Epiroc AB (publ) (EPIA) Earnings Call Transcript & Summary

Hello, and a warm welcome to the world of Epiroc. My name is Karin Larsson, and I'm heading IR department here at Epiroc. Okay, now I'm already coming to more slides than I should. So my name is Karin, and today is one of my favorite days in the year. It's the day when we get to present our strategy for profitable growth for Epiroc. We are all painfully aware of the pandemic and the development. So we are doing our best to keep distance, not only today, but every day. The CMD today is broadcasted live, and it's only broadcast that live to those registered beforehand. And that also means that you cannot download the material on our homepage just yet. But you on the webcast, you can in the left corner to the bottom, find at a little link saying download presentation. There you have it. We also would like to create a feeling of togetherness despite not being in the same room. And that's why we call the event CMDF, where the F stands for Fika. Fika is the Swedish practice of taking a break to enjoy some coffee and something sweet together. So I hope you have something sweet to enjoy during the presentations. I'm very proud to present the speakers today. It's a good lineup, and we will start with our CEO, Helena Hedblom. She has a long and successful history in the group. We will then get to hear Sami Niiranen and Jose Sanchez, and they will speak about innovation, Underground and on Surface. We will then have a short break after Jose's presentation, and then we will continue with a very exciting topic of aftermarket, and that will be presented by Jess Kindler. Then our CFO, Anders Linden will end the presentation before we do the Q&A session. And Anders, he will talk about operational finance -- operational excellence and the financials, sorry. [Operator Instructions] Mattias Olsson, my well-known manager, he will make sure that we have a smooth and efficient Q&A session in the end of the program. So with that, I hope I covered all the practicalities. And without further ado, Helena, please, the stage is yours.

Thank you so much, Karin. And also from my side, welcome to this event. This is my first Capital Market Day as CEO for Epiroc. I have been participating in Capital Markets Days before, but this time, both the role and the format is new. As most of you know, I have been in the company for more than 20 years. And since March this year, I am the CEO of Epiroc. Today, I will, together with my colleagues, we'll talk about Epiroc, who we are, our strategy and also our priorities going forward. There will be some comments on the near-term and about COVID-19, but the focus would be on our strategy and my priorities, which are valid both today but also in the future in the long term. Before I continue, I just want to say that I am very proud to have been given the opportunity to lead this fantastic company. We are now on our third year as Epiroc and are really excited to see what our organization has achieved in such a short period. And I'm also proud that we have been able to adapt, so quickly, to the COVID-19 pandemic. It is clear that we put safety first, always. And also recently, with COVID-19 has been a large impact for us. We have been adapting our ways of working, taking preventive and protective measures. Our priority is to ensure health and well-being and to make sure to support our customers to the best of our ability to keep their operations up and running. We have, during this time, also been pushing safety with our SafeStart program and with our program for Live Work Elimination, both aiming at reducing accidents. SafeStart is a process for improving safety awareness and personal safety skills. And the goal is to help each of us to prevent the errors and the mistakes that we never wanted to make in the first place. It is designed to sustain and become part of our culture. Live Work Elimination identifies and remove exposure to potentially dangerous energy sources that could cause serious injuries. And the goal here is to eliminate such risks, and we can use existing technology to remove people from Live Work Elimination -- Live Work, but we can also work on solution in the future to eliminate the risk altogether. We have a very good trend when it comes to lost time injuries. And I'm pleased to see that, but still, I'm not happy that we have injuries, and we should do everything we can to avoid these altogether in the future. So this is Epiroc in brief, an elevator pitch. We are a leading productivity and sustainability partner to our customers that are active in selective niches on mining and infrastructure, let's say, hard rock applications. We provide innovative, safe and sustainable solutions, it's equipment, it's service, parts, consumables and solutions for automation and information management. I mentioned that we are less than 3-years old as a company. At the same time, we have a very strong heritage from our many years within Atlas Copco, and we are building on that, keeping all the good things and continuously striving to do things better. And we strongly believe that there is always a better way. If we then look at our strategy, this picture is the basis of our presentation today. Our strategy is clear, and so are my priorities that I have highlighted many times, innovation, aftermarket, operational excellence and sustainability. So our strategy is that we will continue to invest heavily into innovation, securing that Epiroc remains the technology leader. We will also continue to grow our aftermarket to give us resilience over a cycle. And we will continue to strive for operational excellence, continuously improve performance, efficiency and effectiveness across the group. Sustainability is embedded in everything we do. And our innovation agenda is aligned with our customers' sustainability agenda. Of course, embedded in our strategy, is also to create options for the future, for example, through making selective acquisitions. And we aim to be the clear market leader in selective attractive niches within mining and infrastructure, which fits very well with the DNA and our strength. Our corporate culture, with our core values, innovation, commitment and collaboration is the foundation. And with strong people and leadership, we secure a high-performing organization. I will start to talk about our foundation, which is sustainability and a strong company culture and also about our focus on attractive niches and what outperformance means. Part of the foundation is to have a high-performing organization and to be an employer of choice to attract best-in-class talent. When creating Epiroc, we have put a lot of efforts into building our company culture. We want courageous leaders and passionate employees that dare to think new. And we want to foster a creative environment to allow people to be entrepreneurial and collaborate also outside the company. And speed is extremely important for us to remain in the leadership position. And with our strong company culture, our decentralized organization and our strong focus on sustainability and results, we believe that we have a very strong foundation. But we also want to be a vital part of a sustainable society. And as I mentioned initially, sustainability is really integrated in everything we do. And it's also a fact that our innovation agenda goes hand-in-hand with our customers' sustainability agenda. Our customers have safety and sustainability at the top of their agenda. Focus is on zero harm, no injuries and to reduce CO2 emissions. And our sustainability work is also targeting this. So we see sustainability as a competitive advantage and it's also a driver for long-term growth. Earlier this year, we set our long-term goals for 2030 that supports the Paris Agreement and the UN 2030 Agenda for sustainable development. Our goals are to have no work-related injuries and to half the CO2 emissions from operations and transports as well as from our machines sold. In addition, we have also put strong focus on adherence to our code of conduct. And last but not least, we have also the ambition to significantly increase the gender diversity in the group, and we have set goals to double the number of women in operational roles. To foster inclusion and diversity and help people with the right competence, but also those that think differently in our organization, is key to succeed today and tomorrow. It is proven that companies that has a diverse workforce will outperform. Which brings me to the next topic. As I mentioned, we focus on outperformance and on attractive niches. So what are then attractive niches within mining and infrastructure. Well, here are the solutions that we provide and the characteristics of our customers, it is solutions for demanding applications solutions for drilling and escalating hard rock. The equipment and the associated aftermarket are mission-critical for our customers, and they are technically advanced. Availability, productivity and the performance all have a significant impact on the success of our customers. And our customers are willing to pay for innovation for technology, for availability, productivity and superior performance and the aftermarket is critical. If we can support our customers to be true productivity partners to them to help them be successful, then we will also be successful. So what about outperformance? What does that mean? Well, we have a goal to grow 8% per year over the business cycle and to grow faster than the market and to have industry-best operating margin. This is what outperformance means to me. If we look at our performance since 2015, we have grown 9% per year up until 2019. 2020 has, of course, been impacted heavily by the pandemic but even with that in mind, we have had a healthy growth since 2015. Our reported operating margin is around 20% also this year despite the significant impact from the pandemic. It is an industry best margin. We believe that we can continue to grow to achieve 8% growth over a cycle with strong profitability. Here, of course, we also need to add and do some acquisitions, which we are continuously working on. But we believe that we can continue to outperform. So if we then look at the trends, in the near term, it looks like we have turned the corner of the worst part of the crisis, but the recent development makes the situation increasingly fragile. COVID-19 has caused a lot of disruptions and restrictions have varied a lot between countries. At the moment, all our entities are operational, even if we have some restrictions, and we continuously adapt our capacity to demand. The miller prices are at good levels compared to historical numbers, which is good. And the recent time, the investments in equipment has also been impacted by more cautious customers, so the average fleet age has also increased. For the long run, it's clear that we are in attractive niches of the mining and infrastructure markets, and there are positive fundamentals that drive market growth. It is a growing and urbanizing world. It's declining ore grades, and a shift towards underground mining and a strong focus on safety and sustainability. So the development near-term will, of course, depend on the development of the pandemic, but long term, the trends are positive. So this offers attractive opportunities for Epiroc. I will continue with some comments on the short-term and recap on our Q3 results. So in Q3, we saw a recovery in orders and solid results. We achieved organic order growth compared to last year, and the order intake was clearly stronger than in the second quarter. The customer demand improved compared to Q2, so we saw less restrictions from COVID-19. In Q2, as you remember, June was clearly better than April and May, and that continued into Q3. I'm really pleased to see the very strong development in our service business, plus 9%, but also that our customers took decision to invest. We had a few larger equipment orders in the quarter but the majority was smaller and midsized orders. We also saw a strong interest in our technology solutions, and we won several automation orders in the quarter. We also successfully deployed solutions for mixed fleet automation, and you will hear more about that later on in the presentations. The pandemic has been challenging, but we have managed the situation well. And we have executed on our efficiency actions, and we have made permanent adjustments to our cost base. So this was how we expressed -- what to expect onwards in Q3 report and it is still valid. So we expect that the demand, both for equipment and aftermarket will remain stable in the near term. But there are, of course, uncertainties regarding the pandemic. If we look at the disruptions from COVID-19 on production output, it is expected to be around 5% for gold and copper for the year of 2020. It was a larger impact in Q2, but the impact has tapered off. For Q3, it was a bit lower, and for October, the figures were minus 3% for both gold and copper. The other minerals that we have exposure to have a similar development. But going forward, the mineral production is expected to recover in the coming years. If we look at our exposure on mining infrastructure, we see that it is quite favorable. We expect that the electrification trend will drive the demand for copper and nickel. Gold looks to be favorable as well, certainly now with all these uncertainties, and also, we expect the hard rock activities in infrastructure, for example, tunneling to be favorable. As I mentioned, the metal prices are at a good level. We have an index to our mineral exposure, and it looks like this. So it's currently 65% above the level at the end of 2015. Here, of course, there is a question how much of the impact is the impact from the disruptions that we have seen? It's difficult to judge, but I'm sure that, that has an impact. We also see continuation of the aging of the fleet. We have commissioned fewer machines in 2020 compared to 2019 and 2018 and the older machines remained in operation to some extent. There could, of course, be an effect that we continue to identify machines, but it doesn't change the fact that the fleet has become somewhat older since last year. The average age is just over 7-years now. Of course, it's not only age that has an impact here, it's the utilization, the running hours and of course, the maintenance and refurbishment. But anyway, this should support the demand for equipment. If we don't see it near term, it will support medium and long term. If we then look at the dynamics affecting the demand in our industries and niches, long term, we have a growing world with increasing challenges to meet the demand and a strong focus on safety and sustainability. So if we start with a growing world, the population is expected to continue to grow and more and more people move to urban areas. The expectancy for economic growth is close to 3% per year, with higher growth rates in the developing markets. Economic growth as well as urbanization increased the demand for infrastructure and tunneling is one example that is expected to have a positive development, even better than the development for construction in general. But construction in general is expected to grow at low to mid-single rate. The investments from the mining companies are expected to have a good development, with mid, high single-digit growth, let's say, 6% to 7%. This is a higher rate than the production, the ore production, which is expected to increase at a low single-digit rate. The industry is also having some challenges, which is supporting the demand for our solutions. The lower equipment utilization has been a challenge for the mining industry after the super cycle. And customer has a strong focus on improving this. And we are supporting our customers with our solutions for automation and information management. And with higher equipment utilization, output increases, which has a positive impact for the revenue and profit of our mining customers. And with more utilization -- the more utilization the equipment needs, the more frequent replacement and more aftermarket it needs. There is also depletion of ore grades, and that is a challenge for our customers. This means that they have to excavate more or to get the same mineral production. And this in turn means that they need more equipment and more aftermarket. Finally, also the trend towards underground mining continues, and we have a larger offering for underground. And also, the trend is clear that underground mines will have to go deeper, about 30 meters deeper every year, and the mining operations also become increasingly complex. So these trends are all drivers for demand long term. But also the strong focus on safety and sustainability is positive for us. Because this drives demand for more advanced solutions, more safe solutions and for electrification. Automation and battery electrical vehicles are solutions that help our customers to achieve their goals when it comes to safety and sustainability. So to summarize, we have the right solutions to meet our customers' challenges, and we expect a positive demand for these solutions going forward. We see this already today where we see that the interest in and the order intake for our automation solutions and our battery electrical vehicles are growing. Our strategy is aligned with what I just presented. So next, we will cover the 3 hexagons in the middle, innovation, aftermarket and operational excellence. And we start with innovation. Innovation is close to my heart. I spent many years in R&D myself, and it's also one of my top priorities for the coming years. So we are investing more than we have ever done in R&D to stay ahead. There are 3-major technology shifts ongoing that will shape the industry to become more productive and more sustainable. It's automation, digitalization and electrification. And we're going to drive this change or these shifts, and for this, we need best-in-class solutions, and we want to -- we need to foster an innovation culture. We developed clear roadmaps for our product and solutions, and we are also exploring different ways of organizing ourselves to deliver results faster than before. We can, for example, create a dedicated and focused teams that are given the freedom to explore new areas and to develop groundbreaking solutions. We did that for our electrification product offering, and I don't think we have ever been faster. We are also working using agile methodologies in all R&D right now to gain speed. And we're also leveraging collaboration with suppliers and other partners to be faster and more efficient. And what we do, for example, is to find technology leaders that have already developed solutions for other industries, and then we partner with them and develop these solutions for our industry. I did mention the innovation culture on the other slide. So let me elaborate a bit on this, as it is an important topic. So we foster creative people that dare to think new. People that are open-minded and can develop new ideas. In recent years, we have recruited a large number of new colleagues with different competencies than before. Automation, software engineers, data scientists, for example, but also technicians in the field that can support our new solutions. Our model is also such that we want our people to grow and have ambition to grow to the next level to take on more responsibility. So with us investing more than ever in R&D, what opportunities does this give us? Well, we have a lot of knowledge about our solutions and about our customers' applications. With connected machines, we get even more knowledge now that can be utilized for business opportunities. We can leverage our footprint when it comes to new innovative solutions, no one has the reach that we have towards customers in our industry. I talked a bit about collaboration earlier. It is clear that we have the possibility to create partnership and even use M&A to create leadership in new attractive niches to grow profitably. Examples are the 2 minority acquisitions that we did on Mobilaris and ASI Mining, which has moved us into new attractive niches. But we are also active in the start-up scene. I really like the ecosystem approach that start-ups use. They share and they help each other to succeed. So we are building a strong network of partners to co-create as you can see, there are a lot of interesting development and many opportunities for us. So now I will introduce Sami, who will give us a deep dive into the Underground applications and what we're doing within automation, digitalization and electrification. So welcome, Sami to state -- on stage.

Thank you very much, Helena. Very happy to be here. Hello, everyone. My name is Sami Niiranen. I'm President for the Underground division since 2018. Also nowadays, a part of the group management. I'm a mining engineer. I've been working with the group since 2004 for the last 16 years. Let's move on to the next one. So this slide, I showed also last year, but it's still worth repeating it. It's a time line of the development. We have a long history with automation, digitalization and electrification, taking us to the market leader position. For instance, the computerized machines with CAN bus-based Rig Control System were developed already in the '90s. So we have 2 decades experience of connectivity, which has made the success journey possible. Last year, I mentioned the interoperability in other words, automating the mixed fleet. I'm very pleased to say that it's reality now. More about that one in the presentation. So on this slide, we can see the development of our automation footprint. And we have, as you can see, delivered automation to our customers on every continent. We have more than 1,000 underground machines connected through our telematics system Certiq, and we have also expanded the Mobilaris mining intelligence in several regions. Within automation, we have gained new references in both drilling and load and haul. And we can see that the speed of development is increasing rapidly, partly as a result of current pandemic. When it comes to drilling, we have delivered 90 teleremote Simbas, where the operator is operating the machines in a safe environment, out of the control room. We have also expanded our autonomous loader footprint, greatly supported by our regional application centers. As you can see here, we have developed the highest level of loader automation to enable removing people from hazardous areas and provide higher fleet performance through automated traffic control. This has been developed together with our collaboration partners and deployed at different mine sites. It's all done within the concept of 6th Sense, which optimizes our customers' value chain through automation, system integration as well as the information management, enabling a smart, safe and seamless operation. So let's now move over to Australia, where we have been collaborating with one of the largest block caving mines in the world. Newcrest mining in automating our ST18 loaders, 18-tonne loaders to meet our customers and business safety and productivity targets. To give you a little bit of perspective of the demanding underground conditions, our fully autonomous and unmanned loaders are targeted to run 25 to 26 kilometers per hour speed underground by having only 30 centimeters margin to the tunnel walls on each side. So this has led us developing the most advanced and sophisticated systems, on loader automation, keeping the safety and productivity as the highest priorities. I'm also very pleased to share that the Newcrest, we have successfully partnered with another OEM to advance automation interoperability in underground mining. Our 3 companies recently completed the successful commissioning of a teleremote teleoperation system that enables a fleet of production and secondary reduction mining vehicles to work on the same production level while being operated from the surface. So to my knowledge, it means that Epiroc is the first equipment supplier to provide unique mixed fleet automation solution underground in the world. The installation took place completely virtually, where 3 companies in 3 different regions, in 3 different time zones, successfully collaborated during the current pandemic, which is a fantastic achievement. We believe that these solutions are the future. So next, please let me share some thoughts on where we are heading to. The future of mining and hard rock underground excavation, including the infrastructure, of course, it's built around sustainability and operational excellence. The focus on safety, environment and productivity goes hand-in-hand in order to develop a fully electrified and autonomous mining operation. In the future, we will witness more end-to-end process optimization, better integration and visualization of the process through different kind of dashboards, onboard APIs, Mobilaris and MyEpiroc solutions. Our target remains being the leading solutions provider to build the future of mining. So from Helena's introduction today, you might have already understood how innovation is in our genes. It's really one of our core values. And this slide is a sneak peek. We will also, in the future, provide high-performing equipment that increase customers' productivity and safety. All new products are developed to enable electrification, automation as well as the 6th Sense optimization solutions. And we have a very strong pipeline of new innovations that will be rolled out in the next coming years and I would like to give you a couple of examples next. So one of the first ones will be the new-generation Boomer suited for mining contractors. It's a true development rig, fully equipped for multi-test operation and automation. It will be launched next year, 2021. And it's designed for increased productivity with improved availability, safety and operator working conditions. And it includes also a battery electric driveline option. Another revolutionary innovation is to expand our offering to fully mechanized charging through our collaboration with Orica, a leading explosives manufacturer to improve the safety and working environment for operators. You may have seen the press release already today. So what we are doing in summary is this. We are moving towards automating the whole drilling and explosives charging process. And we call it Avatel. This fantastic new innovation is called Avatel. So please enjoy a short video. [Presentation]

Okay. We normally say that the future is electric. Well, I would go as far to say that it's happening already now as we speak. Our ambition is to produce the world's greenest machines using the world's greenest battery cells producing the world's greenest metals, doing our best for our planet. With our solutions, we help to protect people from dangerous fumes, noise and heat, avoid costly CapEx investments in ventilation, reduce energy consumption and meet zero emissions in the fossil fuel dependent industry. As you can hear, there are so many good reasons why our customer or a customer would choose electric, which is actually nothing new for us. Electric is nothing new for us because our drill rigs have been drilling with electric power since 1980s already. So that said, since we started developing our new-generation battery equipment, 2017, around 3-years ago. We have developed the world's greenest and most modern battery portfolio and technology platform, which is modular scalable and includes a multilayer safety protection system. Today, we have the broadest electric offering in the market, including the references in all major regions, as you can see here on the slide. We also provide battery technology platform to other OEMS, such as Jama and Railcare and have developed a comprehensive battery-as-a-service offering. The latest development includes also the Epiroc conversions where we retrofit the batteries to the existing diesel machines. And here, we have started off with our 10-tonne Loader called ST1030, which is the largest loader segment in the world. We are approaching the end in my presentation. I would like to end it by showing you a video from one of our reference customer sites. It is the Agnico Eagle, Kittila mine in Northern Finland. There, we have tested our zero-emission equipment during the last 2 years, including both drilling and load and hole machines. Both Agnico Eagle Finland and Epiroc are part of the Sustainable Intelligent Mining Systems project called SIMS. And Kittila mine is the largest gold mine in Europe, operates below 1,000 meters underground, and extract annually about 1.6 million tonnes of ore, yielding about 7,000 kilograms of gold. Thank you for listening and taking the time. [Presentation]

Thank you, Sami, really exciting stuff. So now we will go up to the surface. And also for surface, the demands for automation and autonomous solutions are growing, and we are leading this transformation. We have proven solutions, reference locations in all regions in the world, and we are expanding our offering. We have solutions now for mixed fleet automation, which is really interesting and a growth opportunity for us. On digitalization, we are doing a lot on data management and on analytics for surface application. The number of connected machines is growing and customers are benefiting from the general data -- the generated data and analytics. I mentioned in the beginning that we have many collaborations as well. One interesting one is the collaboration with Ericsson on connectivity in 5G. Anders will talk more about this collaboration later on. Electrification for surface, it's not really talked so much about, but we offer a range of electric machines that are electric and utilizing a cable. We have offered this for a long time, and we have a fleet of machines in the field. And these machines are emission-free during operations. We have also committed to have a full range of emission-free products by 2030. So Jose will mention some highlights on electrification and digitalization, but his main focus will be on innovation and our journey and our market-leading position within automation for surface applications. So Jose, good morning in Garland. The floor is yours.

Thank you, Helena. [Audio Gap] Based in Texas, U.S.A., have worked in the group for 7 years and 30 years in 7 countries, 3 continents, and I'm a mining engineer by education. Building a legacy. Now I'm very proud -- sorry. I'm very proud to start with a very important acceleration. This year marks the 20th anniversary of our legendary Pit Viper drill. The Pit Viper family model is the legacy of our company, a product that broke into the industry to set a new standard for durability, productivity and innovation, a true industry benchmark and a game changer. The first Pit Viper, the model 351 was introduced to the public in year 2000, at MINExpo exhibition in Las Vegas. And this very first machine is still kicking with almost 100,000 working hours and 92% mechanical availability. So really a record. The Pit Viper 351 is, and has been, for the last 20 years, the largest, most powerful diesel Rig on the market. You get the feeling of its size, you can see how it compares to some famous all-time monsters, the first zombie, King Kong or Godzilla. The Pit Viper has become synonymous with blast hole drilling in open pit mining operation. The 351 model continues to create many firsts in the industry. As you most recently have read about, it became the world's first autonomous electric drill in production as publicized by our partner, Boliden in Sweden. However, not only the 351 is very successful. Another drill that is no stranger to the industry first is the Pit Viper 270 series, which gains its prominence as the first autonomous fleet in production in Australia. Recently, we have given it more power, more efficiency and more bite. Presenting our Pit Viper XC Series, XC stands for extra capacity. We continue building on the legacy with the this Pit Viper model, which is the best-selling drill in its class. The XC takes the Pit Viper 270 series to another level of productivity and reliability, ultimately contributing to the lowest total cost of ownership it drills bigger hole size up to 12.25. So more blasted tonnage that -- per drill meter with less fuel burned per unit. So a drill more friendly to the environment. Let's it go on the other way. See what happens. Okay. So another model that became an instant sensations is our SmartROC D65. In 2019, this well-renowned Rig received a larger overhaul and update. Since then, this trusted Rig has Epiroc's innovative automation ready platform as its foundation. With focus on safety, sustainability and efficiency, this rig helps our customers to decrease operational costs and boost productivity. The SmartROC D65 not only helps to optimize the blasting process with improved recommendation. It also cuts an already low fall consumption level with another 20% compared to our non-smart version. Additionally, it uses 300 liters hydraulic oil less than previous versions, which further decreases the impact on the environment. With the reliability of the SmartROC D65, our continuous development on the Rig Control System, RCS, a new intelligent options, we would like to call this rig a future-proof investment for our customers. And we say 2 decades of automation has passed. The key ingredient in our success is continuous incremental innovation to push the boundaries through agile methodology. This is [ changed ] on our 6th Sense strategy that you heard before. On the Pit Vipers, ingraining our machine automation where the Pit Viper automation capability took its rods in 2006. And since then, we have progressively enhanced these capabilities with our -- with over 800 Pit Viper drills produced since 2000, there is a Pit Viper in every major mining market in the world. And crucial point is that there are autonomous Pit Viper in the major markets as well. If we focus on the [indiscernible] range, the rock range received its first intelligent features already back in 2002. It was a major breakthrough when we when we could offer features like Rock Manager, which enabled us to get lock falls from the rigs through our UBS at that time. A quantum leap in the efficiencies was achieved in 2010 when the SmartROC range was introduced to the market. Specifically, the SmartROC D65 immediately gained recognition, especially in the demanding mining application in Australia, over the years, have spread all over the world. We have introduced the first autonomous SmartROC in 2019 and sold the first mixed fleet of SmartROC and Pit Vipers this year. You have seen last year this map and now it's more populated, much busier. Drilling automation is a cornerstone for connected the mine-value chain. And after the successful deployment of getting the drilling fleet completely autonomous in Australia, many other customers were interested to initiate similar journey. So we have now continued on with other sites all around the world. We have made our system so robust and the rollout process so well-defined that we can expand to any market, anytime, anywhere in the world. As you can see in the map, besides -- leaving North America, Europe and Australia, we have autonomous operations in South America, Africa and Asia. We continue to help our customers and partners with more productive and effective software. So far, we have seen the development through incremental innovation. Now let's see tangible benefits for our customers. Our tradition of regular software releases is to raise the ceiling of operational excellence incrementally. We want the mines to have a day at work that leads to efficiency, good decision-making, predictable results and repeatable processes through data-driven mining. Here are some examples of the Pit Viper in action. For instance, automation functionalities and regular software upgrades enable customers to produce more. More meters are drilled and more productive hours are achieved. Our solutions support our customers to drill holes to the specific hole dealt and with almost 100% [ special ] accuracy, so waste drilling is avoided. And last but not least, the software upgrades also means improving volume efficiency, as you see in the right hand graph. Customer that have started their automation journey with us in 2014, have achieved about 40% more production and enjoy a lower fuel consumption. All in all, more production and lower costs means better bottom line for our customers. And lower fuel consumption also means lower CO2 emissions. So it's all good for the 3 Ps: productivity, profit and planet. And no doubt, our customers' interest is growing very strong. We continue receiving a number of orders to retrofit existing machines to autonomous. One of the perfect example of it is our long-lasting partnership with Los Pelambres mine in Chile owned by Antofagasta minerals. Our established legacy with Los Pelambres help them to realize that newer technology always bring value. They were quite inspired by the automation project in Australia and with the main driver to increase safety and productivity, automation simply was the best tool for them to achieve the desired results. So let's see for yourself in this coming video. [Presentation]

So drilling is the first step in the mining operation. So warranting high availability and performance in drilling is critical to the success of the mine. Automating drilling brings huge improvement in every part of the process. But there is more we can and will do in this space to continue our legacy. Having a lean manufacturing mindset in an open pit mining environment, it's very important in our strategy. That is why we have expanded quickly into other areas of the value chain for our customers. As said earlier, we have sold the first mixed fleet of SmartROCs and Pit Vipers this year. We built systems that are truly interoperable and can integrate with any vehicles and existing systems that miners currently have. This preserves the miner's choice to buy the best equipment for their operation independently of their automation systems. A perfect example, Epiroc, in partnership with ASI mining, is providing the largest single mine deployment of autonomous haulage in the world. So the project with Roy Hill started as a testament to the voice of the customer. Through our discussions with mining houses, we saw that they had the desire to have an alternative to the existing standard offerings to get away from the risk of deploying close systems which are unable to integrate later on into their overall mine system. Epiroc and ASI Mining delivered a safe and interoperable solution for Roy Hills mixed truck fleet. With an ability to expand to other mining vehicle types and manufacturers and capability to integrate with existing Roy Hill systems. Since the global announcement of this project in February 2020, even in these difficult times due to the pandemic, we are on track in our project. This is a very strong example of how automation will take a mining company's operation to the next level through our meticulous approach to being a true partner with our customers and together with a close collaboration between both sides. So each year, you see continued work to mature our legacy in open pit mining, in automation and digitalization. Next year, no doubt, you will continue to see amazing things from us. And we look forward to seeing you all next year again. And for now, thank you very much for your attention. Back to you, Karin.

Well, thank you, José. There was indeed epic innovations, both from you and Sami. Now we're actually already in the midst of the program. So we are going to have a little short leg stretch here, as they call it. [Operator Instructions] On my clock, I would say we would have 15 minutes of a break. That means 10 past, we will all meet here again. So 10 past, see you then. Thank you. [Break]

Welcome back, everyone. Another of our priorities that is close to my heart is aftermarket, which is the upcoming topic. The aftermarket is providing us with resilience, and it is really linked to activities and not to investments. And therefore, we would like to maximize the potential of it. We have had a strong focus on the aftermarket for many years. Some of you might remember that we created a dedicated division for parts and service already in 2011, and as you can see, our aftermarket business has developed well with healthy growth. You can also see that in tough times, the aftermarket business is holding up very well. We have a broad aftermarket offering. As you can see, we have our service business, which is more than 40% of our revenue. And then we have tools and attachment that corresponds to about a quarter. In total, the aftermarket is more than 2/3 of our revenue. So it is a large and a resilient business. We are a market leader in our selected niches with a very competitive offer. And as you know, we have pruned our portfolio when it comes to Rock drilling tools business. And by that, we focus on the consumables that can make a difference for our customers. All in all, we provide innovative aftermarket products that makes our customers more productive and more efficient. The equipment is mission-critical for our customers. The customers, they need service, they need parts, consumables to keep up the productivity and the efficiency of the machines. And our equipment also work under really harsh conditions, and this drives the demand for the aftermarket. And the aftermarket service brings value to our customers, professional service ensures that the equipment is safe and efficient. We also work with Live Work Elimination, as I mentioned earlier, as well as with standard operating procedures to make sure that the service of the equipment is done in a safe and in an efficient manner. So with the right aftermarket support, customers can optimize productivity and total cost of ownership. And this is key for customers and the shift to more digitalization with more and more connected machines is the true enabler for us to perform service in a much more proactive and more efficient way than we have done before. So to maximize the full potential within the aftermarket, that is our goal. When we are there for our customers, 24/7, we can increase the recurring revenue related to the aftermarket and make the business even more sticky and improve our resilience further. We have a number of actions ongoing, of course. We are speeding up our connectivity efforts, and more and more machines are getting connected every month. We also continuously map our fleet and we improve our knowledge about the installed base. And here, connectivity is supporting us as we can utilize the data and the knowledge to develop our offering. We also design and adapt our offering and the channels so we use to reach our customers to capture more share in all segments. And we also increased our range to support our customers with more to cover a larger area of their aftermarket needs. And there are lots of opportunities. We have a very strong aftermarket presence around the world, and we have an opportunity to service more equipment and provide more equipment with consumables. And as I mentioned, connectivity is really an enabler for this. But linked to this, is also that with more technology and more complex solutions on the capital equipment side, the value of the aftermarket service increases. We have more skilled technicians now that create more value for our customers. And this also defends our position and improve our potential to provide even more aftermarket in the future. We have the possibility to connect our rock drilling tools closer to the equipment, and this goes hand-in-hand with a technical development. Our off-drilling tools are developed in collaboration with equipment and this enables a better fit for our customers. But there are, of course, also competition for aftermarket. But if we take the right actions and utilize our opportunities, we should be able to continue to outperform. At the end of the day, we should create value for our customers. If we do that, we create value for Epiroc as well. So now I will share some examples of innovation solutions for our tools and attachment business. So let me start with connectivity. The goal here is to know in real-time where our tools and attachments are and how they perform. And this knowledge can then be fully utilized to increase our customers' productivity. We have smart consignment, and with this, customers and we can get full control of inventory and the performance and consumption of the drilling tools, with -- we are using tags and sensors. With HATCON, customers can manage their fleet or attachment to get all the data, the hours utilized, and where they are the service needs, et cetera. Customers can also get this data presented in a very user-friendly format within MyEpiroc and also get notification when it's time for service. So let's look at a short video about HATCON. [Presentation]

So that was HATCON. It is really a very good solution. Also some other innovative products that we are launching or have just launched, we are developing digitalized rock balls with sensors to be introduced next year. And we also develop drill bits with significantly longer service life that enables our customers to utilize automation even more as the drill bit needs to be replaced less frequently. In our attachment offering, we are extending our offering into silent demolition tools that are used mainly in deconstruction and recycling of buildings and infrastructure. The second image from the right shows our concrete buster. To the far right, you see a new model of our popular hydraulic breaker for tunneling applications. So that concludes my introduction to the aftermarket. So now let's listen to Jess, who will give you some more insights specifically on our parts and service business. So please, Jess.

Thank you, Helena. Appreciate it. Good afternoon to those of you in our time zone. My name is Jess Kindler, and I'm a mining engineer from the United States, and I've been with the group since shortly after the Atlas Copco acquisition of Ingersoll-Rand Drilling Solutions. And I've worked all over the world, marketing, selling and servicing the equipment from Epiroc. I live in Sweden since 2016, and I'm overall responsible for the parts, services and supply chain for Epiroc. And I'm really happy and proud to be able to give you a little insight into our business today. Since 2011, like Helena mentioned, when we formed the Service division, we have continuously added to our portfolio of value-added service products to form what is now a pretty broad offering, covering the entire range of the installed fleet and all the customer segments. Each year, we add additional offerings as we work with our customer to deliver more value -- different value and productivity from the fleet, resulting in a total -- in a great total cost of ownership. Additionally, we look for new businesses in and around the big sites to allow us opportunity to install, support the solution Sami mentioned, and Jose, electrification, automation and control room solutions, and we see this business growing every year. Our fleet is found in 3 segments in the industry. The way we look at it. The first group or the H segment, utilizes the equipment to the fullest capacity and demands maximum productivity, uptime and productive life. The H-segment consists of mainly major mining houses with mega projects spread across the globe. The next segment, or M-segment, consists of mining contractors and smaller mining companies that operate their fleet in a different way, pushing them hard when they're building projects, but then parking them for a significant amount of time in between projects. The M-segment still demands a high productivity, but maybe content to service the machines themselves. And they're also likely to have a backup fleet of assets which makes timeliness of deliveries a little less important. Finally, the construction, quarry and drilling contractors make up the last segment, segment-L. It's not untypical for equipment in these fleets to be run on a day shift only or a seasonal basis, resulting in a relatively low machine utilization. In this segment, the customer value proposition, it becomes spare parts delivered when needed. And from time to time, equipment audits to assess the overall machine health of the machines in their fleet. Last, I'd like to mention that -- and Helena mentioned this as well, but we primarily use a direct business model with our customers. We, however, supplement that direct model with an indirect sales channel to improve the reach and overall coverage in the market. Okay, when talking about service agreements. We always look to understand and complement our customers' overall maintenance strategy for their fleet. We then tailor make an agreement that fits what the customer wants to do themselves and what they want us to help with in order to deliver against that maintenance strategy. Service agreements deliver a long-lasting partnership, where we provide parts, service, technical information, training, audits, continuous improvement, reliability, Live Works Elimination and planning support to the customer and this is important in the way they want. We continue to grow this business year-over-year, and we find new ways to package our offerings, sell them in conjunction with the capital equipment and the tools and attachment teams and look for ways to get bigger parts of the fleet under agreement. We expand our capacity to deliver agreements through a world-class training and certification program. We secure the performance of these agreements as well as the value delivered to the customers through follow-up audits and intervention from our central agreements team. Okay, next product I'd like to talk around is midlife services. Besides our rock drill product line, which you've heard about before, and that you also heard about in Helena's intro, midlife services is one of our most exciting and important products going forward. It's an evergreen type of business that is in demand, both in the upswing and the downturn parts of the mining cycle. Within the upswing, new equipment can take time to be built and delivered, and the customers will choose to extend the life of their existing fleet until that new equipment arrives. Conversely, during the downturn, the customers will make a large shift from CapEx or new equipment purchasing to OpEx or operational expenditure. And again, they'll sweat their assets by giving them a second or third life to the fleet. We started developing this product with the highest volume machine models in our fleet, and we add additional protocols and plans for other models every year. We see great development as well in our workshop capabilities and capacities. As they do more and more of these midlife services, they march down a learning curve and, of course, can deliver more and faster midlife services as they go forward. In 2020, we can see the effects of COVID lockdown in the number, especially in the second quarter, bringing the invoicing down. But we see a continued strong demand and a very good orders received coming for midlife services. It will take us time to deliver and complete the rebuilds based on long lead time items. Keeping going in the midlife service product, I want to point out that we've differentiated the product slightly. As we extend the lifetime of the equipment with the midlife product, we do few things. We reduced operating costs and at the same time, improve the productivity of equipment by increasing the functionality and efficiency. We can also reduce the environmental impact of the equipment, which is more and more a key topic for the customers. Our custom-engineered solutions team ensures that a protocol is designed to match the original machine configuration and making the necessary adjustments to incorporate the latest upgrades. The program consists of 3 levels to meet different customer requirements. Midlife basic consists of critical safety upgrades, replacing the main components with the same spec as originally supplied, rehousing the hydraulic system. Midlife PLUS is all of that in the basic package plus a performance upgrade or possibly an engine upgrade, and here I speak about the emission tier upgrades of the diesel engine, operator comfort upgrades and new options. And last, the highest level is Midlife Technology Plus. And here, you get all that's in the Midlife PLUS package. And here, we can do diesel to battery conversions, and Sami mentioned this before, technology upgrades to remote control or automation, and we can also add productivity and equipment health monitoring, connectivity and remote support. Okay. Moving away from midlife and talking about our connectivity. Telematics and connectivity solutions allow us and the customer to make fleet performance transparent. And it gives the ability to make quick corrections when performance declines or equipment breaks. Many times, it's the operations of the equipment, combined with the maintenance strategy and the way that it's maintained, that ultimately determines how productive that piece of equipment will be. Connectivity allows for both of these parameters to be monitored and affected by the management teams. MyEpiroc is a customer portal that allows customers to see their fleet, access technical information, report problems and supports the parts ordering process. Certiq is our telematics platform. In both cases, as you can see here, we push harder and harder this year to get more and more machines connected within our fleet and the adoption of our solutions. Okay, adding on a little bit to what Sami talked about when it comes to electric solutions. Customers are requesting electric solutions in both the underground and surface application. And like Helena and José mentioned, we've been producing -- and Sami as well, that we've been producing electrified drills for a long time. What we talk about now is how we move that from a cabled solution to a battery-powered solution. Epiroc offers a unique tailor-made battery solution for our applications and customer needs, addressing their need to reduce operating costs and lower carbon dioxide footprint. We can offer our customers a pay-per-use model called batteries-as-a-service, both to new equipment and as Sami mentioned, as well as offering diesel-to-electric conversions in their existing fleets during our midlife services rebuild process. We want to make batteries-as-a-service model rollout as fast as possible to capitalize on today's demand by not only offering the new machines into the market powered by batteries, but also look to offer solutions for our customers to convert their existing diesel-powered equipment to our batteries-as-a-service product. As far as I know, we're the only -- we are currently the only OEM offering such a product to the market. And we make a big impact to their fleet much earlier than waiting for them to do a fleet replacement. Again, as we do with all of our products, we start with a product offering that addresses the biggest part of our fleet. In this case, it's our 10-tonne and 14-tonne Scooptrams and our 22-tonne and 42-tonne Minetrucks. We can also offer batteries-as-a-service model to other OEMs, and we've done this in several cases so far. Those shown, and Sami mentioned as well, are Railcare and Jama. Okay, touching on digitalization. Data-driven strategy optimization is critical in a rapidly changing competitive world. The optimization enhances maintenance strategies, which in turn, minimize risk and costs; and finally, maximize performance. Maintenance strategy optimization is a truly proactive approach to reducing unwanted and unplanned outages and costly equipment failures. Additionally, the use of robotic process automation streamlines the bureaucracy needed to manage a large service business like ours. Finally, artificial intelligence leads to better outcomes and making the maintenance and service jobs more prescriptive and predictive. Digitalization overall supports our vision of zero unplanned stops, reliability and continuous improvement an automated fleet that provides our customer with efficiency gains. We have to remember that mixed fleets are the norm, not the exception. So solution architecture in this space has to remain open if it's to address the overall operation in the most practical way possible. Focus on optimizing the assets and operation around them, always considering the cost of performance versus the process output. A solution to move our customers from medium utilization to high utilization of their fleet. Finally, rock-to-dock automation -- rock-to-dock optimization, automation, robotic process automation, enhanced communication, connectivity and control rooms, all provide a better outcome for our customers' financial. While at the same time, providing a much, much better place to work for their employees and ours. Okay, presence. Every year, we grow closer to our customers, and we make investments in the places and communities where they do business. We especially love to make investments alongside the customer as they build greenfield mega projects or expand existing operations into new ore zones. In this way, we participate in the full planning cycle, along with the customer, and we enable them to ramp up production in the best possible way. And if they curtail or slow production, we're not surprised because we're sitting right there with them all along. Closeness in collaboration with customers is essential to maximize the result both for them and for us. Good recent examples of this, or Pucobre's project in Chile and the Kamoa-Kakula project in the DRC, where we made timely investments in facilities, simulators, workshops and trained workforce, well from the start of the project. Drilling equipment is mission-critical, and our customers demand support quickly when there's an issue. Because there's a great risk that a big portion of the downstream process can stop or slow down if the drill breaks. We locate as close as possible to the customers with technical know-how and support, meaning parts. So that we minimize delays, shipping times and time to get the solution to the site. We put our distribution centers regionally, and we source around them to minimize freight lanes, transport costs, time-consuming customs clearances and border crossings. We saw this as being very important during the COVID pandemic as different freight lanes slowed or were closed completely. Today, we have more than 6,400 employees in the parts and services division. We have 6 manufacturing centers, 5 regional distribution centers and more than 300 sites with an Epiroc presence and a service agreement on the site -- on the customer site. Additionally, we have more than 100 workshops that provide space for midlife rebuilds, training, simulators and our other service products. Okay, so if I close and say that -- echoing what Helena said earlier, presence around the globe with an efficient supply chain, technical know-how among our people, and passion to add value to our customers' operations, businesses worldwide, that's really the keys to success for our aftermarket. We have done well in the past in developing our parts and service business with a focus and effort, and we are well positioned to continue on that journey in the future. Thank you very much for letting me talk at Capital Markets Day. And with that, I turn it back over to Helena.

Thank you, Jess. A very interesting presentation. So moving on to the next topic then. So we will continue to strive for operational excellence to continuously improve performance, efficiency and effectively across Epiroc. And I would say that operational excellence is in our culture. We strongly believe that there is always a better way. And we will continue our work for improvements to become more efficient. So what are we trying to achieve? Well, we are step-by-step building a strong process excellence oriented organization.

Okay. Touching on digitalization. Data-driven strategy optimization is critical in a rapidly changing and competitive world. The optimization enhances maintenance strategies, which in turn, minimize risk and costs; and finally, maximize performance. Maintenance strategy optimization is a truly proactive approach to reducing unwanted and unplanned outages in costly equipment failures. Additionally, the use of robotic process automation streamlines the bureaucracy needed to manage a large service business like ours. Finally, artificial intelligence leads to better outcomes in making the maintenance and service jobs more prescriptive and predictive. Digitalization overall supports our vision of 0 unplanned stops, reliability and continuous improvement, an automated fleet that provides our customer with efficiency gains. We have to remember that mixed fleets are the norm, not the exception. So solution architecture in this space has to remain open if it's to address the overall operation in the most practical way possible. Focus on optimizing the assets and operation around them, always considering the cost of performance versus the process output. A solution to move our customers from medium utilization to high utilization of their fleet. Finally, rock-to-dock automation -- rock-to-dock optimization, automation, robotic process automation, enhanced communication, connectivity and control rooms all provide a better outcome for our customers' financial. While at the same time, providing a much, much better place to work for their employees and ours. Okay. Presence. Every year, we grow closer to our customers, and we make investments in the places and communities where they do business. We especially love to make investments alongside the customer as they build greenfield mega projects or expand existing operations into new ore zones. In this way, we participate in the full planning cycle, along with the customer, and we enable them to ramp up production in the best possible way. And if they curtail or slow production, we're not surprised because we're sitting right there with them all along. Closeness and collaboration with customers is essential to maximize the result both for them and for us. Good recent examples of this, our Pucobre's project in Chile and the Kamoa-Kakula project in the DRC, where we made timely investments in facilities, simulators, workshops and trained workforce well from the start of the project. Drilling equipment is mission-critical, and our customers' demand support quickly when there's an issue because there's a great risk that a big portion of the downstream process can stop or slow down if the drill breaks. We locate as close as possible to the customers with technical know-how and support, meaning parts, so that we minimize delays, shipping times and time to get the solution to the site. We put our distribution centers regionally, and we source around them to minimize freight lanes, transport costs, time-consuming customs clearances and border crossings. We saw this as being very important during the COVID pandemic as different freight lanes slowed or closed completely. Today, we have more than 6,400 employees in the parts and services division. We have 6 manufacturing centers, 5 regional distribution centers and more than 300 sites within Epiroc presence and a service agreement on the site -- on the customer site. Additionally, we have more than 100 workshops that provide space for midlife rebuilds, training, simulators and our other service products. Okay. So if I close and say that echoing what Helena said earlier, presence around the globe with an efficient supply chain, technical know-how among our people and passion to add value to our customers' operations, businesses worldwide, that's really the keys to success for our aftermarket. We have done well in the past in developing our parts and service business with a focus and effort, and we are well positioned to continue on that journey in the future. Thank you very much for letting me talk at Capital Markets Day. And with that, I turn it back over to Helena.

Thank you, Jess. A very interesting presentation. So moving on to the next topic then. So we will continue to strive for operational excellence to continuously improve performance, efficiency and effectively across Epiroc. And I would say that operational excellence is in our culture. We strongly believe that there is always a better way, and we will continue our work for improvements to become more efficient. So what are we trying to achieve? Well, we are step-by-step building a strong process excellence oriented organization to drive a best-in-class service and supply chain performance. This is where we have the largest possibility to work on productivity and to reduce waste in our own operations. We continue the work to improve our supply chain, to become a high-velocity supply chain with fewer locations and with a clear shift in transportation mode from air to sea. And this work is progressing well. We are also working with service excellence with a data-centric approach and standard operating procedures as well as certification of our technicians. We also aim to improve agility by leveraging our manufacturing footprint. And during this year, we have made several improvements, for example, consolidating some of our manufacturing units. Given the pandemic, we have been focused on building a more efficient organization that is future-proof, and some of the ongoing actions or the cost-saving program that we have executed this year, but we are also working on back-office excellence using RPA or robotic process automation. So with that, I will leave over the word to our CFO. Please, Anders.

Thank you, Helena and team. Great presentations so far. My name is Anders Linden, and I'm the proud CFO of Epiroc. Today, I will talk about financial results and operational excellence. As Helena says, we can do better. But before I tell you about improvements, I would like to take a look back. If we start with revenues, excluding 2020 and the COVID-19 impact, we have had an annual revenue growth of 9% between 2015 and 2019. This year is impacted by the pandemic but as Helena mentioned, we will still have healthy growth over the period 2015 to 2020 when we reach the end of this year. Our target is to grow 8% per year over a cycle. Nearly all the growth during this period is organic. The contribution from acquisitions to the annual growth is only about 1%. On the profit, we have a goal of having the industry best margin. I would say that we have done well. End of Q3, rolling 12 months, we achieved a margin of 19.6%, and that is reported. Adjusted, we reached an operating margin of 20.6%, and that is in the middle of the pandemic. We have 2 reporting segments. Equipment & Service provides a wide range of mining and rock excavation equipment with related services and spare parts. The operating margin, the last 12 months was 24%, with service having higher margins than equipment. That said, we do not give away equipment to capture the aftermarket. The equipment is profitable as it is. From the presentations today, you also understand how we can improve the margin offering with innovations and technology. The other reporting segment is Tools & Attachments, which provides rock drilling tools and hydraulic attachments that are attached to the machines and mainly used for drilling, demolition, recycling and rock excavation. Margin-wise, the tools has somewhat lower margin than attachments. As you can see on this graph, we have some adjustments that, over time, will translate to a better margin. Looking into the operating cash flow. It does vary over the cycle, mainly due to the change in working capital. When the demand is good, we grow and working capital increases, which is normal and vice versa. Epiroc has limited investment needs in our manufacturing due to our asset-light model. We also invest in rental equipment and in intangible assets, mainly capitalized R&D and IT. If you wish to forecast the CapEx for the future, the investment level in the last 2 to 3 years is a good proxy also for the future, but it can vary somewhat over the years. We frequently get the question on rental equipment portfolio. And yes, we have one. It is not big, and it is value creating. The purpose is to make business happen, not for Epiroc to be a rental company. Historically, we have been quite successful in transforming earnings into cash and have a good cash conversion rate. Generating cash also means strengthening the balance sheet. We have a target of having an efficient capital structure and to have an investment-grade rating. If we have -- if we're efficient today can be discussed as we have quite a lot of cash on the balance sheet. But we are definitely having the qualities of an investment-grade rating and to have a strong balance sheet in uncertain times is, of course, good. So what are we going to do with the cash? Our most important priority is to continuously invest in profitable organic growth. You have heard and seen many good examples today. We also seek to invest in acquisitions, supporting our organic efforts, small bolt-ons and tech companies are examples of what we're looking for. And then thirdly, we also distribute cash. We have a target of 50% payout ratio of the earnings. For the fiscal year 2019, we will achieve a payout ratio of 49% if the Extra General Meeting on Friday decides on the Board proposal of a second dividend of SEK 1.20 per share. And as such, it makes the total dividend for 2019 amount to SEK 2.40 per share. So this is what we have achieved looking back. If we then look forward instead, we have a strong and proven operating model. We have a focused and decentralized business. We have a flexible manufacturing philosophy. We have a high degree of direct sales and services. We have a resilient aftermarket business, and we have a sharp innovation focus. Starting with the focused and decentralized business. We have 2 reporting segments and 5 divisions. Looking into business type, we normally talk about equipment and aftermarket, with aftermarket representing approximately 68% of revenues and a higher portion of the profit. What does it mean to have a decentralized organization? I will not go through all the points on this slide, but I can start by saying that our decentralized organization has delivered well in light of the pandemic. Many of the challenges that you can have in a decentralize organization have been handled well. For example, the need of clear communication and courageous leader is taking actions when needed. Again, we have adopted well in 2020, and we have had quick decision-making in the organization. Let me show you examples of what we have done. We have achieved full effect from our savings programs, with a run rate of more than SEK 500 million annually as from Q3 2020. And there are also additional permanent savings coming into -- at the end of the year and into the next year following actions that we have taken. Of course, we have some effects from the short-term savings, but we have not, for example, utilized the government support in Sweden related to short term work. And we quickly focused our effort to make permanent savings, and we have adjusted to the situation. We have reduced costs in all areas, also at the corporate level. Here is a graph showing the development of our functional costs. It proves that our model works. Part of the cost reduction in SEC is, of course, due to currency, but no doubt, we have successfully lowered our costs in a challenging environment. As you know, we continuously adapt to changes in the economic environment. We restructure without large restructuring costs, instead, we try to be agile and to constantly make changes in the organization and in the structure. Looking back, restructuring costs have been rather limited. In 2020, we have taken SEK 173 million in costs. We have done a lot of actions to adapt to the new situation with COVID-19 and to become a more efficient company, including also some cash -- cost related to consolidation of manufacturing. We have reduced our costs. This enables us to invest and prioritize in key areas such as R&D. In fact, we are spending more than ever in research and development. This is also a key for us in order to stay in the forefront and be the technology leader. The run rate of R&D spend in percent of revenues is around 2.9%. Maybe at first, it doesn't look like much. But considering that aftermarket represents 68% of the revenues and the majority of the spending goes into our core components, equipment and solutions for automation, digitalization and electrification, it is actually a substantial level of spending. Of the total workforce, roughly 7% of our employees are involved in R&D. And this corresponds to about 1,000 employees. We have a strong focus internally on innovation, but it actually extends beyond what we do ourselves. We also leverage R&D from customers, suppliers and other partners. If we start with customers, we have 6 regional application centers around the world, and Sami showed them in one of his slides. They serve a good purpose to show the customers how new technologies such as automation and electrification work and how it can be used. And it lowers the hurdle for the customers to take the step. We also work with suppliers and partners to leverage our innovation efforts. To the right, you see some of the names of our partners. With Mobilaris, we innovate on positioning systems underground; with ASI Mining and Combitech, we developed solutions for autonomous operations and information management; with Orica, we developed semi-automated explosive charging, as Sami also mentioned; with Northvolt ABB, we collaborate on the batteries and electrification; and with Ericsson, where we work on 5G connectivity. And let me show you a video of the benefits of collaboration. [Presentation]

I hope you enjoyed the movie. Another important part in our operating model is the flexible manufacturing philosophy. About 75% of our product cost for equipment is purchased. We put all efforts into the core components, the technology and the efficient assembly of the machine. To the right, you see one of our bread and butter products, the famous,, Boomer. To simplify, we manufacture the rock drill and the brain and the rest is assembly. We also manufacture the rock drilling tools, but this is aftermarket with relatively stable demand. We have our major production hubs in Sweden, U.S., China and India. But we also have some smaller ones around the world, all serving their purpose. When we identify improvements in the manufacturing footprint, we take action. And this is what we have done the last couple of years in China, Canada and Italy, and this is an ongoing process. One of the benefits of the flexible manufacturing is that it's asset-light, which supports return on capital employed. In Q3, our 12-month return on capital employed was 21.6%, lower than it has been and lower than what we would like it to be. The main reasons for the drop from the 32% in 2018 due to current level related to the strong cash generation, the introduction of the IFRS 16 and a lower operating profit in 2020, impacted by the pandemic. That said, if we were to exclude the cash, we would have a return on capital employed of 31.6%. Our goal is to improve capital efficiency and resilience. And I see good potential in improving our working capital, and I will come back to it. Coming back to the cash generation. Where does the money come from? Well, customers, of course. We sell in more than 150 countries with rather balanced geographical exposure. The customer base is fragmented with, I would say, a low customer risk as the top 10 customers together stand for only 70% -- 17% of the revenues in 2019. 85% of our revenues are direct, which is a strength in building loyalty with customers. To have a value proposition attracting small and big customers, all over the world is important for capturing growth. We see good potential to grow further, particularly in the aftermarket, where we only reach about half of the installed base. So let me spend a couple of minutes on the aftermarket. More than 2/3 of our revenues comes from aftermarket, which has proven to be a very resilient business. As long as there is production ongoing, there will be a need for the aftermarket solutions that we bring. In 2020, the customer activity and the production and, of course, also our aftermarket was negatively impacted by the pandemic. Helena mentioned earlier an impact of mining production of roughly 5% for this year, so I will not go into the details. Historically, we had high single-digit organic growth in service, and it is our ambition to continue to grow our aftermarket in the coming years. As I mentioned before, we have 85% direct sales, which also translate into a higher level of working capital as we have the related inventory and the receivables. Believe me, we have a relentless focus on improving working capital. We educate the organization. We follow-up and we monitor. We have done a very good job on our receivables during the pandemic and have reduced our overdues. We have improved on the inventories as well, but here, we have more work to do. One of the bigger actions to improve is the supply chain improvement program, which is expected to be finalized in the coming years. We have seen a reduction of inventories, and we expect further gradual improvement going forward. Since we started, we have significantly improved availability for spare parts as well as for rock drilling tools. We have also reduced our transport costs. So despite higher freight rates during the COVID-19, but we have reduced the cost. But the move from sea to freight has lowered, and this is also the -- led to a reduction of the CO2 emission from transport. Since we started the supply chain improvement program, we have reduced absolute CO2 emissions from transport by 34%. This corresponds to greenhouse gas emissions from 7,894 cars driven for 1 year to put it into perspective. So to summarize the financial part, I'm coming back to our financial goals. We have a target of 8% revenue growth over a business cycle. We shall achieve an industry best operating margin with strong resilience over the cycle. We strive to continuously improve capital efficiency and resilience and resilience. Investments and acquisitions shall create value. We shall have an efficient capital structure and have the flexibility to make selective acquisitions. The goal is to maintain the current rating. And finally, we shall provide a long-term stable and rising dividend to our shareholders. The dividend should correspond to 50% of net profit over the cycle. We achieved many of these targets already today, but not all of them. We know that we can do better, and we have plans in place, and we execute on them. Thank you for taking the time today.

So well, thank you, Anders. It's time for the Q&A session. And as I said in the beginning, you were to click on a little envelope. And many of you did. Mattias has done a great job gathering questions from about 300 participants online. So excellent job. We have about half an hour for this session, and then we will end this CMD. Mattias, please go ahead with the Q&A session. And Helena, again, Thank you.

Thank you, Karin. Yes, I will moderate the Q&A, and I have tried to structure them by topic a bit. And we said that we would focus on innovation and aftermarket. So I will actually start the Q&A with these topics, and I will start with automation. And the first question is from Madhvendra Singh from Bank of America Merrill Lynch. And I direct this to you, Jose I hope you're online still. And when it comes to automation, if you could explain how does the automation work when you automate an existing model, how is that done, which parts have automated, how long does it take? If you can explain that, please, Jose?

Okay. I will try. Let's start by saying that all of our Pit Vipers have the platform to run automated functions. And most of them, the ones that were sold before we establish these as you have seen in my previous presentation, have been now converted on customer requests. So talking if they are able to work in out of functions? The answer is yes. Because they are suitable, and most of them have those functions already activated, like auto drill or auto level. But then when you want to move to turn it remote or full autonomous, then the connectivity is crucial. And here is the bottleneck because that is depending on the mine. So we have a very solid and well-defined process, what we call Blueprint or the rollout, where we were close to the mine to determine the need of their network and normally they need to talk to their current supplier. And when we collaborate or we collaborate with them and the mine, I mean, to obtain the faster results as the collaboration has been greater, we faster the process, the deployment. And I think that you were also asking if I can move 1 drill from 1 mine to the other. So yes, you can do it. They will have the automated functions. I mean, so they can be just transferred from 1 place to the other. However, if you want to work or turn it remote or autonomous in the other mine, you need to go through the same process. So always the connectivity of the network. And yes, the rollout process is the one that determines the success of it.

How long does it take to automate the Pit Viper? So make it autonomous.

I suppose that the question is -- I mean, the deployment, right?

Yes.

So if the question is that, I mean, we can say that in 2014, '15, when we started, it took a few months just to determine really that. Today, the sorters and fasters that we have done have been 2 weeks. But of course, 2 weeks is really the truly deployment at the mine site. I mean the work between the 2 teams from the mine from the network supplier and us have started earlier. And normally, we can say that after 4 to 5 meetings, let's say, a month or 1.5 months, I mean, we are ready to go, to go and do the physical deployment.

So a few months then. Okay. Thank you, José. The next question, I will direct to Sami, related to underground. It's maybe quite a difficult one. But what proportion of your equipment sold is automated versus nonautomated?

Automation functionalities. So I would say, as of today, depending on the functionalities, I think more than 50% rolled out from the factory includes some sort of capabilities, for sure. But then it depends on how high level of automation do we talk about. But it's a big amount or yes, today that include certain automation functionalities.

And then the question was from Max from Crédit Suisse. And he also asked about the 1,000 underground machines. So actually, these are connected. So that's -- they are not automated. And then the next question is from Klas Bergelind on Citi, on mixed fleet automation, like the ones that we do for Roy Hill, for example, where you automate [indiscernible] and Komatsu. What are the potential here when we automate surface trucks and haulers. So maybe that's also for you, Jose?

Well, I mean, it's the haulage population is the largest in the mine, and it's very CapEx driven. So big replacement of fleets all the time. So the opportunity of jumping into this segment with the interoperability that we can offer together with ASI mining, I mean, will give the chance to the customer to select the best product at the time that they are engaging in the CapEx in the investment. So we offer the OEM agnostic solutions. So far, some of the suppliers or OEM manufacturers, I mean, offer close solutions and the attractiveness for those customers, for instance, in this case, Ray Hill that we have mentioned, has been that opportunity that they are not really locked into the 1 brand selection. They can just use any brand anytime. So that's our good opportunity and also why we have encountered this new challenge.

Thanks, Jose I think that also answers a bit Joel Spungin's question from Berenberg, why we were selected for the Roy Hill project that we offered, let's say, OEM agnostic solution. So if I then go to electrification, maybe, and a question to Sami from Andrew Wilson, JPMorgan. When you work on developing a new product, do you develop a diesel and electrical equivalent of the same product or the are 2 separate work streams? Do you think that will change over time?

Yes. If I start with the last question, it will change over time, and that's what we have said. The future will be electric. For sure. Of course, currently, we do have both type of products, both diesel and electric ones. And -- but they are -- they are not different work streams, but they are, of course, consolidated in our R&D, in our underground division. So I would say the focus will be, for sure, on the electric side. But of course, we have a high number of diesel equipment in the field as well that we take care of and focus on that as we speak.

Okay. And maybe then that brings us good into, let's say, the retrofitting of diesel equipment with batteries. I've got several questions of that. I understand that the launch of the battery electric retrofit solution is for next quarter, so in Q1 of 2021. So of course, we haven't converted any units yet, that's a question from Joel Spungin, for example. But can we talk a little bit more about the retrofit? How much -- what is the potential here? Maybe Jess can elaborate maybe on that 1 potential that one.

We see in a fleet for mid-life rebuilds. So because that's typically the tongue are going to change a major component like PowerPack. So if we say that maybe 1/3 of our fleet is eligible in that kind of age range for the mid- life services, that's almost the same potential, you would say, the electric conversions flow.

Yes. Okay, very good. But also, maybe linked to that, and there is also quite a lot of questions on the mid-life services potential, but it's still a relatively small part of our business, right? Just...

Yes. It's still a small part of our business. It's one of the fastest-growing ones, and that's why we talk about it. But whether it's the customers doing the midlife free builds themselves or competitors doing them. We chose to address the highest volume machines in our fleet to start with, and then we add more every year. So -- and then we look at where else we can expand that, where we've built new facilities that can handle that kind of work. So that's how we grow that.

And maybe also, does this remanufacturing cannibalize on the new equipment sales?

No, it really doesn't. I think I said during the talk that in the uptimes, the equipment takes a bit of a lead time to get out to the fleet anyway. So that mid- life rebuild isn't really cannibalizing the new equipment because it's not there yet. And during the downturn, as the capital expenditures get turned off at the mine site, the OpEx comes up, and that's the flexibility that they have. So again, the mine site doesn't have the ability to buy a new fleet so they rebuild the old fleet. So that's why I say it's kind of an evergreen business, and it doesn't really cannibalize because of those factors.

Okay. Thank you, Jess. And maybe then a follow-up on this one. When it comes to battery as a service, this is Andy Wilson at JPMorgan, does this model the business model changing? And how does it -- how do we price this type of solutions? Do we also offer performance guarantee when it comes to battery as a service?

Okay. Maybe I'll start with the last part first. So we don't really -- we guarantee the batteries themselves, and that the customer always has the highest level of technology of batteries that's available out there. So because there are asset and the customer is paying for them as a service, it's in our best interest and, of course, and the customers vestitures to keep the level of performance of those batteries to the highest. When it comes to pricing, of course, it's a new business, and we learn a lot as we go forward. But I would say the starting point is really to understand what is the true total cost relationship with a diesel power piece of equipment, realizing, of course, that we don't build diesel engines ourselves. So it's a bit of a trip because there's some aftermarket there that we getting that now we will get on the batteries as a service. So obviously, we have smart people looking at that and making sure that we've priced ourselves at least initially where we need to be. But I'm sure we'll learn. And as this accelerates, we get faster and things will change as well, but we have a good team when it comes to the way we price.

Okay, thank you. And can this increase actually the share of service contracts? I mean patter as a service in itself is a contract, but is there a possibility for the remaining part of the business you think?

Yes. Of course, when we sell a batteries as a service machine, like you said, that's one type of agreement, but we bundle that together with the overall service agreement looking after the machine. So again, there's different levels of agreements. So it could be either an agreement, it's just an agreement to audit. So we could be just visiting a machine once in 2 weeks, once in a month. But, yes, we do hope that batteries as a service also drives other agreement business on top of that batteries as a service agreement.

Is -- I mean, a question then maybe linked to electrification to Sami then, how much more expensive is electric product versus a similar diesel one? And how does it look when it comes to profitability on this?

I don't want to mention any exact numbers here. But I think you know we have different studies that carried out in different applications. And then we can say when it comes to total cost of ownership, for instance, TCO numbers, we can see, of course, the reduction in TCO numbers there. And then including the both capital side as well as capital investment as well as the operating costs. So overall, at the end of the day, because of all the possibilities for savings, total cost of ownership is looking very favorable.

Yes. And maybe linked to that, and this is from Felicitas von-Bismarck from Deutsche Bank. Is there more service revenues on battery driven machine compared to a, let's say, a diesel driven machine? You alluded to that a bit, Jess, earlier, but we gain a bit and we lose a bit, I guess?