the verification side. But could you -- I know that you will talk about this during the CMD, but what is the opportunity here? Because obviously, you take machining is not adding that much sales to group. Yes, if you could elaborate a little bit.

Yes. We will come to some of the markets and on the figures, as you said, on the Capital Markets Day. But overall, when we look at these 2 areas, if we start with the product preparation piece, we can go -- we have some of our own solutions in CAM as well that we are right now testing on the market. And I think there is more we can do there. So there is a wider scope in the product preparation part as well. And then on the Metrologic side, there is also more we can do in the, let's say, the manufacturing part of Metrologic. What you will see on the Capital Markets Day as well. I mean we shouldn't expect this short-term to add tremendous amount of -- in our additional revenue because even this, which we believe is a very good addition. From a Sandvik perspective, of course, it's -- the revenue is still relatively small. But what I think we should expect it to do is to gradually increase the portion of higher growth areas in this part of the business. And through that, also increase our, let's say, strategic relevance that we believe will also protect them and help the core hardware business. So without going into specific figures, which you will get more of on the Capital Markets Day, we should have the right type of expectation I think that it's -- this is not a volume -- revenue volume game in the same sense. I think there is more to gain on more bolt-ons and so on if we just want to add the revenue. But what it will add is structural growth, which the more we increase its share of the pie, it will actually start to add to the CAGR of the Machining business as well over time.

Yes. No, I never expected it to add that much to top line because if you buy companies at 5 to 10 times sales, probably, yes, it becomes a little bit different. But at the same time, this is my final point, promise, is that the more deals you do, there is a bottom line impact over time as well because you create synergies rather than in the first deal, right? So there is a roll-up opportunity as well, I guess.

Yes. Yes, you're right. I mean of course, the first one you buy in a new area, so to say, there is less synergies. Now in this case, we have not so much bottom line synergies or none, we are probably going to invest rather, but there is go-to-market synergies, both in CGTech and in Machining Solutions. If we buy other similar companies, then, of course, over time, we can also realize bottom line synergies because you can start to add shared technology components and know-how. So -- but that will come over time and then when we do more. And that's why I'm also saying, we -- the aim is to do more.

[Operator Instructions] Next question comes from Anders Roslund, Pareto Securities.

Yes. I had a question regarding the press release from yesterday. You said that there would be -- the acquisition would be EPS neutral initially. Are there some heavier PPA amortizations in the beginning? Or is it just that as it grows, it gets less important? Or how should we see upon that wording initially?

No, but it is, as I mentioned in the beginning here that since the PPA -- first of all, we haven't -- we don't know exactly the PPA and/or the amortization strategy for it, so to say. That will come when we get closer. But assuming it's a flat or linear amortization, as we grow the company, that stays flat, which means we get leverage on that. And then when grow, you start to get the contribution to EPS. If it starts basically at 0 and then we grow, we get leverage on it. So that's why we say initially. It should, of course, contribute to EPS eventually, otherwise, it would not have been a good acquisition.

No, but sometimes, you could have some amortizations that are heavier during the first year, taking some more of the profit. Okay. Then the second question was about Metrologic. Will you have some synergies between those 2 entities?

That I would say, with this one on Metrologic is I think it's pretty far-fetched. They will be in the same data loop eventually. Comparing the outcome in the Metrologic part to the design and the cutting process, so to say. But I don't think that these two, in that sense, will be directly connected. There will be other things in between, so to say. But in the sense that they will both contribute to the closed loop, there are synergies. But yes, I would still call them fairly far-fetched at this point.

So there is no sort of idea? That's another question before here that you would separate the software parts of the business into another division or something like that.

Yes, that is Sandvik manufacturing solutions then, which -- where most of these solutions will end up. The reason we have decided that this one in particular will stay within SMS and Coromant is because it's so close to the machining process. It's all about understanding and knowing the tools and the process. So we'll also, when we look at the synergies, we believe that the 2 of them working together will maximize the value creation here. So this one will be in SMS. But of course, both Machining and manufacturing solutions segments will also work together tightly so -- but it's not really about creating just a pure software division because I also think that Machining Solutions and Coromant, they also need to digitize. So it's more a matter of whether you are very close or a little bit more adjacent towards the machining process that defines where they are located in the business.

Our next question comes from Andy Wilson from JPMorgan.

Just a couple really. I'm just interested on the process by which the acquisition was done. Was it -- I guess was it an auction process where there were other parties involved? And kind of if there was a trigger for, I guess, this event given you've obviously known the business for some time? Just interested as to anything that impacted the timing. And I guess second question linked to this is whether you saw interested parties in this acquisition at the time that you were doing it or not. Just what you're seeing from your competitors in terms of looking at assets like this and just the general shift of how your competitors are, I guess, approaching the sort of digitization of machine tooling?

Yes. I mean there -- it was not a straight -- I mean they didn't run a straight auction process. It was -- but at the same time, at least to our understanding, there were also -- I mean there were competitors. It was a competitive process. Then whether it was our classical competitors that were involved or not, that of course, we don't really know. I would be very surprised. However, I would suspect that in that case, it's either a PE firm is probably the most likely one in this case. We know that some of our other, let's say, industry peers that are into software and closed-loop manufacturing and metrology might have been interested in the past, but the seller has been quite picky as well to pick what we believe was the right home for this company in terms of culture and staying close to manufacturing and machining.

And maybe just sort of an extension of the second question is just to sort of get a sense of that. You are seeing I guess the kind of nontraditional competitors in this space as opposed to the sort of names we just traditionally associated with SMS.

That would be my take, yes. Nadine, do you have a different view?

No, no. I think at this point in time, it is more likely that it is outside of our traditional competitors that we see in the field than the ones that we would see in the same tooling or business. Yes, yes.

Our next question comes from Max Yates from Credit Suisse.

Just a couple of questions. So just in terms of the customer base. Of that USD 49 million of revenue, how much does the largest customer or the top 3 customers represent of that? Just trying to understand sort of the diversification of the customer base.

Yes. The top 10 customers are only kind of 10%.

Okay. And...

So it has a high diversification in that sense.

Sure. And just to understand a little bit about the sort of market growth prospects. Is the driver of the market growth here the technology and the software going into new end markets? Or is it primarily a sort of penetration story where these are the most relevant markets, aerospace and defense, automotive, and you're pushing further into more customers that are using the software that previously didn't? Just to understand a little bit about what's actually driving the underlying market growth.

It is a combination. It is clear that when we talk about productivity, productivity goes into different steps. And now productivity in the next phase is around connecting the different elements or steps in the value chain. And that, of course, increases the possibility of the penetration of these products. Also, the more complexity of components is driving this very fast forward. And then of course, we have certain specific segments, but it's both kind of enlarging in different dimensions, I would say.

Okay. And just in terms of as you integrate this business, so your -- how you think about your sort of sales force that you have and the way that you go-to-market with this business in the context of Machine Solutions. I mean is it that you sort of keep the Metrologic -- sorry, the CGTech sales force on? Do you try and sort of train Sandvik employees that are involved in sales and SMS to be pushing this? How do you think about kind of the first couple of years of integration into the sales force and the go-to-market with this business?

Of course, I mean, when we talk about the business from CGTech, it has a synergy that goes about leads, leads from CGTech into Sandvik Coromant or other Sandvik Machining Solutions and the other way around. Then it is very strong to drive the enhancement of the products of the optimization. We -- of course, we will use marketing synergies to kind of use the ways how we go to the market through our centers. We will use, of course, also our own production units and show the advantages to our customers. And then we will use also the different channels. As we said that the CGTech is a product that is neutral versus the CAM, the machine tool makers and so on. So we will also broaden the view of going to market opportunities. So it's not purely a 2-company-only kind of sales force. So we will use all the channels that are available.

Okay. And just -- I mean just finally, is this something when customers kind of do invest in this software, is there something that they've tended to kind of retrofit into existing manufacturing setups? Does it normally come when they kind of build a new factory? And what is kind of normally the trigger, or at what point do they sort of buy the software? Does it tend to be with the actual kind of machine tool itself? Does it tend to be when you're setting up a factory or when you're replacing a machine tool? I'm just trying to understand when that sort of exact decision is normally made to invest in the software.

It's not particularly with new factories or new machines. It's more component-driven decision, whether in certain segments, components or extensive. It needs to be reliable, it needs good. You need to kind of improve your efficiency in existing production sites. So the trigger is more on optimizing on efficiency gain in existing or in new facilities. So it is not related to new investments, so to say. It is optimizing existing and then potentially also kind of optimizing new factories. But it is a lot driven from efficiency gain on also existing.

Okay. Understood. And just very final short one. So in terms of the management, so Jon Prun, will he stay on within the business after the acquisition closes? Is there a sort of lockup period that he'll stay with the company?

He will stay on and -- because, of course, we are -- CGTech is a strong brand, has a strong plan, a strong strategy moving ahead, what we of course want to secure. And he will stay on after the closing.

Our next question comes from Sébastien Gruter from Redburn.

One -- two questions and a follow-up on Max' question on penetration. I mean do you know the proportion of your 100,000 customers addition that are using CGTech or similar software? Or maybe if you have an idea of how many customers CGTech itself today? That will be it. And my second question is about just trying to understand the competitive advantage of CGTech versus big CAM players such as [ finance ] that offer controllers CAM and now simulation as well.

You want to take the first one, Nadine?

On exact amount of customers, I need to come back on the numbers, so that -- I cannot give here and now.

Just do you know if it's quite usual to see your customers at SMS using VERICUT?

Yes. I mean we are ourselves within Sandvik Machining Solutions in our own brands and units, we are using it ourselves. So it is a very common usage in our customer bases.

On your second question, there are -- there is a trend among CAM or also CAD/CAM suppliers to also start to include simulation and so on into their software. They are not -- according at least to our understanding and to CGTech, even close to as advanced at this stage. There is a strong selling argument from CGTech, which is the independence. Meaning it's like a student correcting their own exam, really, if you exclude it to some extent. So the fact that it's done by an independent software with independent, let's say, code creates an additional level of assurance that the code that is being tested is really good, so to say, very -- both from a -- that it actually works and also from an optimization perspective. And we know that, that is important from many of VERICUT -- or CGTech's customers. That said, I think we will have both in the market. There's no doubt about it. So -- but we believe there is a specific market for the independent type of tools that this represents.

Our next question comes from Maddy Singh from Bank of America.

Just a couple of questions. The first one if I were to think about your overall software technology ambitions, as you have also mentioned previously on some calls. So this acquisition, would you say that with this acquisition, you are still at the initial phases of your overall tech ambition? Or you have gone midway or -- so if you could tell me in overall, take ambition where you stand right now with this acquisition? And secondly, in terms of -- one of the slides I saw that you mentioned CGTech itself is also offering solutions around additive manufacturing. So how big is that for CGTech? And is that also part of the reason why you have acquired this company in terms of protecting yourselves around any threat from 3D element, printing or additive manufacturing?

Yes. So on your first question, we are not even close to midpoint. Let's phrase it like that. And of course, it's -- how far have we come, it's a matter of a time perspective as well. It's difficult to answer that in an accurate way. But we are not even close to midway towards where I believe we need to be. Maybe 10%, 20%. Then on additive, I would regard it as -- Nadine, you can say something else if you have a different opinion. But I would regard it as a fairly niche offering as part of their suite. They also do things in composites and a few other things, but their core is in the machining aspect. That said, this is one of the -- it's not the reason why we acquired them, but they also do 3D printing. But it's a good attribute that several of these software companies have is if they do more than just machining because then, obviously, they also get more resilient towards whatever manufacturing technology will be used among the customers. So I think it's a good attribute, but it's not one of their core parts of their offering, so to say. What would you say, Nadine?

Yes. It is as you say, it's a minority. It is -- the core of their product suite is more related to the verification, the simulation and then the optimization. So those 3 as the main and then focusing on the multiaccess, what of course is also a very interesting area moving ahead. But the additive is on the minority side. But interesting but not the main at this point in the offer.

Just one quick follow-up on the technology ambitions. Could you share how big is software or technology part of business as overall SMS or exposure right now?

We'll come back to that from the Capital Markets Day because we haven't really shared that in detail before. So we want to do it.

Our next question comes from Andreas Koski. He is from Nordea.

A couple of more questions if we have time for that. The first one is on pricing power. You mentioned that CGTech was multiple times larger than its closest competitor. So pricing power should be quite good, I guess. Do you have a sense how much of the high single-digit growth that CGTech has seen historically that comes from price increases?

Nadine?

Yes. Honestly, that has been a part that can be strengthening, honestly, because they have been market-leading and they are really kind of with multiples in the forefront, absolutely. But there is absolutely an opportunity to look into how working with the price component moving forward. So it has not -- has been used in a positive way, but not to the furthest expansion yet.

So the growth comes mainly from volumes historically, and then hopefully, you will add a price component to that in the future?

Yes, that's correct.

Yes. Okay. Great. And then a broader question on the growth outlook for Sandvik Machining Solutions because we know that SMS is meeting some structural headwinds in the coming years. And for the group, you have a growth target of more than 5% over an economic cycle. Do you expect SMS to be able to reach that too? And how much of the growth in SMS do you think needs to come from acquisitions to reach 5% or more?

Well, I guess you will join our Capital Markets Day. So if you could wait until then and see what we will present there, and see if you have a question.

Yes. I'll keep it for the CMD.

Our next question comes from Lars Brorson from Barclays.

Just two quick ones for me. Just on -- I was a little late on the call, apologies for that. But on the returns profile for the deal, Tomas, when do you expect to generate a positive return on this investment?

Well, this is a software acquisition, and it comes with software multiples. And let's say, if you would have a normal bolt-on acquisition, you would be normally accretive after like 5 years or something like that, but this will take longer time as it always does. So we don't have any more specific guidance than that right now. But it's more than 5 years.

And secondly, if I can just add to the growth profile, I think I've heard you say growing historically high single-digit in line with market. That's backward looking. What's the thought here going forward? Do you think -- or when do you think we might return to those sort of growth levels for this business?

Well, from -- you mean when they will start growing again, is that what you said? Or what did you say?

Well, I think you had some questions around aerospace. We -- I don't think we got a very good answer to it. So I just wonder what the current growth profile is of the business and what you see going forward as opposed to seeing going backwards.

We think they will grow at that number next year. They had some headwind now, but they will -- but we believe they will be back to growing next year.

That's helpful. And maybe just finally to that. I guess going back and looking at Metrologic, which at the time of acquisition, was growing at that high single-digit level. Pre-COVID over the last couple of years post integration. Have you been able to maintain that sort of growth for Metrologic? Just to get a sense for how these acquired businesses performed in the context of Sandvik.

I think we have to come back on that, how the -- where we were pre-COVID. We'll come back on that.

Thank you. There appears to be no further questions. So I'll hand back to the speakers for any other remarks.

Super. Thank you very much, Stefan, Tomas, Nadine. We will now close the call for this time. Thank you all for joining us today, and we look forward to speaking to you soon again.

Thank you.

Thank you.