C. Scott Brannan
Good morning, everyone. Thank you very much for coming out this morning. We're happy to see so many people in attendance here today. My name is Scott Brannan. I'm the Chief Financial Officer of Colfax Corporation. And we're happy to have the first of what we hope will be an annual event, where we can gather with analysts and investors and other people in the investment community.
As I'm sure you noticed in the agenda, and then I've spoken directly with many of you today, that the objective of today's session is really to introduce you to our businesses in a little greater depth than we can do on an earnings call, or something of that nature, and give you a chance to really hear from and ask questions of our key leadership team. So there'll be speakers from each of our principal business operations, as well as our CBS methodology and business development. So you'll get to hear from a lot of our key people, and we look forward to taking your questions in each particular area. What we won't be doing today is we won't be providing any financial guidance, either for this year or next year. So this will be focused on operations, understanding our businesses and the key people that are running them.
Before I turn it over to Steve, I do have to put the standard Safe Harbor in effect here. We will be making forward-looking statements. There are factors that could cause these results to materially differ, and we don't have any obligation nor do we intend to update any comments beyond the facts as they are today.
So with that Safe Harbor, again, I thank everyone for coming. We look forward to your questions. And with that, I will turn it over to our President and Chief Executive Officer, Steve Simms.
Steven E. Simms
Thanks, Scott. Welcome, everyone, to this session today. Two points I'd make, we are thrilled that you would spend this much time with us today. We know you have a lot going on, and there are many demands on your schedule. So we appreciate the time that you're devoting to Colfax. But also say that we're excited to share with you our strategies and objectives, and we're particularly excited, as Scott mentioned, to share with you some of the key leaders that are involved with our business on a day-in and day-out basis. I think you'll be impressed not only with the strategies, but clearly, with the team that we are assembling or assembled here at Colfax.
With that, let me get into my part of the presentation. What I'm going to do is to give you a brief update on our performance through 2012. I'll talk a little bit about our overall vision, some of our key strategies, and then we'll come back and talk about 2013 in much greater detail and on business-by-business unit basis.
So with that, let's talk a little bit about our goals as we think about the business. And despite what has been a pretty difficult operating environment, we feel that we're making great progress against the midterm objectives that we've established in the business. And as you think about it, what we've said is that we will outperform GDP growth by 1 or 2 points. So 1 or 2 points above the average GDP growth that we see on a global basis.
Secondly, we'll improve overall operating income margins to the mid-teens. That means that we will take the ESAB business to from mid single digits to low teens, as we've said before. We will take our Howden business from high single digits to mid-teens. Now Ian will probably want to take that to much higher than that, but we'll try to talk him down from that commitment. And then we'll take our fluid handling business, which is also already very profitable, move that into the high teens as well. So overall, mid-teens sights of operating income performance of the business, and we obviously want to improve free cash flow in excess of net income on a consistent basis.
If you look at our performance on a year-to-date basis, our organic growth is up 8.2%, and we're pleased with that, again, particularly in light of the tough economic environment that we're experiencing. As you know from past meetings and discussions, we have a difficult time comparing operating income year-to-year because of the differences in GAAP and IFRS. As a result, we look at it on a sequential basis, and so operating income in quarter 3 ended 180 basis points above the operating income level in quarter 1. We believe that's an indication of the progress that we're starting to see as we restructure the business. We tightened down on SG&A. And we have experienced some growth, as you see here, but largely controlling those things that we can influence to improve the bottom line.
Thirdly, improvements in working capital, to be sure. But frankly, guys, we're not excited about that. We're not happy with where we are today on working capital. It is one of our highest priorities, and I can assure you can that we understand the importance of getting that on track. So while there is an improvement in working capital, it's not where it needs to be. Hopefully, you'll see in our presentation today what we're going to do to improve in that situation. Overall, the key message is we're committed to delivering what we've talked about in the past, regardless of the economic environment in which we're competing.
As we talk about our vision, and we talked about our journey towards excellence, obviously, we're trying to build a premier global industrial enterprise. At the end of the day, right now, what we're trying to do is in the early part of that journey is to really create the foundation stones that will lead to us outperforming the industry and, certainly, the competitors that we match on a day-in and day-out basis. So we're building the foundation.
And we think about our foundation in the form of 3 different building blocks, and this is the outline of what I'll cover today. The first is how do we leverage the portfolio that we have. We have a tremendous arsenal of brandies, and we'll talk about that because I'm not sure everyone really understands that and the leverage that we get. Secondly, we'll talk about one of our the greatest weapons, and that's our geographic footprint and, certainly, our exposure to higher-growth markets in terms of the end markets we serve.
Secondly, people are clearly the key to any business, to any team. And so I think you'll see today what we're doing to build a high-performance organization, not only to manage the integration of Charter, but to take on the additional bolt-on acquisitions and, eventually, additional platforms that we'll add in the business. How do we add that capacity in human capital to take on the challenges of turning the business around and making it a premier enterprise?
And then finally, we'll talk about CBS, the Colfax Business System, which is truly the heart of the culture and what holds our business and our structure together. So we'll hit these 3 points in a minute.
First, as you know from past conversations, what we've said at Colfax, we really are focused on large key markets, where performance, technology, reliability, safety all matter to the end user. Brand preference is important because we think associated with that is generally better margins, greater flexibility. And so that's a key driver in our business.
What I'm not sure everyone understands is that in our arsenal of businesses, we're the #1 or 2 player in virtually every market that we compete in. If you look at Howden, on the industrial or heavy-duty fan side of the business, we're the #1 global manufacturer. Same is true on those markets in which we compete in gas compressors under Thomassen. You're familiar with Colfax. Our legacy pump business under Bill Roller, we're the #1 manufacturer in those key markets that we compete in. And of course, you'll hear from Clay Kiefaber later today that we're the #2 player in the fabrication technologies area or arena with our ESAB business. So these are key brands and key positions in each one of our markets.
But I think, also importantly, these are businesses that have tremendous growth potential for a number of different reasons. First of all, as you look at the left-hand portion of the slide, what you'll see is that over half of our volume today will come from those geographies where the GDP growth is projected to be better than the fleet average. So these are markets where GDP growth is projected to be mid to high single digits. So 60% of our volume will come from those key regions of the world. We think that's key in enabling us to achieve the kind of growth that we think is characteristic of the business long term.
Secondly, on the right-hand side of the slide, as you can tell from the operating income improvements that we're starting to see, we are experiencing a benefit from restructuring, from SG&A management and just tighter control throughout the business. As you can see in terms of where our headcount exists, where manufacturing exists, we still have a relatively high position in markets like Western Europe and North America. Over time, there is a continued opportunity to reallocate that expense, to reallocate and shift manufacturing to low-costs regions, and in so doing, continue to improve operating income margins around the business.
Next, another component of growth is the strong markets in we which we compete. On the left-hand side of this slide, you'll see that in the fluid and gas handling part of our business, we generate about 60% of our sales in very high-growth markets that are projected over the next decade to outperform. And so if we look at our presence in power, oil, mining, where 60% of our business has generated fluid handling, we think that bodes well for our long-term top line performance. The same is true for ESAB. If you look at ESAB, while it's a little bit more difficult to track where our sales go from an end-user standpoint because of our partnership with distribution, over half of our sales will go through higher-growth markets.
So we think it's a combination of superior brands, an outstanding geographic footprint, in combination with the exposure to higher-growth end markets, represents a significant opportunity for -- in terms of long-term growth potential or opportunity for us here at Colfax.
Another important factor is the balanced portfolio in terms of overall revenues for the business. If you think about our business in 2 different ways, and you'll see a little bit of a modeling work that was done by Dan Pryor, and you can see that over the period, from 2006 to 2011, particularly in 2008, the combination of Colfax and the Charter acquisition would have significantly muted the volatility that we would associate with the economic cycle. So as we look at that recession, the impact on our business, as we bring it together, would not have been nearly as significant as what most companies in virtually all industries experienced in 2008.
I think it's reflective of our exposure to the aftermarket and consumables business, which represents about 60% of total sales for the company, and then 50% of our sales are in longer-cycle products. So it gives us the opportunity to certainly moderate, not completely insulate, the company from the volatility of the market, which certainly provides a more stable, less volatile opportunity in the future.
Next, as we talk about success in any organization, it revolves around outstanding people. I think you're going to see that today. But this gives a dimension to it in terms of what we've been able to accomplish in a very short period of time. In the last 8 months, we've added over 37 new associates to Colfax. In some instances, it's a situation where guys like Clay or Ian have promoted guys in their organization to the key leadership roles that were critical to the integration of Charter. In many instances, we've gone to the outside to provide those or to secure those special types of skills, experiences that are, one, are fit with our culture and, two, bring value-added contribution to the integration of acquisitions. So 37 people in key positions within the last 8 months.
I think more importantly to that, while that's really critical, what's more important is we've just completed our first global talent review process across every one of our organizations. In doing that, we've identified another 60 individuals that we believe within the next 18 to 24 months will have the potential to move into key functional roles, so vice president of engineering, manufacturing, sales, marketing, or a president of a business or a general manager. So that's a significant number and a commitment that we're driving as an organization. And by strengthening the team, it's not only recruiting on the outside, but making sure that we have an internal development pipeline that is going to build the team of the future to integrate things like Charter, to integrate things like bolt-on acquisitions and, importantly, to take on the expansion plans that we have in the future, very important for our overall business.
The key thing that holds us all together, I know you guys are aware of this, is the Colfax Business System. That's our business management system or process in our company. This is our culture. This is what holds our business together at the end of the day. This is a collection of tools that we expect every employee, every business and every geography to eventually master. We use these tools on a day-to-day basis to improve the process of improving the quality, delivery, cost and growth that we make available to our customers. This is how we went on a day-in and day-out basis. This is how we build sustainable process capability. This is the culture at Colfax, and that's what is most important to our business over the long term. We know our customers demand it, we know our shareholders expect it as we do. So this is an important part of how we drive our business and the culture that we're creating in the organization.
Steve Wittig has done a fantastic job, together with each of the presidents in the business, to build and create the organization. As you look at this slide, you can see that we've really doubled down, more than doubled down, in terms of the investment of dedicated Colfax Business System resources throughout the world. If you look at it, in 2011, we had 7 people dedicated to the role of CBS around the world in our legacy business. As we look at the business in -- on a year-to-date basis, 71 people have been selected and dedicated to CBS roles on a worldwide basis. That is a significant increase and a tremendous commitment to the culture and into improving the process capability and results in this business. If you look at our performance on -- in terms of a year-to-date basis, you'll see that over 1,100 Kaizens have been run in the first 8 months of the acquisition. In fact, it's probably 6 or 7 months that this data would reflect. That's a significant, significant number of Kaizens to improve process capability in virtually every one of our businesses.
You will see examples of that in every single presentation. You will see it in businesses that we've owned for 15 years, and they still are getting better. You will see it in new companies that have been added in the last 6 months that have taken off with CBS and achieving great results. But whatever example we show you, it'll focus on 1 of 4 things. It'll focus on quality. It will focus on delivery. It will focus on improving working capital and on improving in -- our overall cost base. So that's the drive and that's the focus. That's the commitment that we're putting behind this. It's still early innings. But we think at the end of the day, the results that you're seeing in the P&L are indicative not only of the restructuring, but the process improvements that the teams are driving through using the tools of CBS.
As we transition and talk about our vision a little bit further out, what we really say is that we are committed to strengthening the foundation of our business, leveraging those 3 foundation stones I spoke of in a few minutes. And at the end of the day, we believe that we're a company that will outperform those markets in which we compete in and the competitors we face on a day-in and day-out basis. There's clearly a lot to do. When you go from $700 million in sales to $4 billion sales in a few weeks, there is an enormous challenge associated with that. But we believe that we're well on the way to successfully tackling that challenge. I think you can see it in the numbers, and we believe we certainly are going to see that in years to come.
As we go through the presentations and our leaders come up and share with you what's going on, you'll see 3 key things driving throughout our presentation. One, what are we doing to lay in place the strategies that are going to grow this business organically over the long term? I think you'll see that from virtually every business that we have. Two, what are we going to do to improve margins? By simplifying the business and, again, leveraging the tools of CBS. And then third, how are we driving this culture through every aspect of the business? Growth, margin improvement and driving the culture.
As we go through our presentations, on the left-hand side of the slide, important piece of information to sort of keep in perspective. We'll talk about the ESAB business and Clay Kiefaber and Ken Konopa, who's the Vice President of Marketing, will come up and talk about ESAB and the fact that it represents about half of the total business.
As you can see from the slide, fluid and gas handling represent the balance. That's where we have our legacy pump business. That's led by Bill Roller. Bill will come up later today, along with Terry Ross. Terry is the President of our Lubrication Management business, our service management business. I think we'll give you an idea of some very interesting strategies that are really taking off there.
And then we'll also talk about our Howden business, which is led by Ian and Elias Zabaneh. As we look at that particular business, which we will actually begin the presentation with, I think you'll see a tremendous track record for growth and also in renewed commitment to improving overall profitability in the business.
So with that, what I'd like to do is transition the presentation over to Ian, and he'll talk to you a little bit more about the core of the strategy. Then Elias will come up and talk about a couple of success stories that we have in that part of the business as well. So Ian?
Ian H. Brander
Thanks, Steve. Well, good morning, ladies and gentlemen. I'm very pleased to be here for today. It's the first time we obviously had a chance to talk to you about Howden since the acquisition by Colfax.
Howden -- first of all, I would just like to talk about a number things. I'm going to talk about products and I'm going to talk about markets and I'm going to talk about strategy. So first of all, I'd just like to about the products. And you can set out our products to the following -- to 3 categories: the first is fans, the second is rotary heat exchangers and the third is compressors. And what these products got in common, what they've got in common is that they're all rotating equipment and they're all used at the very high end, as we would say. So they're some of the biggest, the most powerful highest specification type of equipment in the market.
So first of all, heavy-duty fans. Well, the main market for heavy-duty fans, these are in power and mining and also in steel. And if you look at our heavy-duty fan, what I want you -- and it's pictured here, that heavy-duty fan is typical of one that would be used in the power industry. It's capable of delivering a very high volume of flow. And to put that into perspective, that fan could actually inflate the Goodyear blimp in around 3 seconds, so very high-capacity fan. They're also very highly critical equipment. And one of our large fans rotating at full speed has got the same kinetic energy as you would see in a heavy-duty train. So it's very heavy-critical equipment.
Moving on to air heaters. Well, air heaters, these are used in the power industry, and they're used for increasing the efficiency of a boiler by removing the -- some of the waste heat from the flue gas, and, therefore, improving efficiency. Again, very large piece of equipment, this could have rotating mass up to 1,000 tons.
And then compressors. Well, we have a number of different types of compressors. They are used in quite a number of different industries, but the most important is in oil and gas industry, and there are a number of different types. Screw compressors, which are used for various types of gas compression, a very important application emerging for us to know is in unconventional gasses. We've done a lot of work in coal bed methane.
And then piston compressors. This is a product, which, as you can see in the picture there, is a product with a number of cylinders centered around the crankshaft. So it's like a -- bit like automobile engine in reverse but very large. And these are used in oil and gas industry, particularly in refining, mainly for hydrogen compression. These are very high powerful products. Example I like to use here is that if you were to take 10 London buses, you could actually use one of these pistons on this compressor to lift these 10 London buses, and that should lift these 10 London buses 400 times a minute. So that's the kind of power that's contained in these products. And these are getting larger and larger. In fact, we just sold the largest compressor of this type. So altogether, very critical products that are used in process-critical applications where availability reliability are absolutely key.
I just like to talk in a little bit, generally, about the markets and our growth strategy. And the most important markets for us then are power, oil and gas and mining. They are markets that, of course, exhibit long-term growth, driven by energy demand growth and by commodity growth, but also very importantly, they're also driven by environmental legislation. And environmental legislation, like in the power industry, that's a legislation for emission controls. And in the oil and gas industry, it can be controls of sulfur in fuels. These also really drive our business over demand -- above demand growth.
And you can see in the slide there, the geographic mix, as Steve said earlier, in Howden, well, like the rest of the group, we are well positioned in emerging markets, and we have established that over a number of years. Very strong in China, where we have an operation with around 1,000 people. And around of 60%, on average, is the sort of figure we have in emerging markets.
And then aftermarket. Of course, we're supplying these very critical products into critical applications, and we've got a long track record in that. And therefore, we have a high installed base, and that drives a very good aftermarket for the company and increasing installed base. And that typically is around 1/3. It can be anywhere around 1/3 of our sales are in aftermarket, and it's obviously a higher margin than in new build business.
A little bit more about our strategy. Howden have actually been very successful at delivering organic growth strategy for organic growth over a number of years. And I think that's because we're not simply a product company. We consider ourselves to be application engineers. And what we're doing is we've got a long track record of using our engineering expertise and our products to exploit new and changing applications.
And this is some of our main strategies. The first one, exploiting environmental opportunities. Well, that's like -- for instance, in the U.S., with the EPA rules, that is giving us a major opportunity, and we've actually won 12 out of 18 recent major projects in the U.S.
The mining market, we're expanding our market share in mining. And year-to-date, our sales are 33% higher than last year.
And aftermarket, I mentioned that. It's very important to us. Our focus there is on getting our structure right to take advantage of the installed base. It's getting skilled, knowledgeable people close to our customers and installed base. And also -- actually what we offer is we can offer performance enhancements to these customers, market offering, and kind replacement parts. We're offering performance enhancements.
And we're also simplifying our business structure, and that's to align it to our strategy and also to lead to margin improvement.
Steve talked earlier about CBS, and he said that we'll be having this in all the presentations. Basically, we had these growth strategies that during the last slide. We had the growth strategies in place prior to the acquisition by Colfax. These are things that we've been working on for a long time. However, what the Colfax acquisition has really brought that's been very new, it has brought CBS into the organization.
And now what we've seen from that is a really results-driven approach to continuous improvement and to process improvement. We have some examples here on this slide, I'm not going to go through this. But I would just say, the Howden management team have really taken this onboard. I mean, it's obviously only from the beginning of the year. We've taken this onboard and really running with these initiatives. And it's been the whole team and it's right through the business. As an example, they are the last example on the slide, which is for a company in Mexico, a small company in Mexico in Howden, so that's an example of where the business has really taken onboard the potential and driven since right from the beginning of the year. And Steve Wittig will talk about that later.
I'd like to focus, though, on one particular example. This is something we've been doing with CBS, and it's a project that's called Contract to Cash. In a company like Howden, we are really a company that deals with major projects, major contracts. Really big driver of our working capital is how we control major contracts. That's right from the taking the contract to collecting the cash and that's actually before taking the contract. And the processes -- I was getting the processes right in that with the amount of working capital that's tied up in these major contracts is absolutely crucial thing to keeping our working capital low.
So we identified through the CBS processes that this was one of the vital few things that would drive our working capital. And we've been through a major process with several Kaizen events in order to drive that process change. And we now have a set of standard clear processes that go from department to department. And very importantly, we have monitoring in place so that we can see every time there's a miss on a particular milestone payment, we can see why that is, we can root cause it, and we can continue to increase the processes -- improve the processes. And I've actually seen in the company we've piloted this in, in the 3 months since we piloted it, the working capital has gone down from 18% to under 10%. And that's in the company where we piloted in, and we'll be rolling this out across Howden.
I'd like now to talk about 2 -- well, one more detail, but 2 of these growth strategy areas. The first one is in mine ventilation, or mining generally. The second one is in power and Elias is going to talk about the one in power.
In mining, well, Howden supplies a number of fans to a number of processes in mining. And most important of these being mine ventilation, and we also do mine cooling systems. And the trends here, mines are getting bigger and they're getting deeper. And there's also a drive for energy efficiency to reduce cost. Now these are things that certainly play to the Howden strengths, because we are -- as I explained earlier, we are focused on the highest efficiency products on large, complex products. And the mining industry, where the applications are safety critical, is a key industry for Howden, where our brand and our reputation as a differentiator in that area.
Our strategy to follow our developments, well, we have been developing in a number of key markets. We have been developing what we do in mining. We started from just doing fans and we took that to doing more turnkey solutions. So we now do -- well, into the fan we do from a hole in the ground to a full fan ventilation for a mine. We've also been doing a number of products, other products that we've tailored for the applications, engineering knowledge into these particular key markets. But we certainly don't offer these today across all of the potential mining geographies. And we are now, as part of our strategy here, really globalizing that into other areas of the company. And that's about sharing products, also it's about sharing knowledge and application engineering expertise.
I've got a couple of examples here. These are 2 mining success stories. First one is a major coal mine in Australia where we won what is our biggest ever mining order this year, $24 million order. It's a ventilation -- it's one of these projects that I described where there's a complete ventilation solution that's centered on Howden fan technology and also uses Howden acoustic technology. And it's differentiated by using a mixed flow fan solution, which is something that we offer to that industry and is particularly efficient for this type of application where there is a wet, dusty environment. So that's been a major success contract.
And the other one, just to show another example on the other side, this is a cooling application. This is for an ice plant in South Africa, and this is basically for putting ice underground, in this case gold mine. It has a 4-kilometer deep gold mine. And it's a process where you generate ice in ice plant you put underground to create cooling. This will be the biggest ice plant ever built. Work on this project is now centered on our screw compressor technology, which is basically refrigeration. And this is -- this compared to conventional water cooling-type solutions. It has savings potentially in excess of $2.5 million a year. So this is a very efficient solution, which is particularly suitable for very deep mines.
As I said, the other area that we want to talk about a little more depth is in power, and Elias is going to talk about that. Just to, first of all, introduce Elias. Elias has worked in the power industry for 30 years. He's worked for Howden for the last 12 years. And he's responsible for amongst -- a number of Howden companies, including the key companies that we have that work in the power industry. So I hand over Elias to talk to you a little bit more about power and our growth strategies in power.
Okay. Thank you. Good morning to all. Our goal, briefly through the -- our strategy. And I would like to start this brief presentation saying, well, who said that coal power generation is dead? Power generation is not dead. Coal power generation is still alive. And actually, I would say 40% of the actual power generation, world power generation, is generated by coal power plants.
In the next 20 years, we will still see coal as the major fuel for power generation. The figures we have for 2012, 86% of the new coal power plants will be installed in Asia. So the growth in coal power is mainly in the East, and that's in China, India, and Southeast Asia. China, we're expecting around 35 gigawatts per annum growth; India, about 15 gigawatts; and the rest of Southeast Asia, 9 gigawatts. So the future is over there. And definitely, Howden is well positioned to take advantage of that growth in Asia.
However, this is not the same situation in the West or developed countries, where really the power generation, coal power generation is declining. But on the other hand, there are great opportunities coming from the environmental legislation. And this is a -- I mean, this is absolutely an excellent market for Howden, where all the existing units have to upgrade their plants to meet the environmental legislations and limits on toxic gas emissions. That means we have to upgrade fans and heaters, and not only upgrade them but, in most of the occasions, is replace them completely.
That's not only in the West. But also, we see that in China. In the last years -- I'm sorry, I'm not passing over the slides. I'm just going ahead without -- it's also in China, we see that environmental is also driving the power segment. In the last -- going back to 2005, 2006, they started in the -- with the legislation of reducing SOx, which are sulphur dioxide emissions. And now they're going really to -- through the process of reducing NOx, which are the nitrogen oxide emissions. So it's the West as well as the environmental is really giving Howden great opportunities.
As Ian mentioned before, on the environmental market, definitely we are -- obviously, we're very well positioned, especially when you see the success factor we had of winning 12 projects out of 18. I mean, that's -- I would say that's great. That's a very good result to achieve that.
Another attractive market for us -- sorry, the other attractive market for us is the aftermarket. We've been in China already for, I would say, since 1996, and we've installed -- our installed base in China for fans and heaters is over 200 gigawatts of installed base. Just to give you an example, coal power generation in the U.S. is 330 gigawatts, the total of U.S., and we supply 200 gigawatts of fans and heaters in China. And definitely, this is since 1996. So all these installations and power plants are aging. And now, actually, the time is coming where we need to replace spares, aftermarket, maintenance. So great opportunity in China for the aftermarket.
Howden has -- I think as -- Ian mentioned that before. We consider ourselves as a process and application engineering company, although our products are very well differentiated and we have an excellent history of successful execution of these complex projects. I mean, we -- you have to consider that these projects take normally anything between 9 to 15 months to deliver. They're all completed and erected on-site, and that requires a very, what do they say, good project management and execution.
To summarize the strategy, our strategy is really, one, is to focus on Asia on new goal, which is -- that's very clear; environmental opportunities, West as well as East; and the third is aftermarket. These are the 3 key strategies we're looking at in the power segment.
And over here, we have a few recent examples, which you can see that the strategy we're following are giving really good excellent results. And these are very recent contracts that we have on projects. One is you look at the Tailin Power Plant in Taiwan, which is 2 800-megawatt units, supercritical units. This is the latest technology in power generation. And customer decided to go for Howden heaters and fans. I would say this is a -- Howden is the only company that can supply both fans and heaters for these power plants. All our competitors would supply fans, others heaters, but we are the only company that can apply both. So that's a major differentiator for our customers.
And then we would look at the States, where we've got recently this major contract for mercury reduction. And again, this is environmental. And we are supplying 12 centrifugal fans for this power plant. So I just want to -- really, this is briefly give you an overall view what we're doing on the power segment. Thanks. All yours, Ian.
Ian H. Brander
Thank you, Elias.
Ian H. Brander
But you are aware this -- okay. Now what -- actually, I'd like to sum up now and then we've got some time for questions. So basically, from what we've described, we have a very solid, long-term sales outlook, and we'll be continuing with these growth strategies. We've got growing demand for energy and resources, long-term demand. We've got the environmental regulations, which are also driving our business over and above that. And we've got a very strong product quality and brand reputation. And together, these are giving us a good -- a long-term outlook. It's solid.
As I said, we will be continuing our growth strategies. But also, we have an increased emphasis now, I would say, on profitability through 2 particular things really through the growth of our aftermarket business, which is high margin. And as I described and as Elias has described, there's a lot of potential for us to further grow our aftermarket business. And secondly, through CBS, through the intense application of CBS in the business, which is something that we have started this year with the acquisition. And we're really taking on board and we'll really be driving follow-up. So that's the 2 key messages I just wanted to finish off with. And now we'll open for questions. Scott, are you going to be on this?
C. Scott Brannan
Yes, thank you. We are going to take questions after each segment. So this would be an excellent time to ask the Howden guys questions. We are under our webcast here, so you'll -- I'm going to have to limit everyone to one question only -- we don't have time for follow-ups -- so that everybody can get an opportunity. And please, wait until the microphone comes to you. Cliff?
Clifford Ransom - Ransom Research, Inc.
Cliff Ransom. I was really struck at the recent quadrennial MINExpo show at how few Wall Streeters believe that we were ever going dig another ounce of coal out of the ground. We seem to have an industry that refuses to accept that -- your premise that coal was here to stay. Can you give us a few more data points that give you the confidence that your mining market will continue to be robust over the intermediate period?
Ian H. Brander
I'll give a comment to it. A couple of comments and then I'll ask Elias to expand on it. Basically, as Elias had talked about, when you consider all of the development of the coal-fired power industry and what's happening and the demand that you see on coal, this is demand that's growing not going away. Elias, would you like to elaborate maybe some of the issues on coal supply in Asia?
Yes. I mean, still, if we look at the strategy in China as well as in India and Southeast Asia, their strategy, their, let's say, power strategy is mainly based on coal-burning power plants. We've just recently -- I think we've seen that in the press in India where in Ganges [ph], they are struggling to find enough coal to grow their operations. So they're desperate to get this coal worldwide, and they're trying now to invest in Australia and in other Southeast countries to get this capacity of coal. So John?
Can you talk a little bit more about the China aftermarket positioning and opportunity? So I think you said 1/3 of the mix today, right, in power is aftermarket. What is it in China? What's the potential? And what are actually the risks of Chinese companies just supplying these parts, right, or the companies doing it themselves? So like a little more color on how big this sort of upgrade retrofit opportunity really is.
Yes. Let's say these equipments, they're complex. I mean, this is not an equipment that anyone really can go in and just replace easily. It requires knowledge. It requires engineering and experience. We have an organization in China, over 1,000 people in China. And our aftermarket organization is very well spread in the geography. We're very close to our customers. The equipment are critical and crucial for their operation of their power plants, and these guys cannot miss one of these actual fans or heaters really to fail because that means a massive power shortage. So they want to play it safe and have really a reliable company that can maintain their equipment in good shape and good position.
Ian H. Brander
And just to add to that one other point, I mean, that's where [indiscernible] is showing. We have expanded our aftermarket organization in China, and we are really achieving -- we have achieved substantial growth in our aftermarket there. So as Elias should explain, I think that's a -- it will be stronger [indiscernible].
Ian H. Brander
It's more than -- think of it -- that's one I thought, but it's...
Ian H. Brander
Yes, as a matter of fact.
Ian H. Brander
Yes. It's a bit lower. It's a lot more potential because what we have in China is we have this large new installed base, and we've seen rapid growth in the aftermarket because of that maturing installed base. There's a long way to go and a lot of extra potential. It's not at the levels as a mature market, so let's see. Yes?
Well, it takes normally, let's say -- it takes normally around 5 years before you make a major overhaul. Most of our equipment were supplied during, let's say, the period of 2005 up to 2008. That was the peak. And definitely now we're going through that cycle of starting really to replace these, let's say, to grow the aftermarket. Ben [ph]?
Is there any way we could size the environmental opportunity maybe in the U.S. or globally? How many units need to be retrofitted over what period of time?
Well, the units in U.S., there's almost 1,300 units to be retrofitted. Obviously, it all depends. If you listen to the -- what's going on, on the legislation, there's a lot of changes on that legislation. But whatever happens, if it's not 1,300, it's going to be 1,000. But at the end, the number is really big. We're talking about very close -- over to the 250, 260 gigawatts.
Well, that is incremental. That is incremental. Mike?
Obviously, you spend a lot of time on the coal side of things. Can you just talk about your market positioning beyond the coal arena and the other power markets, what you've done to balance the portfolio out from what was historically one of the coal-dominated product portfolio? And just maybe talk about what the opportunity looks like there on top of what you're seeing on coal?
Ian H. Brander
Yes, what we've done has been a deliberate strategy over the last, say, 7 years to develop our portfolio so as not to rely on coal. And if you have to look at it back, say, back in, say, 2005, it was much heavily dependent on coal and there was no -- that's not really through developing into other sectors of the power industry, it's more been by developing an Oil & Gas industry. We have substantially grown not -- it's been a deliberate strategy. We've substantially grown what we're doing our Oil & Gas. Back in 2005, it was around GBP million. And then it was up in 2011 to around about -- 2010 to GBP 200 million. So we've really grown in our Oil & Gas sector. So that's what we're doing. And also, in mining. We've grown mining. So we concentrated in growing other sectors to -- and also balanced our portfolio. And today, it's a considerably lower portion of our -- of sales than it was a number of years ago. But as Elias has said, it's not going away. It's a very important market, we wouldn't want to be in time and aligned on, of course.
C. Scott Brannan
And what I would add to that is that our Bill Roller, who you'll be hearing from next, will talk about our position on the fluid handling side in the natural gas and combined cycle power markets. So we do, as a corporation, serve that side of the power industry as well. I think we have time for one more question.
You guys have on here as a market trend supporting the mining business commodity prices declining, increasing cost focus by miners. And obviously, your mining businesses -- you have demonstrated that right here -- you're up in an environment where commodity prices are down. Can you explain to me, it sounds like what you're saying is, the Howden product is a cost-save solution for miners. And so as commodity prices decline, that's good for your business. So can you -- that certainly is -- that's what this implies. So can you walk me through how declining commodity prices actually benefits your mining business? And so maybe use a practical example of a unit economics in a mine, it's going to cost me x to buy this product, and it's going to save me y over 20 years. How does that benefit the mine?
Ian H. Brander
Well, generally of course, if commodity boom and more work because, obviously, there's more projects in total. But as far as Howden is concerned and all our products and the amount of products we sell into mining, we sell the highest-efficiency products. So when you have, as you do have in the mining industry today, you have a focus on both for new projects and for retrofit projects, on what is the highest-efficiency solution I can get, then that gives us a differentiator of those values. And the mining industry is one of the industries where, because of the way we position ourselves, we sell direct to the end user, in many cases. And so the end user is really appreciating the efficiency increase. I don't really have any figures to hand. I can give you a [indiscernible] example. But efficiency, these are large power plants. And so if you have 1% or 2% increase in efficiency, that's a very important. I did put the example up earlier of the mine chilling plant. So using the ice plant solution compared to conventional water cooling solution, it's $2.5 million saving a year. That's an example. But on the fan side as well as efficiency, and it's also about size and reliability that, that efficiency aspect is very important.
Ian H. Brander
Yes, but -- the commodity price, yes.
So are you excited that commodity price [indiscernible]?
Ian H. Brander
I wouldn't say that we're excited in that fact that commodity prices declined. But I would say that relative to the competition, that goes with a market share advantage. But obviously, overall, markets will then basically get bigger.
Ian H. Brander
Okay, thanks very much. So I'd like to introduce Bill Roller, who heads our Fluid Handling division. You probably saw Bill, met Bill before. He's obviously done these things in previous occasions. Bill?
William E. Roller
Hopefully, I can get the slides to come back up. I'm Bill Roller, EVP of the Fluid and gas handling business. This is the legacy Colfax business. So I saw some familiar faces out in the crowd today. So many of you probably have heard a lot of this speech. I've also been allocated the time right in front of the break so that I know if I move quickly, you guys can move quickly to your break.
Colfax Fluid Handling sells a variety of different fluid handling applications globally around the world, primarily 2 and 3-screw pumps. These are pumps that you probably don't know on a day-to-day basis, but I'm pretty sure that you've all used. Colfax is a leading supplier of hydraulic elevator pumps. So if you've been on an elevator, usually in a small hotel of less than 6 stories, then you've used the fluid handling product, one of our screw pumps. The products are used for lubrication services, hydraulic services, anywhere from ships and on submarines, also in the Oil & Gas business, pumping everything from fuel or diesel engine fuel, all the way down to bitumen and asphalt.
We have a niche centrifugal business as well. That business is primarily focused on the power industry as well as the hot oil industry. And there's a variety of different products that reach in there. It's not the business that generally competes in the larger share of the centrifugal marketplace. Usually, these are very specialized-type applications.
We also sell internal Oil & Gas marketplace multiphase booster pumps. And these are pumps that are used very close to the wellhead to pump fluid as it comes directly out of the wellhead. In that circumstance, we'll see a variety of different conditions for the fluid. And as a result of that, you have to have a pump that can deal not only with oil coming out of the ground but needs to be able to deal with gas, that needs to be able to deal with water, needs to be able to deal with sand. And our multiphase boosting pumps are kind of an exciting growth opportunity that exists for the business.
Along with that, we produce a variety of systems, most significantly is our lubrication systems since we're a lot of times in the business of pumping oil, it makes sense that we also are providing the system support for that type of application. And the lubrication systems business and the picture that you see here, which is a mist lubrication system, forms the foundation for our TLM business, which is an aftermarket service business that is growing in the refining and petrochemical marketplace.
Overall, our market size is about $6.4 billion. We do about 33% of our business in emerging markets. A lot of our product does end up in emerging markets over time. We sell in the rotating equipment business. And so a lot of times, we're selling into a rotating equipment manufacturer, for instance, a GE or a Siemens, and then the product is shipped overseas to an emerging marketplace. So a lot of our aftermarket shows up in emerging marketplaces.
Our total marketplace for aftermarket is about 26% of our business, and that is a focal point for us to try to grow that percentage around the world. You'll see us in a variety of different applications. Our large segments are power gen. As Scott said, on power gen, we service primarily combined cycle plants of fuel and gas plants, mostly on fuel, speed and lubrication services.
We're in the Commercial Marine market, we're in the military market. You see that Commercial Marine defense have been pulled together. That's the defense business, a much smaller market, but our products have been in defense and particularly the U.S. Navy for almost 100 years now.
For our strategies and our focus, we continue to try to focus in on the Oil & Gas marketplace, growing some of our share, particularly in the multiphase side of the marketplace, and taking advantage of some expansion that's been occurring in pipelines and terminals. We're focused on the aftermarket marketplace. And our -- my compatriot, Terry Ross, who works for me as the Chief Manager of TLM, he'll be talking to you a little bit about the lubrication marketplace, which has seen a greater-than-10% growth this past year. We both -- we'll talk a little bit about our CBS tools and how, even in a business that's been around for quite some time and been practicing CBS for quite some time, has the opportunity to continue to improve its operations. And we'll talk -- we've also spent some time expanding and growing our global footprint in manufacturing and most recently opened a manufacturing facility in Saudi Arabia.
You'll hear from everybody today talking about the CBS culture and how we use that to improve our operations, whether it's quality, whether it's delivery, whether it's cost, whether it's growth.
I think the most compelling thing about the CBS process is how transportable and transferable and how we can train people in that process. It's not a system that's unique to a particular type of culture or something like that. It's really unique to our culture, and we can take it to anywhere in the world.
The 3 example that I have here are kind of compelling. The very bottom one is in Sweden, the middle one is in our Monroe, North Carolina facility and the top one is in Daman, India. And all of them are pursuing the same type of CBS tool, which is demand flow implementation. And all of them are getting still pretty good results out of that improvement.
The CBS process has been ongoing inside of Colfax Fluid Handling for the last 15 years, and you'll see from these examples that we get the same kind of results and improvement levels even though we've been at it for a long period of time. Our Monroe facility, as an example, in this case, went from 15 to 23 inventory turns in that 1 facility.
You see in this facility -- this is our, Daman, India facility, which is kind of in the middle of nowhere in India -- we can achieve tremendous results. And this is a good example of finding that factory inside a factory, which is so prevalent in the CBS approach, which, as you see then on the left-hand side -- cluttered picture on the right-hand side, there they've cleared space -- we've improved our productivity almost 65% in this case, improved our overall operating space, improved the flow and the communication in the operations. And we continue to look at all of our facilities around the world for how we can improve and enhance that operation.
Oil & Gas for us, we like this market. This is a bumpy market sometimes for us because of the project nature of it. We like this market in the long term because of the conditions that exist in this market. We know that globally, more and more, the types of reserves that are being developed and the types of extraction methodologies are driving us more towards heavy Oil & Gas as well as more gassy type of oil being extracted from the ground. Those favor the technologies and niches that we focus on and that we have expertise in. Along with it is the transport of that product and the terminal, storage and blending facilities that also support that heavy oil. That development and the long-term growth of that market for us is appealing, and we'll continue to be excited about that market even though in the near term, we see a more choppy response.
I'm going to turn this over to our -- my compatriot here, Terry Ross. Terry is one of those 37 that has recently joined the organization as a senior level manager. Terry is an alumni both of GE and Danaher, where he we worked in the Veeder-Root business and ran the service business. And we're delighted to have him on the team. And he'll talk a little bit about the lubrication management opportunity.
Thank you, Bill. Good morning. Our total lubrication management effort is focused on solving the uptime and reliability needs of our customers that have a heavy -- high density of rotating equipment, pumps, turbines, compressors, other items. These are facilities such as refineries, petrochemical plants and power generation facilities. We provide a wide range of lubrication-related services and equipment, including high-velocity oil flush, lubrication route, oil sampling, oil mist equipment and systems that we talked about and a wide variety of decontamination solutions for the customer.
Building on our experience with oil mist, the team began to realize the opportunity to provide a broader range of lubrication-related solutions and started piloting the total lubrication management concept in early 2011. We added to our capability with the COT-PURITECH acquisition, putting together the market leaders and their respective technology.
What we found is that we're really creating a new market space. Customers today have to navigate a very wide range and a very fragmented array of suppliers, services and equipment technologies to try and address their maintenance and reliability needs. What they're really trying to accomplish is eliminating process downtime, which is, in these industries, incredibly expensive and reducing the break-fix maintenance expense, which is a reactive and high-cost way of doing business.
So we currently estimate the market at about $400 million in the U.S., but as we're continuing to learn and add services and work with new customers, we believe we're going to be able to define this as a significantly larger global market. By leveraging our first-mover advantage and the growing customer need to get higher performance and a longer life out of the rotating equipment asset, we believe we're truly becoming partners with our customers.
We recently expanded to the West Coast with the acquisition of MPJ Recycling, and we're currently in the process of taking the breadth of our solutions to their existing customers and reaching out to new customers in the region. You'll see us continue to add new service locations in 2013 in improving -- in doing so, improving our emergency response time, which is a key element on the service side of this business as well as reducing our cost to serve. We're also going to be continuing to develop new service and equipment products, especially in the areas of lubricant purification and system decontamination.
But our most exciting growth opportunity is when we work closely with the customer to develop a comprehensive, total lubrication management process. These -- in these situations, we're providing daily, on-site support, working hand-in-hand with the customer team to drive continuous improvement in reaching their customer goal. I'd like to share a couple of those examples with you.
Our relationship with a Gulf Coast petrochemical facility started in 2009 with an equipment maintenance contract. It's now grown to -- into a compressive lubrication management program. We have 3 technicians on-site every day. We have a program manager that works daily with this customer, looking and analyzing new improvement opportunities. We currently have multiple teams on-site supporting a large turnaround and working to launch a expanded lubrication management program as we head into 2013.
At the second example, we started working -- well, we've been working with the Houston-area refinery for many years providing oil mist system maintenance. And in 2011, we began working with them to try and move beyond and delay lubrication services program. We conducted audits of their lubrication practices, we identified system needs, and we really developed a creative solution to extend the life of their equipment between maintenance turnaround to eliminate that break-fix interruption that had been plaguing them for years.
Bill, back to you. Thank you very much.
William E. Roller
In summary, what we see is some long-term trends aligned with our strengths, the movement in the Oil & Gas business. We're seeing recovery in the medium term with our Commercial Marine business, and we see opportunities like Terry's in the aftermarket side, which are pretty exciting opportunities. All that, coupled with the continued application of the CBS tools across our entire fleet of plants, really, we think position us to be ideally positioned for the future of this business. I think now is a question period.
C. Scott Brannan
John? We'll bring the microphone over to you.
Can we go back to lubrication? I realize that's a small market, but how big are you again? I think you bought a company that got you into that business, if I'm not mistaken?
In the lubrications systems?
Yes. And then just -- it's not really clear what it is you actually do, so maybe you could talk about the -- it sounds like a conservative [ph] business.
C. Scott Brannan
You want to tell them what you're actually doing?
What are you doing in lubrication?
Certainly. It is a broad mix of applications and services we bring to bear, but it's everything from when a new equipment is getting put in, we'll start at the front end with oil flush and decontamination of the system before it's put into service. During service, it's very common for lubricants to get contaminated by a variety of sources, everything from humidity in the air to particulate, to processed gas coming through seals and other issues. So we have a variety of monitoring and decontamination solutions, both active and from an emergency response standpoint to help the customers cleanup there lubricant oil. Contamination in that lubricant oil can shorten equipment life significantly.
Many times, absolutely. We have -- we'll bring -- well, we can put permanent solutions on site to provide various types of filtration and decontamination, pulling water out, particulate out, gas out of the lubricant oil. We also can bring equipment on site to deal with short-term or more emergency-type solutions. Everything from small skid equipment that may sit next to a pump to tractor-trailer size specialized equipment to do high-volume cleanup. This is on comps, compressor systems, turbines, any type of rotating equipment that's at the facility. If you look at a typical refinery, for example, you can have 3,000 pieces of rotating equipment on that site that the maintenance and reliability engineers there are responsible for keeping up and running every day.
It is, yes.
C. Scott Brannan
The discovery of additional oil reserves in the U.S. which is lighter oil, how does that impact your business? Is it a net negative? Or is there something into that market that you provide?
William E. Roller
Well it depends on the reserves that you're talking about. There's a number of discoveries that have been fairly heavy oil. We don't tend to play as much in the lighter oil side of the equation. It's a net -- not a net negative, it's just another segment of that business. It doesn't really impact the heavy oil industry. We're actually seeing growth in the heavy oil side of the business as there's less and less of those kind of light crudes that are out there. As they say, the good oil is pretty much all gone, and that's a great thing for us.
C. Scott Brannan
Clifford Ransom - Ransom Research, Inc.
Another place that I find -- Cliff Ransom, sorry. Another place I find myself swimming upstream is the preoccupation that we're never going to frac another piece of shale anywhere in North America. To what extent do you play in either gas or liquid and gas in frac-ing?
William E. Roller
The frac-ing process mostly involves the crusher side of the marketplace. We don't really have any applications that go directly into the frac-ing side, unless they do involve heavy oil extraction. Upgrading typically happens right at the site there, so there's not a lot of play for us on the frac-ing side of the business. Although we do find some limited applications for our PC products in that marketplace.
C. Scott Brannan
Amanda, you want to take the microphone over to Ian and let him respond to Howden's participation in the unconventional gas and frac-ing market.
Ian H. Brander
We do have -- we do sell some screw compressors into the frac-ing market for gas compression, but it's fairly limited, because most of the compressor range used in that is not what we do. Our involvement in unconventional gas is much, much more strong in coal bed methane, where we have been wining major projects particularly in Australia. But our major project's especially moving in China, India, Asia. And so, that's particularly coal bed methane for Howden and also in frac-ing.
C. Scott Brannan
Okay, seeing -- we do have one further question.
C. Scott Brannan
Because we are being webcast, I'd prefer you to wait for the microphone.
So this is a business you guys have owned the longest and have had the chance to implement CBS for the longest period of time. I would be interested in why we have a margin target today that is above your current margin level. You would think with 5-plus years of experience of implementing CBS, I understand it's a constant improvement process but we think we'd already be Kaizen-ing all over the place, and we would have -- we'd be -- already be at that kind of peak performance level in this business. So what is it that has stopped us from getting there?
William E. Roller
I don't know that we stopped in getting there. I think we are Kaizen-ing all over the place. I think we continue to add facilities, and we continue to, as we acquire different bolt-on acquisitions, so we continue to introduce that into new facilities around the globe. But as an example, the one I showed, the Monroe facility, that's a facility that we've had for the entire time that Colfax has owned the business. And we continue to innovate that facility, and that facility continues to find new ways to reduce cost, improve our quality, improve our delivery. We certainly have maxed out in some facilities on particular measurements, but we continue to challenge them for new ways to look for that out-of-the-box solution that improves their costs, that improves their delivery or improves their inventory turns for instance. So it's a continuous process. We're always going to be able to talk about improvements we've made. And we're never going to stop that process. And we are Kaizen-ing all over the place.
William E. Roller
Well, I'm pretty sure my boss has raised my targets every year that I've been here.
C. Scott Brannan
Okay. So seeing no further questions, we'll take a break now. And then after the break, the ESAB organization will present. Please be back in 25 minutes.
C. Scott Brannan
If I can ask everyone to take their seats, we'd like to resume the presentation.
We're now ready to resume our conference. Hopefully, you found informative, the discussion on our gas and fluid handling segment. We'll now turn the presentation over to our fabrication technology segment, which is the ESAB business and our newly acquired Soldexa business. Clay Kiefaber, who many of you know, is the executive in charge, and I will turn it over to Clay.
Clay H. Kiefaber
Thanks, Scott. Can everybody hear me all right with this mic? Great. Unlike Howden and fluid handling, ESAB is probably what we would term more of a turnaround kind of opportunity. So we've been spending a lot of time in focusing our efforts on good old-fashioned cost containment, certainly restructuring, also working on improving the flexibility of the supply chain. And in addition to that, working on new product development and also working on our capability from a sales perspective, so that we can improve our selling skills as we want to grow this business moving forward.
So today, what I'd like to do is basically cover 4 different topics. We'll start off with a brief overview of the business. And from that, I'll talk a little bit about the performance to date, especially as it relates to our strategic focus areas. Also, we'll cover CBS and some of the activities and Kaizen events that we've been working on there. And then what I'll do is turn I'll turn it over to Ken Konopa, who is our Vice President of Manufacturing, and he's going to talk to you about a couple of different countries, Russia, also a continent, South America, and some of the opportunity for growth that we have there and some of the things that we're working on. Because again, we want to get the restructuring behind us, we want to get the right model in place, but then our intent is to really have some fun and grow this business.
One of the other keys that we're emphasizing from a strategic standpoint is, really, the development of more solutions. We want to become more of a solutions provider. And the heritage of ESAB really is interesting. It's steep -- the heritage is steep traditionally and with a lot of innovation that's going on within the organization. Unfortunately, that's gotten off track over the last probably 5 to 10 years and it's sort have been stuffed out of the organization. So one of the things that we're doing is we're really emphasizing the drive to really utilize some of the innovation, some of the technology expertise that we have within the business and create more of a solutions orientation for our customer that really is focused on problems that they have, and we're going to do that by listening more intently to them.
So what I'd like to do now is just give you a -- probably about 5 or 6 different examples of applications, where we're starting to drive that kind of a solution within the business. But the first one that you can see here in terms of the offshore structures, what you see there in the picture is basically the foundation for a wind tower. That foundation weighs somewhere around 1,000 metric tons, believe it or not, and we set that down at about 40 meters of water, so, obviously, a very critical application for a wind farm. And take a look at the liquefied natural gas. Those tanks are typically around 5.5 million cubic feet. That's what they store, liquefied natural gas, and typically at temperatures of somewhere around minus 261 degrees Fahrenheit, so again, another very critical application.
With regard to nuclear reactors, a number of different components, again, a very critical application for us. But it utilizes our tandem narrow gap welding technology which is something that ESAB has an expertise in far and above over a number of companies in the world. Also, the structural fabrication, you can see with Freedom Tower 1 and 4, typically, structures are put together with bolts. In this case, where we want an even more robust structure, we use welding. Just on one floor, we use over 20,000 pounds of filler metals to actually -- to weld the structure.
Off-road -- our off-road vehicles, you can see here that this particular one is a manufacturer for basically compaction roller vehicles. Again, this uses a different technology. It's Swift Arc technology. It basically really enhances the productivity especially with the use of robotics. And then the last one here, you can see that there's some tunnel boring equipment, again, a very critical application into the mining segment.
So the key here is for all of all these applications, what we want to do is we really want to emphasize and focus on those top applications that are out there that require a significant amount of technology but also expertise, because we think we're in a better position to actually differentiate ourselves from our competitors.
This is our look at the market overall, it's about a $21 billion market, probably about $13 billion to $14 billion of that is in the consumables part of it. About $5 billion to $6 billion in terms of the equipment business. But with regard to this, we love the long-term trends. You can see that it's about a 3% overall market growth, but what we really love about is on the right-hand side of the slide -- and it's really our bent more toward emerging markets. So we have about 55% to 60% of our business that's focused on those emerging markets. And we also love the segments that we can operate within that.
One of the issues or one of the challenges that we've had is we get a better understanding for ESAB is in the past, ESAB has tried to be all things to all people. So basically, you'd find us operating in pretty much all of the segments across all the geographies. And as we've gone through our reviews throughout the business, what we're really emphasizing is aside from really wanting to operate in the emerging markets, we really want to be smart about the actual countries that we pick and also the segments that we pick within those countries.
So for example, Asia is a huge area. It's not going to make sense for us to try to operate in every one of those countries, in every one of those segments, we want to go after the ones that offer the best growth opportunity, certainly are fundamentally sound from a profitability standpoint and ones that we want to participate in, in the long term. But also ones where we can leverage the expertise and some of the technology that we have within the business. So we love the emerging market part of it, but also, we're going to focus more in on particular segments overall as a business.
You can see some of the typical customers there in terms of pipeline manufacturers, certainly mining applications, shipyards, those types of things. But another thing, on the right, lower-right hand portion here, you can see in terms of the mix of our equipment business. The development of our equipment, like the PS1 [ph], which is the new product we'll talk a little bit later. But the development of our equipment capability is absolutely going to be critical to the solutions that we want to provide to the market. So we look to increase that portion of our business or that mix of our business more towards equipment, as we can come up with better solution for our customers.
So again, 2 critical here -- areas here. We want to go after the critical applications from a solution standpoint, but we're also going to go after -- or operate in the emerging economies. They're also very, very specific about the segments that we'll go after within those particular markets.
This is our look at it from a strategic standpoint. We have 4 different focus areas right now. You'll notice that these are a lot different from Howden and fluid handling. Again, as we had to stabilize the business initially and then really build the foundation for the long term, the first thing we wanted to start with was the customer. Again, this was something that we found within the business. We really didn't have a good focus on our customer, whether it was operationally or from a new product development standpoint, we needed to enhance that awareness that understanding as well as the responsiveness.
In terms of some of the highlights, we had to work on our European lead times. They made us uncompetitive. It was easier for our competers -- our competitors to move around and to get customers from us, so we did a lot of work in terms of reducing the overall lead times, as you can tell, in terms of 31% here.
One of the best and the biggest ideas that we have is really to get after supply chain compression. We'd take a look at how much time it takes within our supply chain and how often that keeps us from actually responding to the customer. We view that as an enormous opportunity for us to get after. So it will have benefits like being able to respond quicker to the customer, which is most important. But in addition to that, you can just imagine all the working capital that's tied up in that, plus all of the cost that's tied up in that, as you have multiple distribution within that supply chain, also to aggressively get after and improve operations.
Again, we take a look back 4, 5 years, all of a sudden, there was a dispersion, we added about 400 to 500 basis points of SG&A. That is an opportunity that we've been working hard on, and we're going to continue to as we restructure the business. In addition to that, we've got capacity that we need to take out by the end of the year, we will have taken out 7 plants, and we still have opportunity, in addition to that as we try to get that married up with what we view as long-term demand opportunity.
The next one in terms of strengthening the organization. Again, what -- the way ESAB operated was a very regionally focused, kind of organization, so it put up a lot boundaries between the different regions. For example, there was never a leveraging in terms of global sourcing or certainly the capacity with the plants. So we view that as a significant opportunity, and what we've done is we reorganized that into a global functional structure, which is eliminating a lot of those barriers within the business and opening up some real opportunity to enhance our customer service, as well as improve the profits.
In addition to that, we're continuing to go after and recruit significantly. That's where we've done a lot of work. I spent a lot of my time on that. That's something that we're passionate about in terms of putting together the right team. Certainly, additions like Ken and a number of folks in marketing and operations and supply chain over the last number of months will continue to make some significant improvements for us as we move forward.
And then the last one here, in terms of driving differentiated products. What we needed to start with is we needed to establish a VOC culture. And interestingly enough, early on in this process, as we are working on the PS1 [ph], Ken brought in some -- or an outside consultant for Voice of the customer, and he interacted with our team. We brought in welders, because we want to get their feedback.
And then -- and this one session -- what actually happened was, our engineers actually started arguing with our customers with the welders and telling them that they were wrong. I mean, that basically is sort of a culture that we had, so needless to say, we took that as a teachable moment, and we were able to help everybody in the organization understand that, that was not the way we're going to operate, because our second value is customers talk, we listen. And so we were able to take a lot of that feedback, and you'll see it in the PS1 [ph] and what we were actually able to come up with as result of actually stepping back and listening to the customers. So we're going to use that as a sort of a cultural changing experience, if you will, within the business.
In addition to that, our time-to-market introduced new products for equipment typically has been about 4 years. It's been about that long since a major introduction. The introduction of the PS1 [ph], what Ken and his team have done is basically and will have taken about 11 to 11.5 months to introduce it. I will tell you that we put in new processes to do that. But with that, we still had to muscle an awful lot of that through. But it started with expectation and people now understand that within the business that we are going to get better and better from a process standpoint at introducing new products. We're going to combine that with the pure energy and passion that we've got within the organization to create products that can actually change the world. And that's the way we're going to operate as a business. So we're really trying to build a foundation for the long term here. And again, I think we're making some pretty good progress in doing that.
In terms of building a CBS culture, these are 4 different examples. I won't go into each one of these. But again, what we try to do at CBS is take a look at it from a strategic standpoint. We want to make sure that as we do Kaizen events, that it's really driving the strategy that we want to drive overall as a business.
And so you'll see, especially with the first 3 here, an awful lot of focus on what we call demand pull. Again, this is one of the changes that we needed to make within the organization. And for those of you that don't know what it is, it basically means we want to build what the customer wants. So we don't want to build a bunch of inventory. We don't want to put that in warehouses all over the place. We want to build what the customer wants, and that means we need to make our plants capable of doing that in a relatively short period of time. And then what we can do is really compress the time within the supply chain. So these first 3 events are really focused on that.
To dive into one in a little bit more detail, this is an event that Steve Wittig and I actually participated in. I think it was 3 or 4 weeks ago, actually, in the Czech Republic. And this was the first really major effort to go after demand pull. And so what we had here, you can imagine how we have multiple distribution centers in Europe that the plants would build to. And basically, what they would build to would be a forecast of the central staff we'd put together for them to build too. So they're basically building finished goods inventory.
Well, when we took a look at that, we felt that the better way to approach that would be to eliminate that excess step there and actually be able to build to order in a very, very short period of time and ship it directly to the customer. Right now, it goes from a plant to a distribution center, perhaps to another distribution center before it actually gets to the customer. So there's a lot of time lag there, working capital, all the cost that's involved in that kind of a structure. And that's what we want to go after. Not just in Europe, we want to do that throughout the world, but this is where we're going to start.
So what we did was we took a particular product line, the MIG product like, and this is where we went after with the Kaizen event that was about a 4-day event. And by the end of it, what we had put in place was demand pull. So as you look at these pictures, you can see, the way it would work is that we would get an order from a customer, ultimately, we would be able to ship it directly out of the plant. And because what they would have to do essentially is package it, there's a semi-finished state, which you see in the middle there in terms of the bobbins that are there, that's what they pulled from and they actually package to it. And then from that, it sends a signal back through production to just replenish to a set amount of end process there.
So think about what that takes out. That improves our capability, we can go directly from the plant to the customer. And our goal, as we laid it out visually for everybody, was to eliminate the distribution centers. And in Europe alone, we have somewhere around $65 million worth of the finished goods inventory in those distribution centers. So we are going to get very, very aggressive about going after that. And again, linking up with the customer, eliminating the waste, the cost incentive supply chain in addition to all that working capital.
And now what I'd like to do is I'd like to turn this over to Ken, who's going to talk with you about some specific opportunities that we have for growth, some things that we've been working on that in Russia as well as South America. For those of you that aren't familiar with Ken, he joined us after about 10 years at Danaher, where there, he had a number of different marketing positions, but also a general manager of the industrial portion of the business for Fluke. He's also a degreed chemist, so he understands the chemistry of consumable products, which we found to be very, very valuable, has a lot of experience with DBS, so that's going to translate into good leadership from a CBS perspective. And aside from that, he's just a very, very talented executive. So I'll leave it with you.
Kenneth D. Konopa
No pressure. So okay, so I get to talk about some of the successes that we have and some of the opportunities we see. We look at the Russian market as a very important market for us. Everybody looks at the Russian market as a place where oil and gas is a big opportunity. We go after that with pipe mills, supplying pipe mills and pipelines, construction, as well as depots for collection of crude and transport shipbuilding for transport of crude. Yes, we go after that. But what's more important for us there is the emerging middle class. What does that mean? The middle class means improved infrastructure, and when you see improved infrastructure, if you think about that, think about the world everywhere. Welding holds the world together everywhere. You can't go anywhere when something's not welded to create a better infrastructure. Whether it's roadways, whether it's bridges, whether it's parking facilities, high rises, there's welding involved in all of those things, and we have a lot of growth in the Russian market around that. We have over 600 associates in Russia, and we see it as a $1 billion market, mid to upper-single-digit growth opportunity. As we look at the products that we supply, we have a broad offering. Just to give an example, the infrastructure for the Olympics, 2014 Olympics in Sochi, we sell products from every one of our product categories, from equipment to self-shielded or gasless wire for welding up building structures to even Russian specs electrodes that we make in Russia, flux for sub arc welding, our premium AristoRod products for MIG welding, all those products going into the Olympic infrastructure.
Now we've been in Russia for quite some period of time. The 600 employees we have, had of a number of those for a period of time, we acquired some with the [indiscernible] acquisition. We started out in St. Petersburg, trading from Sweden. Now we have a strong brand within Russia. We've got strong penetration and distribution. Steve mentioned lot of our business goes through distribution. A big chunk of the market is in general fabrication. That then goes into a lot of the vertical markets that Howden and Colfax Fluid Handling talked about. But a lot times, before those pieces of equipment are installed, a general fabricator has fabricated a structure to apply those to. And we see the opportunity for ourselves is to go East. We're very strong in the West, as is everyone else, and the acquisition of the [indiscernible] facility is a central location to facilitate that eastward growth. We're also putting in a new process center that allows us to differentiate in the market because we bring -- before you can essentially implement a process in a facility, you actually have to develop it, you have to train the people on it, you have to certify that the welds have integrity. So we bring people into the process center. We'll help them develop the welding process, select equipment, materials. We'll actually weld up samples of their product and send it out for third-party analysis, and then it gets implemented in a facility. So we're putting in a new process center also to facilitate that eastward growth.
A couple of key success stories for us in this pressure vessel arena. There's a company called LMZ, Leningrad Metals, Zavod. We have a process when we sell, that we go in and we do a full analysis of your welding. So we go in and look at the process, the materials you're using, what your cost structure is and do an analysis and then come back with a proposal, okay? If you use this equipment with this consumable, you can expect this cost and this productivity. So for this LMZ, the pressure vessel company, we went in and proposed that they stop using their current process and switch to a cord metal wire, which allowed them to have a much better finish on the product. They could do it with less passes using a different technology, and it gave them 3x the productivity that they had before.
In the food segment, another manufacturer, [indiscernible], went in with the same value sell process. We switched them from a low-cost local manufacturer of consumables to our most premium product, our highest-priced product. And the outcome was they got to improve the speed that they welded, the quality was higher, there was no spatter. You can weld with very cheap products, but there's a lot of spatter and you have to grind and clean up and then finish. So you eliminate all that grind, clean up and finish and you improve the productivity by using better materials.
South America is also another key market for us. We see a strong opportunity. There's some slowing in the near term, and some of the regions do have some instability, places like Venezuela. The good news for us is we're not the #1 player in Venezuela, but in the other areas that are stable, we are the #1 player. We've got -- we see that as about $1.3 billion in size, with mid-single-digit growth, strong opportunities for us. As we look at that market, we have almost 2,000 employees in the South American market. And really, our strategy is taking our established brands. We've been there for a long time. We've got several different brands. We've got a strong footprint. Belo Horizonte, Brazil is where we have the most of our facilities, but we also have manufacturing in other regions and countries within South America as well.
We utilize what we call a high-touch business model, where our sales people are trained in welding. They understand the equipment. They understand the applications. They understand the consumables, and they go in and provide application support and expertise. And as part of this, we are able to provide not just equipment and consumables, but we can provide training, we can provide after-sale support such as nondestructive test of weld, self certification of the welders, of the welding application. And our strategy is to continue to increase our footprint across South America, and the Soldexa acquisition is part of that strategy.
A couple of success stories here. An off-road vehicle manufacturer, [indiscernible], basically, they cut heavy plate material. They basically form it up and then weld it and then coat it with a hard base material, lay down a super hard surface over the top of the steel. And one of the things we did for them is we were able to take some proprietary software that we have and apply it to their cutting table so that they could cut at precise angles, angles which optimize the final weld integrity and strength. I mean, when you weld 2 pieces together, they're not 90-degree angles. They're cut at bevel so that you can have a strong root and then build the fill weld. So we were able to increase the productivity by improving the cut angles with 0 flash, no grinding ahead. And then they would roll right into positioners. We also have a positioners company called Romar, so we were able to supply positioners linked to that equipment and then the filler metal and also the hardfacing material. So an all-in-one solution that we were able to provide them.
Another success story for us is a mining project, La Bamba. There's a Xstrata Copper mining project there, a mine that's about 1,300 feet above sea level. It's basically a $4 billion investment there that's projected to produce 25% of Peru's copper production. Soldexa has a $7 million contract to provide welding consumables, but then on top of that, they got a contract to train all the welders and then certify all the welders and do continuous certification and also do nondestructive tests to certify the integrity of all the welds they performed as they build out the mine. So a solution that goes beyond just selling them equipment.
So if we were to sum up ESAB, we've had significant improvement in just the fundamentals, improving our operating margin. As Steve said, we compare against Q1, we're up 160 basis points. We've added some folks to the leadership team, both at my level and then people that report to me. I have marketing and R&D and engineering, and we're bringing folks into the organization that understand not just welding but bringing technologies to market, bringing new products to market quickly, understanding how to collect the voice of the customer and translate that into products that we have an advantage in the marketplace.
We look at our -- our runway for future opportunity, as Clay mentioned, we're just scratching the surface with implementation of our operational improvements, whether it's in supply chain or sourcing or compressing our footprint. We've been trimming our SG&A, collapsing all those regions down to a global function, so a global marketing function, a global engineering function. Whereas in the past, each region kind of did their own thing. They even priced regionally. And now we have a central pricing system, where we set a target price. And we measure everybody on a net to list window. They're given targets, and we've implemented pricing increases this year, and they have stuck in the marketplace. We also implemented new product development, as Clay said. I'll come back to that in a second. But what we're really trying to build is a high-performance culture. What was good enough last month, okay, that was a foundation for next month. So your future performance is built on what you did last month and the month before and the month before that. And when we looked at our new product development, there's a lot of things, Clay mentioned the VOC. I hired an ex-product planner from Fluke, whose expertise was to go out and talk to customers and formulate from observing a day in the life of the customer what his problems were and then translating those problems into a solution with a specification that you can turn over to engineering. And that's really how we accelerated the new product development cycle. If you focus on writing the correct spec for what you want to do upfront rather than creating something, going out to the market, the market saying, no, that's not really what I wanted. So you go back and reengineer it, and that 4-year product development cycle is because there's several do loops in there where you're going out and refining. And if you collect that upfront and execute with a defined tollgate process with deliverables all the way through to commercialization, you can come up in 9 months with a new product like the Warrior that we launched.
We launched it at FABTECH the day before yesterday. Several of you were out there to see some of the new products released. The FABTECH is the largest U.S. trade show for fabrication technologies. And when we started on this project, we had an objective of really penetrating the American market. Typically, in the past, we've done extremely well in the Nordic region of Europe, which is the techniques of the welders that we have in-house and through Europe. And as we got further and further away from that, the European technique is used in Australia, but it's slightly tweaked a little different in Russia, in India, in China, and the North and South American markets use different techniques. So this time, we created a product that is developed for the North and South American technique, the Middle East also uses the same technique, and created a theme that this is the product that can be used in most industrial applications. It's the highest volume category of application. And every day, you go do battle at your job, welding, welding the world together, and you got to take a Warrior into battle with you. And when we benchmarked this product against some of the competition, we picked certain features that each individual competitor was best in class at, and we built all those best-in-class features and outperformed them for each of those individual products into an all-in-one product.
So when we launched on Monday, we started taking orders. We'll ship these Christmas week in December, and we have already taken orders for everything we can build this year. So it's been a tremendous acceptance into the market. We also launched some plasma-cut products. We launched some new wire products. We launched the new innovation and gas application technology, where we lightened the actual weld torch. When you weld all day holding the torch -- we took a lot of weight out of the torch. We took and created a triple feed for the gas, but yet created a venturi at the tip that conserved 25% of the gas.
In the U.S., gas conservation and energy conservation isn't the same as it is elsewhere in the world. There's standards in the world that are higher than the U.S. So we've engineered all these products to meet the future standard for energy conservation in Europe. There's a new standard coming for all welding products in Europe. So all these new product lines exceed the new standards qualification. So thinking about what are the regulations, what's the use pattern of the end user and putting together a package that's best in class and most accepted by the end user by talking to the end user about how we weld ahead of time. So we're really excited about our opportunities. This is just the first wave in our new roadmap of product launches following the new tollgate process, using the VOC process. We've got a consolidation of all of our engineering in Gothenburg. It's a really exciting time.
So we'd like to take any questions that you might have.
James Krapfel - Morningstar Inc., Research Division
Jim Krapfel here. Can you talk about the shift from manual to automated welding applications, where that shift is in various geographies and what, if any, implications that has for the margin profile, longer term, for the company?
Kenneth D. Konopa
Sure. So the shift from hand welding to automation occurs because there's a shortage of welders, really. If you think about emerging markets, you think, oh, there's lots of available labor in places like India and China. Even in those countries, we're seeing a shift because of the availability of welders. And for us, it means opportunity both on the automation side as well as on our -- for us as a high-touch market, go to market where we can train more welders. But it also means a shift in the consumables because if you go from automate -- from hand to automation, you go from sticker electrode welding to wire, and so it changes the mix. And as Clay said, we need to reduce our capacity of electrode manufacturing. There's an overcapacity in the entire world for electrodes because of that shift. But the shift, for the most part, has occurred in all the developed markets. Some things, you still need to stick-weld because you can't take a robot out into the field to repair a pipe or to repair a piece of equipment. Those things will stay in the developed markets. The emerging and more automation is occurring in the developing markets, but it doesn't mean we see a reduction in the consumption of the manual welding. It just means that there's more capacity coming on for welding in some of those emerging markets as the demand increases from infrastructure, from manufacturing, things like that.
Clifford Ransom - Ransom Research, Inc.
Cliff Ransom again. Can we talk a little bit about margins as you move from provision of equipment, which typically requires assets to provision of services and solutions? We see your operating profile coming up, your operating margin profile coming up, but we don't necessarily understand the implications on that switch. Can you expand on that?
Kenneth D. Konopa
You mean moving more towards equipment?
Clifford Ransom - Ransom Research, Inc.
No, moving more to solutions. I mean, typically, that's lower margin led by less assets. Is that true in your case?
Clay H. Kiefaber
No, we've got some really good examples. Actually, the Soldexa model is probably the best one that we've got, although we've applied that in different parts of the world, just like the Nordic region. But it is more solutions-oriented, back to actually the training of welders. And it operates with some pretty significant margins that are certainly much higher than what ESAB has had traditionally. So we don't view that as a margin-diluter as we move forward. One of the things to keep in mind, especially as they come up with more equipment, our intention is to be able to provide more value and, therefore, get paid for it. So whether it's the equipment itself, like the PS1 and some of the others that will follow with that in conjunction with consumables, where we will continue to work on product development to come up with ways to actually differentiate that. So you can't just plug them out, substitute them in and out for various competitors and then taking that along with more the technology side, certainly the expertise that goes with it to go in and actually work much closer with the customer. But no, I wouldn't view that as a lower-profit margin model. I view it as higher.
Clifford Ransom - Ransom Research, Inc.
Is it too early to talk about competitive response to your shift and emphasis from any of the other big boys?
Clay H. Kiefaber
No, I think that -- the industry faces the same challenges. I mean, no one wants to see you go just to solid wire. That's a low-margin play for everybody. So people have to come up with better solutions. We certainly recognize that. But we're really going to drive using CBS and the techniques that we're passionate and we believe in, and we're really going to emphasize the voice of the customer. I mean, that is a total shift for this business. And we know that if we do that and if we apply those techniques, then we feel, as we play our own game, that we're going to be fine and grow.
Clay, first, are the issues about solid wire plans that you guys called out for those on track to be rectified this quarter?
Clay H. Kiefaber
Yes, we've made some good progress. What we did is used that opportunity much like the example I used, the voice of the customer make us stronger. What we recognize is we need to do -- come up with more robust quality systems in that plant, in particular, but I'm going to use that to spread it to other plants as well, even though we don't have other issues in those plants. But that's where -- I'm a believer in the Six Sigma process, for example. And I'm not talking about one when you go out and train 10,000 black belts or whatever, but it's to go in and really understand what we need to do to build in capable processes. So it's more than just process control. It's where we're going to set targets for process capability and make sure that we operate within those, and that will systematically ensure that we don't have quality issues.
And then can you just give us an update on your thinking with respect to China? I mean, I think you closed one plant. I just like a little bit more -- obviously, it should be a huge market opportunity for you to try to get the strategy right. Maybe a little bit of kind of ESAB legacy position there and how you're sort of thinking about maybe penetrating that market more aggressively over time and what -- how big it could actually be for you.
Clay H. Kiefaber
Yes, well, it's a huge market. If you take a look at the skill consumption, obviously, it's a huge market, large market if you look at it from that perspective. But what happened in the past was they built plants, and they didn't have a strategy for how they were actually going to sell and market within the country. So certainly, nothing from a voice of the customer standpoint. So we had all of that in place, so it's just way too much capacity, so we had to take out. So we're resetting to a level that we have right now. We've taken out significant cost. We actually broke even for the first time in the history, so got that under control. But now what we're working on is on the commercial side. We need to have a better marketing strategy, for sure, but also the sales strategy and the organization that goes along with that. So we've made some leadership changes there from a commercial standpoint that we're about to put in place. We're excited about that. We definitely view China as an opportunity. We just got to be smart about how we go compete. That's another market, by the way, when we went through the last operating review, we spent a lot of time -- I mean, China, obviously, is a huge country. So we're not going to cover the whole country, and we're not going to cover every segment within the country. We want to be smart about the segments. And oh, by the way, if they lined up where they were a little bit more geographically concentrated, that'd be a great way to lever some of the assets that we have within the country. And so that's what we're in the process of doing right now and then also enhancing our sales capability within that country. So we view China as a real opportunity. We just got to get the model right, and most certainly, we got to get focused on the right segment.
Clay H. Kiefaber
Yes, we want to make money everywhere. So you hear a lot of times, oh, you can't make money there or whatever. Certainly, our competitors are challenged in that particular geography as well. But we believe if we come up with products that really satisfy the customers, solutions that do -- that we can prove that and we can get paid for the value that we provide and we can make money. But we proved we can go from a loss position, certainly, to a breakeven, so I think we can improve on that.
C. Scott Brannan
And I think we have time for one final question in this segment.
To what degree do you think the sales force or sales model needs to be changed at ESAB? If I remember, it's a much more direct sales force than many of the peers. And is that kind of necessary as you move more to solutions, or is that something that could change over time?
Clay H. Kiefaber
Yes, it's going to be a combination. We do sell an awful lot through distribution. But one of the things is can I go through the reviews of the sales force, for example. I mean, that's something that we definitely need to upgrade our ability to sell value. And I've been through this with other organizations that I've led in the past. And when you shift from just a sort of a product kind of sell, where hopefully, it sells itself or goes through distribution, you definitely have to upgrade the selling capability. So for example, we're spending a lot of time on providing better tools but also training our sales force on how to sell value so that we can actually go get paid for what we sell. In terms of the actual combination, I mean, distribution is very, very heavy in the U.S., but it doesn't mean we're necessarily going to stay with the current channel strategy that we have. We're going to look for opportunity. What do we need to do to be successful, to really go out there from an end user standpoint? In some cases, it's absolutely going to make sense to use distribution. In other cases, in order to compete, we'll think about driving the direct model as well. Anything else? All right, thanks very much.
C. Scott Brannan
Thanks, Clay and Ken.
C. Scott Brannan
Steve Wittig will be joining us now to talk about the Colfax Business System.
Stephen J. Wittig
Thank you, Scott. Good morning, I should say, to everyone. I just want to go through a few things about CBS. First and foremost, though, we are committed to applying CBS, and I think you heard that from the entire team here, clay, Ken, Bill, Terry, Ian, Elias as well, to apply CBS with greater frequency, more intensity, better talent than anyone in the world in the areas of the business that matter the most. And that's probably the key with CBS. It's top-down driven. It's focused. It's results-oriented, and we drive it in the areas that matter the most. And the 2 areas that matter the most are, first and foremost, our customers. I think you saw some great applications and great examples here. And then secondly, our associates and our shareholders as well. So we are very focused on how we apply CBS. And I'd like to walk through with you this morning just briefly 4 key strategic areas we look at. First, how we apply CBS, how we go through it and then what we're going to do to move forward with it. Elias mentioned this morning a great example we have here and it's probably best to walk through our process. It is a repeatable process, as Bill had mentioned. It's transferable across companies, across cultures, across geographies. It works, and it works very well. It works with established companies. It works with new companies. And the easiest way to see, again, would probably be through an example of one of our new companies that's been in business for quite a long time. It's the Mexico City facility as part of Howden Buffalo Forge or BFSA. The process work set that we've started in March, walk down for a brief review on how we do CBS. The training session lasts, in its entirety, 2 days, a little bit of education, seeding it, teaching them, showing them real life examples, what we've done not only in fluid handling but other businesses, other applications, how it's mattered to our customers, how it's improved the business. We then launched a series of quick events to go out and show that we can get results and it doesn't take forever. We can make a difference today. We can make a difference tomorrow. We can make a difference this week, this month, this year to our customers, to our shareholders, to our associates. We then lay out a game plan.
Basically, using a sports analogy almost like a professional football team without the first 10, 15 plays of the game, we see how things respond, we see what the acceptance is, we see what the impact is going to be. But in this case, without the first 6 events, we implement those events relatively on a quick cycle, an entire team participates, we go through, we analyze the results of the event, see how it's going, and then take a more strategic look at it and how it's going to move our business, how it's going to satisfy our customers. So using BFSA is just a quick example, in roughly 4 months, what they've been able to accomplish, a 50% reduction in inventory, they cut it in half, which has freed up roughly 30% of the floor space available to bring in new products, new processes, new customers and/or new acquisitions that we can merge right in there, and the drop in total cost. So if you look at a like-for-like month, total cost drop of 5%. So in 4 months, it does work. And the reason it works is because we have great buy-in, we have a great team, and you can see the participation level that we have all throughout BFSA.
We are accelerating the pace of activity. 2 reasons for the acceleration you can see on a graph in the left. The first one is, we have acceptance and use, and you heard again today over and over, outstanding buy-ins, from our leadership, it's top-down driven, the people leading our businesses, all the way from Steve Simms to Clay Kiefaber, Ken Konopa, et cetera, et cetera, are experts in CBS. For me it's almost a 2-edged sword. You could not ask for better support. On the second hand, they know everything I'm doing, they know what we're doing, and we get great questions and a great feedback going back and forth on what we're doing and thus they identify high-impact projects, high-impact areas, and also identify what we call high-impact people. We get the best talents in the CBS organization. It's an extremely desirable position. It's visible. People want to be part of CBS, they can see the results. And thus, the other thing that leads to is they're driving it, they're adding resources. So we're getting a double hit there. We're getting good results, we're getting great buy-ins, and we're adding resources, and we expect -- I personally expect the acceleration to continue.
On top of that, our resources are getting better. We've seated with what very similar to what you heard earlier, some outside talents to get us going using both external hires, a few consultants here and there to get us going. But our primary emphasis as part of the culture, too, is developing our people. So if you look at the pie chart in the middle, the majority are still what we call in the developing stage. By no means does that mean they're not good. They are very good, and they're very good in the areas that we think matter the most, primarily the 2 tools that really help drive us: Policy deployment, which helps us focus on the breakthrough or the impact areas; and the second one, you saw through the BFSA example, you heard Clay describe it briefly, Bill Roller described it as well, for both new facility -- I'm sorry, a new facility like BFSA to an intermediate one, maybe like a Bamberg, to a more advanced like Monroe. It's the common CBS materials process we call demand core process flow based on actual customer order. They are very good in those 2 tools.
Lastly, in the area of focus, we have -- we encourage, we accept, we have expertise, we have results in all areas of the business. Everything does matter, all improvements are encouraged. Saying that, however, we want to put our best people, our best resources, our best talent to move the biggest impact areas. What Clay described earlier, we were working in Bamberg, our largest consumables plants within Europe, trying to change that entire model from a build to forecast, build the inventory, and not only Clay described the cost, but a disconnect truly from the customer demand. Our manufacturing plants, with all the buffer in between, do not get good visibility in this customer ordering patterns and demand to one that's actually built around customer orders. Customer places an order, we then respond very quickly, much quicker than our competition in the future. Projects such as like that, initiatives like that is where at least I'm applying mine and my team, our talent, we're pulling resources across the globe, into Bamberg, into Monroe, into Radolfzell, into all of our large facilities, and really driving those facilities, taking those learnings and back into their own facilities and driving it there. So we have a great method right now, very robust method of communicating, not only what's been done, but also sharing not only within facility, within department, within company, within platform, but across all those and across all these geographies as well. So we have a good momentum going on right now. We have people within ESAB working with people within Howden, people within North America, working with people within Europe, Asia, et cetera.
So a brief update there. With that, questions, comments, ideas?
Excuse me. I'm struck by the fact that we've gotten this far long in the presentation, and we've heard very little about continuous improvement applied into what I call the transactional world, whether it's -- we've had a touch on new product development, but how about office functions, carpet land, et cetera?
Kenneth D. Konopa
The big one, Ian spent time on that on the contracted cash, very transactional and actually a very complex transaction. In 2 or 3 minutes, I don't think he could give justice to the difficulty of applying it there. But if you think of a long lead time, long cycle, high-value type project, I think, one he mentioned was $20 million, maybe somewhere in that range. The working capital swing you can get if you are not completing your customer requirements, anything from documentation to invoicing, et cetera, et cetera, on time. Also on the other side, the flip side coming in from the supply chain, ordering from the suppliers, bringing things on time, we don't want to bring them in too soon, creates excess working capital. We don't want to bring it in too late, creates missed shipments, delays, not being paid for the customers. But the exact timing and the visibility and the process you use to handle that from both the program management and looking at it is a great example. The other one that we've been doing quite a bit of work on, especially, the aftermarket area, which is the focus for all of our platforms, is the time from receipt of order, how quickly we can quote it. You can match a lot of these aftermarkets. Our unique applications need to be redesigned, could have old, obsolete, or nonexistent parts, so how quickly can we quote it; how quickly can we engineer it; and on top of that, how quickly can we source it. So I'd like to say from a transactional standpoint, imagine yourself, or even more importantly, imagine yourself as the customer as being that thing that's going through. so the customer is actually sitting in our office, waiting for that quote to get through or waiting for that to be engineered, how can we move it on. So we put a great emphasis as opposed to -- and the efficiency comes with it. But as opposed to just the efficiency, how many people have got to do it, how quickly we can get that thing, whether it's a drawing, whether it's an invoice, whether it's a quote, et cetera, that goes through it. But I would say, most of our cost is the manufacturing, that's most of our efforts. But I think we're pretty well balanced. I say 60%-40%, 60% of manufacturing operations, 40% of our events have been on transactional.
Kenneth D. Konopa
That's all for the questions. I'd like to introduce Dan Pryor. Dan joined us in January of last year. Extensive background as most of you probably know, coming to us from The Carlyle Group and also Danaher. Dan is responsible for our strategy and business development throughout all Colfax.
Daniel A. Pryor
So I'll try and spend a few minutes on capital allocation and what we're trying to do from an acquisition standpoint. Overall, the model is pretty simple. Basically, what we're trying to do is driving aggressive integration and bolt-on acquisitions to free up cash and profit, and then reinvest that into additional acquisitions. Pretty simple model, tougher to execute. The key though is not just the focus on the operational improvement side, but also a really important focus on what we're buying. We spend a lot of time thinking about that, because if we're not buying the right businesses, we wind up with a lot of profit but our business is not stronger at the end. So the real balance here is both operational improvement, aggressive integration, as well buying the right businesses. I should also point out that there's also a balance between credit ratings and acquisitions. We're cognizant of our goal to get to an investment-grade credit rating and trying to balance our acquisition activity against that.
Good execution requires a strong process foundation, and that's what we've been putting in place over the past year or so. What you see it here at the top is a high level overview of our acquisition process starting with the front end, what do we want to buy, going to the middle stage with the diligence and understand the deal and finally go to integration at the end. The front end here, we try to put equal balance on the front end and back end. We want to be great at actually executing the deals, but it's just as important to buy the right things as it is to execute it correctly and integrated it correctly, because we spend all our time execution and it's not strengthening our business. Again, we're not winding up with a stronger business at the end. So what we're trying to do is strengthen our business, as well as drive operational improvement.
The process is honestly fairly new to Colfax. We've been doing it now for 18 months or so. I think we're gaining pretty good traction and gaining the maturity. The results have been good, and we closed 6 deals over the past 1.5 years and taking a lot more to the finish line. Pipeline is pretty good across the business. So I'm happy with how things are going, but there's a lot more to do.
From just a case study perspective, giving you an example, a couple of examples of how some of these came together. Starting with the one on the left, Soldexa, which you've heard a little bit about in Ken and Clay's presentation. Soldexa is the #1 manufacturer of welding products in Peru and Colombia, #2 in Venezuela. They have about well over 50% market share in Peru, over 50% market share in Colombia, slightly lower market share in Venezuela. When we acquired ESAB, looked across the organization geographically, one of the first places we deep dived was South America. The reason is it's such an important region for ESAB, not just in terms of revenues and profits but in terms of long-term potential.
Got with the management team, looked at their strategies, looked at the business and what they could do to strengthen the business, one of the things that became pretty clear was strengthened their position on the western part of the continent with a key priority, very strong in Brazil, and Argentina, much less strong in the western part of the continent. Soldexa obviously, given their position there, was at the top of the wish list. So when the owners of the business actually decided to put the business up for sale at the beginning of the year, we understood what the priority was. We are positioned to execute it quickly, and obviously got the transaction closed.
The other 2, Covent and MPJ, relating to the Howden business and the fluid handling business, also a result of internal work, focusing on what's important to the business, in case of Covent, strengthening our position in industrial fans; in the case of MPJ, a geographic buildout to the Total Lubrication Management business. In both cases, instead of participating in a process, we took the priority, went straight to the owners, started discussions, and those are both the result of exclusive discussions.
So I think, what I'd like to really highlight in all 3 of these is, I think they're all going to be phenomenal deals for the company financially. But in addition to that, they're all proactive, they're all the result of strategic work we did upfront, trying to figure out what's important to the business, how do we develop -- how do we focus our time to buy businesses that are going to help us both financially as well as strengthen the core.
A couple words on the environment that we're seeing. Clearly, the choppy economic environment sort of plays both ways. One thing we are seeing that's making some sellers a little bit more interested and potentially getting out of their business. So I think the flow we're seeing is pretty good. We are seeing a very wide variation in multiples across sectors. Some sectors we're seeing, we're seeing pretty high multiples; other sectors, much more reasonable. We do see PE competition that tends to be much more in the larger deals than the smaller deals. Given the synergies we can bring to bear in the smaller deals, we don't see them quite as much. And I'm a big believer on the brand that you bring to an acquisition. We try to position ourselves as a fair counterparty, not an easy counterparty in terms of valuation, but we're going to be a fair counterparty, we're going to deliver on our promises, and we're going to work very effectively and quickly. We want to be viewed as an acquirer of choice in the sectors that we play in.
So what does that mean for us? We're very active, we have a great funnel, but we're also trying to stay very disciplined on valuation. We want to know what to say yes to, when to say no to, starting with the strategy and basing our decisions based on that.
Over the long term, want to keep a balanced portfolio. We don't want to get overweighted in fluid handling. We don't want get overweighted in fabrication technology. In the near term though, based on where the multiples are and based on where the opportunities are, we're going to focus on the best deals for the company. We want to have a global focus, as you saw from the presentations overall. We have a great portfolio in emerging markets. We don't want to lose that balance. And then finally, we're going to keep on focusing on what the right deals are for the company strategically, what do we -- what's going to make this business stronger in addition to delivering value.
So I think in closing on all that, we have a great pipeline right now. We have a great portfolio. The diversity of businesses we're in gives us a lot of choice, and I think we can focus on using acquisitions as a key leverage to build our business.
And with that, happy to take any questions. Steve?
Steven E. Simms
Thanks, Dan. I think we're ahead of schedule which is probably a first. So I'll quickly summarize a few points here as we go through. And as you can see, and hopefully, you can piece together from the presentations today, we are really focused on improving and simplifying our business model. At the same time, while we're improving our cost base, improving profitability, we're also driven to lay in place the foundation stones that are going to help us to grow this business on a consistent basis over the long term. You see what we've done in CBS, you can see what we're doing in terms of the organization and strengthening the team. At the heart of any business are the people that you see, and you can see how they're going to be able to facilitate not only integrate Charter, but certainly integrate other acquisitions that we drive in the future. You can see what we're doing in terms of our focus on expansion markets or emerging markets. You can see how we're trying to drive the business in terms of our investment and product development. All of those things, at the end of the day, suggest that we've got the right vision for this company.
We believe we can become a premier global industrial enterprise. To us, that means outperforming GDP growth by 1 or 2 points. It means delivering operating income margins that are in the mid-teens, and certainly delivering free cash flow that is in excess of net income. We know that we've got a lot of work to do, but we believe passionately that we'll be able to outperform these markets and the competitors that we've matched up with on a consistent basis.
If you look at this, as we said at the beginning, we've got a wonderful platform here. We've got an outstanding portfolio where we're the #1 manufacturer in most of the markets that we compete in. We've got a great geographic mix where nearly over 50% of our sales are driven by those markets, which are growing in terms of GDP in the mid to high single digits. We've got wonderful exposure to key end markets, as we saw with Ian, Clay and also with Bill. So when you look at the growth side of this model, we believe that we certainly are going to be able to outperform from that standpoint. Clearly, we've got a very balanced portfolio in terms of revenue position between the long cycle and also the aftermarket business. It gives us a stronger performance during more difficult times.
Then finally, at the end of the day, we're doing a much better job than we were last month, and much better than we did the month before that. But at the end of the day, we've got a long way to go. We recognize that, we understand that. That is part of the culture. We will get better every single day, every single week, every month, every quarter, every year. That's the commitment that we're trying to drive in the business, and that's the journey that we sort of laid out for this business and those who joined our team. So that's what I hope you're able to get through a lot of presentations, a lot of material.
I apologize if it was -- felt like a tsunami where you're being washed by this enormous wave of facts and figures and so forth. But we're excited about what's going on here. We're excited about the opportunity to share this with you through the course of the day. And we love the questions and the feedback. I'm hopeful we'll make believers of everyone here, if you're not already, but we certainly believe we're on the right path.
With that, we are essentially done for the day. We can take another question or 2 if you'd prefer. Otherwise, we can head on back to the next presentation that you might have to. Any questions?
I realize that it's still early days with Charter. But as you look at your portfolio and your own aspirations for growth and the Danaher PlayBook, it obviously going to have to create some sort of new platform down the road. ESAB and Howden don't really have revenue synergies and -- but you, there's a sort of a commonality, if you will, of a lot of these markets. How are you thinking, Steve, about perhaps beginning to thread some of these businesses and how that might actually have, obviously, future applications in the next year or so towards building out a new platform and creating perhaps more of a multi-industry balance amongst your segments?
Steven E. Simms
I understand. Right now, as you can tell what we've got going here, John, there is a tremendous opportunity with what we've just acquired with Charter. We like the progress that we're achieving to date. We think there's more opportunity beyond that. We like some bolt-on opportunities. You've seen from Dan, he's doing a wonderful job and leading our company in the area of business development, and there's a lot more, in the opportunity funnels in than what we could see here today. But we will begin thinking about the next platform. We won't see executing that in the next 24 months, it will probably be sometime after that, but we do see a need to and will aggressively go after another strategic platform to add to the 2 that we have today. The dynamics that we'll look for in that platform are not unlike what we tried to articulate earlier. Large markets where technology make a difference, where manufacturing capability and performance are critical from an end-user standpoint, where end users value and appreciate a brand where we can get a better position in terms of overall margin, ultimately, businesses where CBS can make an enormous difference end results. That's where we think we want to focus our attention. We see that as an important part of our longer-term strategy probably out over the 24-month horizon.
Dan mentioned the balancing of the pace of M&A with a desire to get to an investment grade credit rating. Can you kind of flesh back your thoughts on that a little bit more about how you think about capital allocation, the potential for additional equity offering like you did earlier this year, paying down debt and bolt-on? Just based on opportunity, or how do you think about that?
C. Scott Brannan
As Steve said, our commitment is to generate free cash flow greater than net income and then to use that cash flow to fund the business. So we've built the models that would indicate that we can do a reasonable level of bolt-on acquisitions at a fair multiple and still have sufficient cash flow to generate some paydown of debt. So our models would indicate that by executing this strategy of generating that level of free cash flow within 3- to 4-year period, we can -- while continuing to execute the acquisition program, we can get our capital structure metrics to a low investment-grade status. And obviously, there are other factors other than just quantitative ones that go into getting an investment grade rating. But we believe that through the generation of cash, through the businesses that we can continue to fund a reasonably robust bolt-on acquisition strategy and still meet an investment grade, the type of quantitative measures within a 3 to 4-year period. Equity deal would probably not be something that would be at the tip of our mind at the moment. However, as you saw earlier this year, and that was done largely in anticipation of the Soldexa transaction, if there is a transaction that we feel is critical to the business, and you heard Dan describe the attractiveness of the Soldexa transaction. If there is a deal of that attractiveness that would not fit within those parameters that I just described of cash flow, we would not hesitate to do an equity offering. But it would typically be for a specific purpose like that and there's nothing specifically to talk about right at the moment.
Clifford Ransom - Ransom Research, Inc.
Cliff Ransom. Look, I'm a believer and I think the Charter deal is a huge opportunity. But the fact of the matter is that the controlling ownership with this company has been the same since 1995. The board has changed a little bit, and I've always been a little hesitant when people tell me it's going to be different this time. Maybe you could explain to us why it's going to be different this time. Not just the business plan, but the thinking of the owners and the board relative to how this company is going to be run, and what the reason for that inflection point was.
Steven E. Simms
I think that probably in the 2008 time frame, both the management and the board took a decision to become a public company, 2008. At that point in time, they made a significant commitment and decision to invest in the business for long-term growth. Obviously, it was a fairly difficult time to make that decision. But since then, I think you see the follow-through on that and you see that in terms of the size of the acquisition with Charter. Prior to the acquisition of Charter, a significant ramp-up in the management talent, Clay Kiefaber on board, Dan Pryor, Scott Brannan, a number of other people that were brought into the company long before the Charter acquisition was even envisioned in an effort to start to lay in place at the game plan to build this company into something very different and very sizable. So that's strategy started in 2008. You start to see that become executed in 2010. And certainly, with the acquisition of Charter, we think you'll see the first in a line of significant acquisitions that will continue that thought process. So there's been a change in strategy, a change in direction and a change importantly in execution. I can't really attest to what might have happened over the last 10 years. I'm not an expert on that history. What I can look at and see and what we're a part of today is what's going on, significant transformative acquisition for Colfax, significant opportunity for those that follow what we do and want to become a part of that effort. And I think with the team we -- you've seen here today, an outstanding ability to execute and achieve the kind of numbers that we've seen here. So I think that's the proof that you're probably looking for, I think, the strategy evolved in 2008 to really put more time, energy and aggressiveness behind the business. And that certainly started when you look at some of the management team that's been put in place over time and what these guys are doing. Any other questions, John?
Of course, we all want to go back and buy Danaher in the '80s, right, and hold it and the PlayBook. The point is the PlayBook here, whether it's from the ownership structure, as was pointed out, the management, CBS, I mean, there's a lot of similarity. I'm curious, Steve, given that you spent so much time at Danaher, do you see the process of Colfax evolving similarly or differently. Because on the one hand, you can see the similarities; on the other hand, you just bought off a big slug of business called Charter. And clearly, industries and market conditions change and the globalization and so forth. So maybe you can just sort of walk us through how your thought process is toward the longer-term evolution of Colfax and perhaps a parallel space in your own experience or differences.
Steven E. Simms
It would be difficult, and I'm not been almost involved with Danaher up until taking over the position here at Colfax on a part-time basis, and a number of ventures that they were involved in. I'm not as current, and so it's a little bit more difficult for me to article what Larry and the guys are doing and what it might have been a few years ago. So I'm not sure I'll do a good job of drawing that contrast. What I can do is to focus on what we're doing. And what we're trying to do is to, first, what we are well underway, that's part the journey we've talked about. One is we are well underway of creating a first 2 key strategic platforms, that's fabrication technologies, that's fluid and gas handling. We're looking at businesses that are going to be #1 or 2 in each of the markets they compete in, you saw that. I think, one of the advantages that we have here that I wasn't -- we didn't have when I was at Danaher, I think, Larry and the guys have done an awesome job of going so much further than when I was involved in the business. But what we have here today is a business from a geographic standpoint that's very unique. 60% -- nearly 60% of our sales are coming from higher GDP growth markets than the established businesses that -- the established markets. So that growth driver is significant here. If you look at the end markets that were focused on, 60% of the -- our volume are in those key markets from a fluid handling standpoint, 50% on the fabrication technology side. That's what we're driving, that's what we think is unique. When you look at our culture and our focus on CBS, you guys know this or many of you know this as well as I do, we could go on and develop that toolbox in a couple of hours. That there are consultants all over the world that do a great job of developing. The difference of what sets Danaher apart from all the other guys is how they use those tools and how they make those tools a part of their culture. That's how they live, eat, sleep and breathe when they're at work and what they do, and maybe some of those guys even when they go home. At the end of the day, that's a very clear parallel between what we're doing at Colfax and what we aspire to do. And that is to make that CBS culture a permanent part of our culture and how we run our businesses. That's the tall order. In my opinion, Danaher is one of the best in the world with that, and we would love to mirror or match what they're able to do, but they're 10 years ahead of where we are. But at the end of the day, that's the model that we're pursuing, that's a passion we have behind it. I think those are the lessons that we've all learned and having been at Danaher. I think, there are some lessons we learned and having gone through that process but hopefully, there's some things, I'm sure Larry and Dan and Brian would tell you that there are things we probably would have done differently if we knew then what we know now in the rollout of CBS and how we drive it. And they're just so quick in responding. They're just changing on the fly. For us, I hope that we learn those lessons and maybe we avoid some of those blind alleys that you run down. And so we can do a number of things a little quicker than we might have done in Danaher 10 years ago because of the experience that we're able to bring into the business. But as we talked about our strategy, we talked about the role of first driving the business you have, first demonstrating the ability to drive organic growth, then you get to do acquisitions, that's a very clear parallel. We talked about getting incremental value. No one could say it better than what Dan did when we talked about why we do acquisitions. If we don't add more value and strategically strengthen the business, that's not a good acquisition despite the great financials that may come with it. Those disciplines are the same here as what you would find at Danaher. The passion behind CBS, we'll get there. We don't have the depth, we don't have the experience yet, but we will get there over time. So I don't know if that answers your questions. The best I can do without being a little dated on the Danaher culture, so I can't comment further. And what's more important, I think, is what the team in Colfax is doing for our business in any way. Any other questions. In that case, let me close out the way I started. And that is, we appreciate the fact that you spent this much time with us. I know you got a lot on your schedules. I know you've got a lot of demands in your time. You've got a lot of challenging decisions to make. We appreciate the time you devoted here. It was fun for us. We're excited about the business. We believe in what we're doing, and it was a thrill to see our guys up and sharing what's going on. So I hope we were able to address maybe some of the questions that might be lingering out there. If we haven't done a good job of that, hang around, we've still got a little more time this afternoon if you want to talk further. I guess, that's okay to say, right, Scott?
C. Scott Brannan
Yes, it is.
Steven E. Simms
Okay. So if you want to talk further, we'll be around all day. And if you get home or get back to the office, there's something we've overlooked, give me a call or give Scott a call, Dan a call, we're happy to follow up and be available to address those points. Thanks, again, for your time and your commitment and support over the time.
C. Scott Brannan
Thank you. And hopefully, we'll see you again next year.
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