Patrick J. O'Leary
Good morning, everyone. Welcome to Copenhagen. Thanks so much for taking the time to be with us, especially those of you that have traveled a long distance to be here. And we welcome those of you who are listening on the webcast. Before we begin, let me point out the cautionary language regarding forward-looking statements. Please note that we are not updating our guidance today. We're very proud to highlight our Flow Technology segment.
We have several members of Flow's senior leadership team with us. Presenting after me will be Flow's segment President Don Canterna; Jeremy Smeltser, Flow's CFO; both of them are also officers of SPX; Ross Skelton, the VP of Global Marketing and Sales; and Ken Rodi, who's President of the Global Food and Beverage Systems business. They will provide a detailed update of the significant progress they've made in the segment over the past several years, including a focus on the strategic development of our Food and Beverage Systems business.
Before they begin, I'll give a very brief overview of SPX for those of you who may be joining us for the first time. SPX has undergone a significant transformation from a U.S. automotive provider to a global multi-industry supplier of Engineered Solutions. Our business today bears little resemblance to the company that I joined 15 years ago. From 1997 to 2004, we diversified the company through acquisitions as well as divesting all of the legacy automotive component businesses.
At the outset of 2005, we narrowed the focus of our long-term strategy on 3 core markets. After implementing the strategy, we experienced a 3-year period of strong growth that was paused by the global recession. We prudently managed the business through 2009 and 2010, focusing primarily on structural improvements, strategic acquisitions and maintaining our liquidity. Expanding our Flow Technology segment is a key part of our long-term plan. The genesis of this strategy occurred about a decade ago.
Niche Flow product lines were the only common overlap between the General Signal and United Dominion acquisitions. Subsequent initiatives and acquisitions have been focused on integrating and building out these niche positions within the Flow segment. This strategy was further defined recently when we announced our agreement to acquire CLYDEUNION pumps. We expect this acquisition to be completed in the fourth quarter. This marks the next important step in our strategic development of the Flow segment. Our corporate strategy is centered around growing our Infrastructure, Process Solutions and Diagnostic Systems businesses.
Today, SPX is the leading global supplier of engineered technologies that support critical needs of modern society with a concentration in power and energy, food and beverage and vehicle service. The growth rate in these markets has been higher in emerging regions of the world, driven by new infrastructure investment and an expanding middle class. And in mature markets, we expect growth to be influenced largely by the significant need to upgrade or replace aged infrastructure.
Government regulation and growing concern about protecting the environment play an important role in determining how these needs are met. We believe there's good growth potential in each of our strategic markets in the medium- to long-term. This year, we are targeting organic revenue growth in the high-single digits. We expect total revenue to increase about 14% to $5.6 billion, and our EPS guidance range is $4.25 to $4.55 per share.
We report our financial results in 4 segments. Flow Technology is our largest segment, representing 37% of our expected revenue this year before the CLYDEUNION acquisition. It is also our most profitable segment. From an end-market perspective, more than 50% of our consolidated revenue is from sales into infrastructure markets with a concentration in power and energy.
Sales into food and beverage are approximately 16% of total revenue. And there are common macroeconomic drivers of demand in our key end markets, particularly in regions where GDP growth is the highest.
Globalization has broadened our business and improved our potential for future growth. Today, we have operations in more than 35 countries. And in recent years, over 50% of our revenue has come from outside North America. This expanded global presence has been a very important factor in our revenue development. Last year, 25% of our revenue was from sales into emerging markets compared to only 14% in 2005. Our emerging market revenue has doubled since 2005 to over $1.2 billion. The acquisition of CLYDEUNION will expand our capabilities in emerging markets even further, and we believe many of our businesses will continue to benefit from investments in emerging markets.
Looking specifically at Asia Pacific, you can see that our sales into this region have grown significantly over the past several years. Our Asia Pac sales in 2010 were over $850 million or 58% higher than in 2005. Our Flow Technology segment has the largest presence in Asia Pac, with revenue of a little more than $400 million last year. We've seen very strong demand in Asia Pac this year for our Flow Technology Solutions particularly in food and beverage and industrial markets.
We believe our historical consolidated financial performance validates our strategy. From 2005 to 2008, our sales and earnings increased sharply. Over that period, we averaged 8% organic revenue growth per year and over 30% annual earnings growth. Since the recession, we have completed several actions that we believe have improved our future earnings potential. Many of these actions have been concentrated in the Flow segment. And as I mentioned, in the aggregate this year, we're targeting top line growth of about 14% and earnings growth of about 22%.
The primary driver of earnings per share growth this year is the increase in Flow segment income. For the full year, we expect Flow segment income to increase by approximately $0.67 per share.
Flow Technology has clearly become the cornerstone of SPX. Including the pending acquisition, 85% of our acquisition investment since 2005 has been focused on building the Flow segment. We have strategically expanded Flow in attractive long-term growth markets, and we believe we have above-average growth potential, particularly in emerging regions of the world. We've had very good success with acquisitions in the food and beverage business, and we are now in the process of significantly expanding Flow's power and energy business with the acquisition of CLYDEUNION.
On a pro forma basis, we expect the CLYDEUNION acquisition to increase SPX's total annual revenue by 12%, to more than $6 billion. Our Flow Technology segment will then represent about 45% of SPX's total revenue and about 50% of our segment income. Acquiring CLYDEUNION will also increase our global presence particularly in emerging markets, as I mentioned. We're very pleased to be adding another quality business to our Flow segment and are confident that CLYDEUNION will continue to perform at a high level under Don Canterna's leadership.
Don joined SPX in 2001 when we acquired United Dominion. At that time, he was responsible for Waukesha Cherry-Burrell, a U.S.-based business, with over $100 million of annual sales. WCB is a well-recognized brand in the food and beverage industry, and its operational and commercial success played a significant role in our decision to invest in Don's leadership and ultimately globalize our Flow segment. It's in large part due to his leadership as well as the attractiveness of the Flow markets, as we see it, that we have committed so much capital to Flow. He has a proven track record of integrating, improving and growing businesses, and he will pick up the presentation from here.
Thank you, Patrick. It has been a privilege to be part of the transformation of SPX in our Flow Technology segment. We truly appreciate the investment SPX has made in our business, and it has continued to be an exciting growth story.
Today, SPX Flow Technology is a leading global supplier of process equipment into food and beverage, power and energy and other industrial processes. Our core strengths include brand identity and the ability to create custom-engineered solutions for diverse Flow processes. We offer a variety of highly engineered Flow components, including various types of pumps, valves and heat exchangers. We also supply mixers and homogenizers as well as filtration and dehydration equipment. These components make up the core of the process technology involved in the modular or fully integrated system. In recent years, we have expanded our business in these areas.
We have grown our global capabilities significantly and now have a well-balanced geographic profile. We have a little more than 6,000 employees worldwide and are on the track to deliver just over $2 billion of revenue this year.
We have focused our business on serving markets that require highly engineered Flow products. Our business is well positioned across 3 broad markets: food and beverage, power and energy, and industrial processes. We believe these markets offer attractive long-term growth prospects, both from an organic and an acquisition perspective. Our game plan is to develop global scale and customer relevance in these markets, and we have made tremendous progress over the past decade.
SPX initially entered the Flow market when it acquired LIGHTNIN mixer, part of the General Signal acquisition in 1998. The acquisition of United Dominion in 2001 added Waukesha Cherry-Burrell process equipment, Bran & Luebbe metering systems and Dollinger Filtration. The combination of these well-branded, highly engineered product lines create a solid platform for us to begin building our Flow segment.
Subsequent bolt-on acquisitions of Copes-Vulcan, M&J valves and Hankison broadened our product offerings. At that point, we began to consolidate these businesses. We bundled complementary products together to expand our customer offering in 3 areas: Process Equipment focused on sanitary and industrial processes; Flow Control focused on power and energy markets; and Dehydration Filtration focused on industrial processes. By broadening our product offering, we improved our organic growth profile. As we further integrated these product lines, we also increased our profitability by reducing our cost base and improving efficiencies.
In 2006, we increased focus on expanding into -- we increased our focus of expanding into new geographies. We acquired European-based Johnson Pump, which quickly created cross-selling opportunities for us to leverage our global footprint. By 2007, we had grown our revenue to more than $1 billion and increased our operating margins to over 16%. At the end of that year, we acquired APV, which significantly expanded our geographic presence. The combination of APV and our Process Equipment business created a global platform in the food and beverage market and gave us a leading position in dairy processing systems.
After a multi-year integration effort, we further expanded our systems offering by acquiring Gerstenberg, Anhydro and Murdoch. These 3 acquisitions broadened our process capabilities into fats, oils and powdered food products. We now have the ability to design and construct a fully integrated dairy product factory. This development has been well received by our customers.
Last year, we reorganized to a regional operational structure to emphasize localization and serve our customers as one SPX Flow Technology. Through this process, we are increasing our local capabilities and, in turn, expanding our local customer base. We are now at a point in our development where we have transitioned from consolidation and integration into a position where we are poised to invest in growth.
The pending acquisition of CLYDEUNION is the next step in our end-market development. CLYDEUNION is a privately held company based in the United Kingdom with approximately 2,000 employees worldwide. It is a global supplier of pump technologies that are utilized in oil and gas processing, power generation and other industrial applications. Its primary product includes centrifugal and reciprocal pumps. It also provides aftermarket repair services on a global basis. In 2011, CLYDEUNION is targeting total revenue to about $650 million with a operating profit margin of just over 10%.
Taking a closer look at the revenue profile of CLYDEUNION. In 2010, sales were very balanced across the world with excellent penetration in emerging regions. About 50% of its revenue last year was from the sales into emerging markets with very good penetration into China, India and the Middle East. From an end-market perspective, 52% of sales last year were into the oil and gas market, with 39% of sales into the power generation. We currently have niche positions in these markets through sales of our Bran & Luebbe and Plenty pumps as well as our M&J and Copes-Vulcan valves and Plenty process filtration equipment. We expect that these products will fit nicely with CLYDEUNION's products offerings. CLYDEUNION's pumps are highly engineered and will be complementary to our existing offerings.
The strength of its products and its quality of its design, which have a strong reputation for efficiency, reliability and durability. CLYDEUNION is a leading provider of pumps into oil and gas applications, where its pumps are vital to oil extraction and processing. It's also a leading provider of reactor and boiler feed water pumps into both nuclear and conventional power plants. In industrial markets, CLYDEUNION has niche positions in water, marine and mining industries. In the aftermarket, there's a very reliable revenue opportunity, and CLYDEUNION has been very focused on growing the business on a global scale. We view APV and CLYDEUNION as defining acquisitions that are very strategic to the development of our Flow business. CLYDEUNION will give us a second global platform in attractive long-term growth markets.
Rationale for acquiring CLYDEUNION is very similar to APV: it has critical mass, complementary products and further expands our presence in emerging markets. The primary difference in these acquisitions is the state of the business at the time of acquisition. APV had significant excess capacity when we acquired it and operating margins in the low-single digits. It took a significant effort over 2 or 3 years’ integration period in which we closed and consolidated several facilities and significantly reduced APV's cost base. We invested approximately $44 million in restructuring APV, and were successful in improving its operating margins to double digits. CLYDEUNION is a very well-managed business that is growing quickly.
The management team has realized tremendous value by combining the Weir and Union pump offerings and reengaging their customer base. They have focused investment in the front end of the business, building a strong sales force and engineering team. And they have established a global manufacturing and aftermarket service capability. The business experienced very strong growth, and we plan to support their management team in continuing to execute their strategy. Unlike APV, we are not planning significant facility consolidation or restructuring. We expect to add value by leveraging the combined global supply chain, implementing our lean approach and adding complementary products to CLYDEUNION's pump offering.
Comparing our reported 2005 revenue to our 2011 expectations, including CLYDEUNION, you can see the significant progress we've made developing scale in our key end markets. Building scale and increasing customer relevance was a positive impact on how we are perceived in the marketplace. By the end of this year, we expect to have a well-balanced end market profile with about $1 billion of annual revenue in both our food and beverage and power and energy business. And we think there is still plenty of attractive opportunities to continue to expand our business in the future, both from an organic and acquisition perspective.
Underlying our end-market strategy, we are also driving key initiatives to improve our capabilities in expanding our customer relevance. We continue to emphasize expanding our geographic presence with a focus on localizing product lines to support regional demand. We are also investing in innovation to further enhance product development. Lean manufacturing is a core part of our culture. Our legacy facilities run more efficiently and have been improving in acquired facilities through implementing our lean approach.
As our scale is increasing, we have significantly leveraged our global supply chain. We are migrating to regional shared service centers to improve efficiency, support our businesses and to create the infrastructure to leverage growth more effectively. We have significantly reduced the number of internal operating systems over the past several years. We have made significant progress and today, 85% of our business is on a common SAP platform, ultimately moving us towards one global operating system. We are also promoting the SPX brand to leverage our global profile. Now I'll turn the presentation over to Ross to discuss our end markets.
Thanks, Don. Good morning, everyone. Before I go through our end markets, let's take a look at our global commercial approach. If you looked at our business 4 or 5 years ago, our approach was much different. Don mentioned that in our earlier days, we used a brand approach to sell our products. As we added product lines and expanded into new geographies and markets, we begun integrating and cross-selling these products.
We still have a very strong individual product brand identity, which is particularly valuable in mature markets. However, as we globalized our business and regionalized our management structure, we've migrated to a one SPX Flow Technology approach. This is where the value of scale and customer relevance have made a difference for us in terms of our growth potential.
Our product portfolio has evolved greatly in recent years. We have transformed our business from a component-based regional supplier to a global provider of full line process systems with global aftermarket service capabilities. Today, about 1/4 of our annual sales are for fully integrated or modular skid systems and 75% of our sales are for components. This is a significant shift from 5 years ago, when we were about 90% components and 10% modular systems without any real presence or capability to provide turnkey systems. The majority of the systems we sell today are fully integrated and have lead times that range from 6 months to 24 months, depending on the scale and complexity of the project.
And as you'll see in Ken's presentation coming up, we are growing this very rapidly in this business. We market our systems technologies direct to the end users, which increases our insights to how we can better innovate and address our customer needs. This is a trend we see in the marketplace with customers increasingly requiring turnkey solutions. Our components, on the other hand, are sold through various sales channels, including direct distributors, third-party representatives and OEMs.
Roughly 30% of our component sales can be classified as aftermarket replacement parts and services. Lead times here are less than 3 months and typically as short as 6 to 8 weeks. Demand this year has been robust. We have experienced positive order trends across all our end markets and regions. You can see here that prior to the CLYDEUNION acquisition, nearly 50% of our revenue this year is expected to come from sales into the food and beverage market. Through August, orders for food systems are up 22% versus last year, and component orders are up 14%.
We have also seen very strong demand in power and energy orders, which were up 27%, and industrial processes where orders have increased 20%. While we are seeing market growth this year, particularly in emerging regions, we believe the strength in our orders also reflects market share gains, particularly in food and beverage. With the addition of CLYDEUNION, our product portfolio will become very balanced across 3 end markets in terms of sales and also cyclicality. We will have a good mix of early-, mid- and late-cycle businesses going forward. We sell to a very diverse global customer base that includes several very well-known names. Our global footprint enables us to support our customers as they expand into emerging markets. As we localize content and capabilities, we are also gaining local customers in these regions.
Now let's take a deeper look at our end markets. I'll talk about power and energy and our industrial process markets. Ken will cover the food and beverage space. Our power and energy business had close to $300 million of sales last year, about 17% of our total revenue. We serve this market globally with particular strengths in the U.S. and the Middle East. More than 60% of our power and energy revenue is from sales into the oil and gas market, and we have niche positions in power generation. One of our most specialized products in this part of our business relates to nuclear power.
This year, we are in the process of providing a highly specialized squib valve for nuclear plants that are being built in China and the U.S. This is a $100 million project that is ramping up in the second half of this year and will continue over the next several years. We designed these valves in conjunction with Westinghouse for its AP1000 nuclear plants. This design has been selected by utilities in the United States to be used in the construction of new nuclear power plants and has also received international acceptance within the nuclear power industry.
Our other power and energy products include a variety of specialty valves and closures focused on niche applications in oil and gas processing and power generation. We sell chemical injection skids, filtration equipment, metering systems and dosing pumps used in oil and gas processing. We also have a variety of dryers and air dehydration equipment that are used in power generation plants. Our products will be very complementary to CLYDEUNION's pump offerings, and we think there will be good revenue synergies when we combine these product offerings for our customers.
Now let's take a closer look at CLYDEUNION products, starting with oil and gas. CLYDEUNION has a strong reputation for supplying reliable pumps that are critical throughout the oil and gas process and are used in some of the world's most demanding applications. CLYDEUNION's pumps are used in both upstream and downstream oil and gas applications.
In the upstream processes, they provide a variety of centrifugal and reciprocating pumps that are used in both offshore and onshore oil extraction and production, as well as transportation and storage of oil. They also provide pumps that are used in very challenging subsea and downhole extraction environments.
In the downstream process, CLYDEUNION provides an extensive product offering, used in oil refineries, gas production plants, offshore oil platforms and pipelines. The International Energy Agency's recent studies suggest demand for oil is expected to be driven largely by transportation needs. China is expected to remain the most significant contributor to the overall growth in oil demand.
Even in lower growth scenarios, global oil demand is expected to increase. The IEA has forecasted average annual capital investment of about $440 billion for oil and gas infrastructure concentrated in upstream processing. We believe CLYDEUNION is well positioned to benefit from these expected trends.
CLYDEUNION Pumps are also used throughout most types of power generation. It has a large installed base of critical process pumps in both nuclear and conventional power. CLYDEUNION's portfolio includes centrifugal and reciprocating pumps, which are highly engineered and configured to order. Key applications include boiler feed, cooling water, heat recovery and general process pumps.
This chart illustrates the diversity of the pump solutions that CLYDEUNION provides for a nuclear power plant. Its pumps are used in several critical parts of the power generation process. This level of content is comparable for conventional power plants as well. You can see that CLYDEUNION Pumps are very complementary to SPX's current portfolio of Flow Technology and Thermal equipment.
We believe CLYDEUNION is well positioned to benefit from the long-term investment needs in the glowing -- in the global power market. It is leveraging its installed base by participating in replacement opportunities at aging power plants and safety enhancements, specifically in nuclear power plants. CLYDEUNION has also grown its presence in emerging markets to increase its exposure to new power projects. We expect our global footprint to enhance their distribution capabilities. They are focused as we are on strengthening relationships with global OEMs as well as Chinese- and Korean-based EPC firms as they expand in global markets.
Moving onto our current business in the industrial process markets. Last year, we recorded about $630 million of revenue from sales into diverse industrial process equipment markets. We have niche positions in mining of minerals, chemical processing and marine and shipbuilding markets.
Our industrial business is well balanced globally with 43% of sales into the EMEA region, 33% into the Americas and 24% into Asia Pacific. This year, we are experiencing very good organic growth in most of these markets. We see long-term potential to develop these niche positions through acquisitions as we have in the food and beverage and power and energy markets.
Our portfolio consists of market-leading products focused on mixing and blending, heat exchange and dehydration. Many of our industrial technologies help enhance plant productivity and optimize efficiencies. Our portfolio of industrial products is designed to leverage third-party and direct sales channels.
Our sales in these markets are mostly components and as such, our revenue here is typically short cycle. Demand for our products in these markets typically follows GDP and industrial utilization trends. We specifically monitor metals pricing, marine and shipbuilding trends and manufacturing PMI to forecast expectations.
With that, I'll turn the presentation over to Ken to discuss our food and beverage business.
Thank you, Ross. Good morning, everyone. The food and beverage business has been a strategic focus of investment for SPX over the past few years. We believe that the global food and beverage market is highly attractive, steady-growth market.
Population growth and the emerging middle class are important long-term drivers of processed food demand. One of the leading indicators for our business is consumer demand for food and beverages. Since 2002, global retail sales of food and beverages have increased 85%. This growth was steady through 2008. In 2009, sales declined an unprecedented 4% due to the economic recession.
Growth in this industry resumed in 2010 and is expected to continue. Frost & Sullivan projects retail food and beverage sales to grow on average 5% to 6% per year between 2011 and 2014. Emerging markets are expected to lead this growth, driven largely by Asia Pacific, where the average growth rate is expected to be 7%.
Capital investment in processing equipment has historically followed these trends and, as a result, tends to be less cyclical than many industrial markets. 10 years ago, we had essentially no presence in this market. In 2001, we acquired Waukesha Cherry-Burrell, which gave us a foothold as a North American supplier of engineered components to food processing companies.
Our success in this business led us to acquire APV in 2007. APV gave us critical mass and significant global presence. It elevated us to one of the leading global providers of food and beverage processing equipment. APV has been an excellent strategic investment, and the benefits from cost reductions and top line synergies have been quite meaningful.
The integration of APV is complete, and the results are as we expected. APV had operating margins of around 3% before we acquired the business and now has double digit margins, and we expect to see operating leverage continue with further revenue growth. Recent acquisitions of Anhydro, Gerstenberg Schröder and Murdoch have expanded our system capabilities into powders, fats and oils. In the short time that we've owned these businesses, we have already received orders that utilize a combination of these acquired technologies as well as our existing technologies. We now have the ability to design and construct a fully integrated dairy products factory. This development has been very well received by our customers worldwide.
To provide you with some context of where SPX participates in the broader food and beverage industry, our technology is used by food and beverage manufacturers to process raw ingredients into a consumable product. We serve a large global customer base. Our historical customers include large multinational food and beverage manufacturers. Under our regional management structure, we have increased our relationship with many local customers, particularly in Asia Pacific.
Our technologies are used to process a wide variety of food products. Some of the more well-known dairy products made using our equipment include Danone's Activia, Yoplait yogurt, Kerrygold butter and Coffee-mate creamer. We also participate in other food and beverage categories. For example, our emulsifying equipment is used to create Hellman's mayonnaise.
And in the United States, more than 2/3 of all tomatoes are processed with SPX equipment to create products such as ketchup. Last year, more than 50% of our revenue related to dairy products, and we are seeing strong growth in this market this year, particularly in demand for our fully automated systems. We're experiencing sharp growth in our Systems business this year. On a global basis, we estimate that our sales of food and beverage systems will increase 80% to over $500 million. This growth highlights the revenue synergies we are achieving through the combination of our acquired technologies.
Our increased capabilities have given us the opportunity to participate in more complex projects that have a higher contract value than we have participated in historically. Increasing our install base has been a core growth initiative as it provides us attractive aftermarket opportunities over the lifetime of the system. The mix of systems revenue has grown to about 25% of Flow's total segment revenue. This is a significant shift from prior years. Another key synergy achieved in our acquisition strategy is that we now internally source components that make up 20% to 30% of the value of a full-line system.
Prior to our acquisition, Gerstenberg and Anhydro outsourced the majority of the components required in a full-line system. Currently, we have the benefit of in-sourcing a greater percentage of the content of our combined systems offerings. This chart highlights the broad range of highly engineered components that we source internally for various process systems. These components are refurbished or replaced on a periodic basis. The frequency of replacement varies. It is largely dependent on the viscosity of the product being manufactured as well as the conditions of the plant operating environment. Looking at some of the key drivers behind our customers' capital investments. In most regions, government safety standards regulate how food and beverages are processed.
We work with our customers to help provide solutions that meet or exceed these standards. We also work with customers to provide solutions that enhance the value of their products or increase the efficiency of their operations. We collaborate with customers in our product development labs to test recipes and demonstrate that our equipment can provide a consistent flavor and quality. You will see examples of this when we tour the Innovation Center later today. Population growth and a rising middle class in emerging regions of the world are fueling investment from multinational companies that are globalizing their brands.
As our customers globalize, they are very focused on maintaining the quality and consistent taste of their branded products. We have been working with them to increase the level of standardization in our systems while also maintaining the flexibility to provide custom engineered solutions. As an example, this chart highlights the progress we've made with a large global supplier of fresh dairy products. Since 2007, we've partnered with this customer on a standardization program aimed at reducing engineering and manufacturing lead times as well as the customer's total cost of ownership.
Through this program, we are also fine tuning state-of-the-art solutions through collaboration with our customer's engineers. Over the past few years, we have designed and installed new standardized systems for this customer in Beijing, Shanghai, Korea and Brazil. We have achieved our best results in China. We have successfully localized 85% of the content and reduced lead times by as much as 30%. We estimate that more than 2/3 of new market capacity is related to demand for dairy-related processes.
Wholesale dairy prices are increasing simply because there's not enough supply to meet the escalating demand in developing markets. This is driving investments by our customers in new manufacturing capacity, and we are seeing this in our order trends. The emerging middle class is demanding more dairy products. This is particularly true in China, where there is an increased focus on product safety. We expect to continue to see this higher-level demand in emerging markets. This year, more than 50% of our systems orders are for new capacity projects in China, South America, the Middle East and other developing countries.
This chart illustrates some of the significant orders we have received for dairy systems, supporting our customers’ expanding capacity needs in these emerging regions. In developed markets, capital investment is generally focused on consolidating and increasing the efficiencies of our customers' existing manufacturing footprint.
We are currently in the process of designing a highly efficient full-line dairy factory in Turkey. This is a very good example of how we are leveraging our advanced dairy processing technologies and engineering expertise. The new dairy will be designed from the ground up to be vertically integrated into a combined operation with an adjacent farm. The dairy is expected to process over 1 million liters of raw milk per day for production of pasteurized milk, yogurt, butter and various types of cheeses. It will also produce protein juice drinks as well as whey powder.
With our increased process engineering capabilities, our order pipeline for large-scale projects has expanded, and we expect strong growth in this business as our customers increase their capital spending on new facilities.
One of the fastest-growing dairy markets is for dry powder infant formula. On a global basis, this market is expected to grow 6% annually. The growth rate in emerging markets is close to 10%. Population growth is driving demand for more baby foods, and there is a growing opportunity for us to serve this market, particularly with our drying and evaporative technologies. China has become a significant importer of dry infant formula as a result of population growth and an insufficient supply of quality milk.
The recent acquisitions of Anhydro and Murdoch have already proven to be a powerful combination for us in this market. Just today, I'm very pleased to announce that we were awarded a significant contract to establish a powder infant formula plant in New Zealand for a local customer. This is a significant win for us and further validates our acquisition strategy in food and beverage.
When completed, the new plant will convert fresh milk into powder infant formula for export primarily to China and other emerging markets in Asia as well as the Middle East. We will be responsible for constructing the entire facility as well as designing and installing all the technologies needed. This automated system will utilize our wet and spray dryer technology.
As I said, our most recent acquisition, Murdoch, will contribute its dairy engineering expertise and provide on-site management support for this project. Based in New Zealand, Murdoch has strong relationships with local dairy customers, and New Zealand is one of the world's leading exporters of dairy products worldwide. We are very optimistic about future opportunities in both the infant formula and New Zealand markets.
Helping our customers develop new and safer ways to make food products drives our technology innovation. Among the current challenges facing food manufacturers today is finding a way to apply heat technology to destroy harmful bacteria without compromising the taste, texture and valuable nutrients in their products. This is particularly essential for sensitive products such as infant milk formula, whey protein concentrates and processed cheese. Our instant infusion technology helps our customers achieve precisely the right amount of heat to destroy the bacteria with minimal impact to the product.
Sustainability is another key area of focus for our customers. As part of their social responsibility, our customers are increasingly striving to develop new ideas to conserve energy as well as reduce waste. This focus is driving innovation in our business as well.
Earlier this year, we introduced a new low-energy heat exchanger called Nexus. Initial customers’ feedback has been very positive. Our Nexus design is completely sealed, fully insulated and has a corrosion-free stainless steel casting. The primarily benefit of this design is decreased energy consumption and during production, less power is needed per production hour as compared to conventional products.
Recent test results have shown that using our new technology reduces electricity demand by up to 18% in electrically powered facilities and up to 68% in gas or oil-powered facilities. In addition to energy savings, the Nexus design also uses a natural refrigerant. You will see the Nexus technology on display when we tour the Innovation Center later today.
One of the competitive advantages that we have is our ability to engineer and design products that not only meet our customers' needs but also meet strict regulatory standards. It is critical that our products are manufactured in accordance with strict design standards and also made with a very high grade of stainless steel to avoid contaminating food during the production process.
North America is highly regulated on both the federal and state level by agencies including the USFDA and the Department of Agriculture. We participate with these agencies in defining the standards that are used in this market.
In Europe, the regulatory environment is wide-ranging and also strictly enforced. In contrast, regulations in emerging regions vary greatly and are generally not as stringent. However, we are gradually seeing local governments increase standards to promote food product safety. For example, China has elevated its standard in response to several milk contamination incidents for the past few years.
In summary, we have significantly expanded our global presence in the food and beverage market over the past few years. Today, SPX is a leading global supplier of highly engineered process solutions for food and beverage manufacturers worldwide. We’ve received positive customer feedback on our most recent acquisitions, which have enhanced our ability to meet our customers' increasing needs.
This year, we are targeting over 30% increase in our food and beverage revenue, driven largely by growth in process systems. Our innovation is focused on creating solutions that address our customers' focus on sustainability, efficiency, as well as product safety. We believe we are well positioned for growth in this market, and we continue to evaluate additional investments to further strengthen our capabilities in the food and beverage industry.
So with that, Jeremy will now close our presentation with a review of our financial performance.
Jeremy W. Smeltser
Thanks, Ken. Good morning, everyone. It's a pleasure to be here. I'll begin with a closer look at our global revenue. Our revenue contribution is very balanced geographically, and our presence in emerging regions of the world has increased significantly over the past several years as our customers have expanded their capacity in these areas.
We estimate that about $500 million or over 30% of our revenue last year was from sales into emerging markets. As a result of these geographic changes, we reorganized Flow, as Don mentioned, to a regional management structure last year.
Looking specifically at our development in Asia Pacific. We are quickly approaching $500 million of annual revenue from sales into this region. Our order trend in Asia Pacific has been very strong as you can see in the development of our backlog. Over the past 6 quarters, our Asia Pacific backlog has increased more than 50%, driven primarily by strong demand in our food and beverage and industrial markets. Historically, our revenue into Asia Pacific was primarily driven by multinational customers expanding their presence geographically.
Today, however, we estimate that in aggregate across the region, more than 75% of our revenue is from sales to local customers. We continue to focus on developing our local capabilities and talent to compete more effectively in this region. Looking at the historical revenue for Flow Technology in total. You can see the significant development that we've experienced. This was driven by a number of the initiatives we discussed today including acquisitions, globalization and innovation. This year's revenue target prior to CLYDEUNION is just over $2 billion or nearly 3x our revenue in 2005.
On a pro forma basis, CLYDEUNION increases our 2011 revenue to about $2.7 billion. And looking at our organic revenue. Our expanded presence in emerging markets and localization efforts that I just discussed have increased the organic growth profile of our business. From 2005 to 2008, our revenue grew at an average rate of 10% per year. We have returned to strong organic growth this year with a 16% increase over the first 6 months. In the second half, we expect the year-over-year growth rate to moderate slightly as compared to the higher volumes that we experienced in the second half of 2010. For the full year, we are targeting organic growth to be between 11% and 13%.
Now looking at our profitability. This year, we expect segment income to be up 20% to 25%, reflecting the organic growth and acquisitions we've closed. On a pro forma basis, our segment income will be more than 3x what we reported in 2005. As we have grown our business, operating margins have remained relatively stable.
Margin dilution has been a by-product of our acquisition strategy and increased mix of systems revenue. The acquisition of APV diluted margins by 550 basis points in 2008. Following the successful integration of APV, we actually improved margins 70 points in 2009 despite volume declines due to the recession. Last year's acquisitions had a more modest dilutive impact to our segment margins.
Although we expect to improve the performance in our Systems business over time, the contribution margin on Systems revenue is fundamentally lower than the segment average gross margin. However, as Ken pointed out, we expect the growth in our Systems business to drive our aftermarket and replacement business over time. CLYDEUNION's 2011 operating margin is expected to be between 10% and 11%, which would also be modestly dilutive to our current segment income margin.
We do expect synergies, particularly by leveraging our global supply chain and lean principles, as well as operating leverage with continued revenue growth, to improve CLYDEUNION's profitability over time. Based on these facts and the impact of purchase accounting, we will reevaluate our long-term targets for Flow and plan to communicate targets for the combined business when we discuss our 2012 guidance in January.
We take pride in operating a high level of efficiency in maximizing our profit, and we are very continued -- we are very focused, I'm sorry, on continuous improvement initiatives. We believe there is potential to improve our operating execution in certain parts of our business where the rapid pace of growth and volume of business is at a record level for our company. And we continue to drive initiatives throughout our global organization aimed at reducing cost and optimizing our footprint.
Over the last 5 years, we have tripled output at our low-cost manufacturing operation in Poland. In the third quarter of this year, we have executed a restructuring action to consolidate additional manufacturing to Poland. We believe this action will benefit margins going forward. And recently, we reorganized our Food and Beverage Systems business under its own global management team as a separate reporting unit. We believe this will add visibility to project management and help us better leverage our global engineering capabilities.
Now looking at our current backlog. At the end of Q2, our backlog was $907 million, up 7% sequentially and 43% year-over-year. We booked a record level of orders during the second quarter driven by continued strength in food and beverage markets. The backlog is now comprised of 35% systems orders, up from 20% just a year ago. In the oil and gas markets, demand for our components has been strong this year, particularly within oil and gas pipelines. And we have also seen a sharp increase in demand for plate heat exchangers across marine and other industrial applications.
Heading into Q3. We had significantly more visibility to the second half revenue than we had at the same time last year. More than 60% of our estimated revenue over the balance of 2011 was in the ending Q2 backlog as compared to 44% last year. And broadly speaking, order trends in our business remained strong during the third quarter. In closing, we are very proud of the significant development of our business over the past decade. We are strategically positioned as a leading global supplier of highly engineered components and process solutions.
We have expanded our scale, our customer relevance and our global presence. At this point in our development, we are positioned for investment, and CLYDEUNION marks the next defining step towards our long-term strategy.
This concludes our prepared remarks and at this time, we'll be happy to take your questions. If you could pause for Ryan to come around with the microphone for the benefit of those on the webcast.
Deane M. Dray - Citigroup Inc, Research Division
Jeremy, I was hoping you could expand on the comment regarding the margin differentials between component sales versus Systems. Because as we heard from Don at the beginning of the presentation, there's a big focus on growing the Systems portion of the business and you're able to add more content. So just broadly, talk us through the growth expectations, maybe you're going to make it up in higher volume but the idea is should you see longer-term margin pressure as you develop more of a Systems offering?
Jeremy W. Smeltser
Yes. I mean, obviously, Deane, we're focused on growing the whole business. But clearly, with, I would say, the last couple of years, we have seen a decline in global Systems orders. The CapEx spending of the major customers have been lower, and so Systems have been a lower growth in the first part of the cycle. And so this year, I think that mix is catching up with us. I don't actually expect to see much of an increase in Systems as a percentage of our revenue in addition to what you see in the mix change in our backlog today. So I don't think that'll continue to be a margin drag for us over time. That said, there probably is a bit of a lag as it relates to the component pull through in the aftermarket as that Systems business grows. I mean we only added Gerstenberg last February and Anhydro last July. So that process of ramping up the SPX components into those systems is really just taking hold now. So I think there's more runway there. So as I said, we'll update the long-term target in January. I would expect that if we need to make a change in that, it will be more from our long-term expectations on CLYDEUNION than it will be on the Systems mix, but we're working through that process now, and we'll get more specific in January.
Deane M. Dray - Citigroup Inc, Research Division
And if you could just clarify also the comment that as you have a higher Systems sales, that will also help feed your aftermarket sales of components too?
Jeremy W. Smeltser
Yes. Absolutely. We're sending out Systems today with 20% to 30% material content from our factories, from our components, compared to 5%, 10% and 15% when we took over APV at the end of 2007. I think by definition, as those components start to wear, you will see that aftermarket presence increase. Nigel?
Nigel Coe - Deutsche Bank AG, Research Division
Yes. So some more questions on Systems, sorry for being so boring here, but the growth charts from 2010, 2011 is stunning. Can you just confirm that, that's all organic? And could you maybe talk about that increase, how much is due to just the market environment and how much is due to an increase in win rates? Can you maybe estimate what your win rate is, how that's trending, given that there tends to be 3 competitors for each of these big projects?
Jeremy W. Smeltser
Maybe I'll start, Nigel, on the revenue and backlog and then maybe Ken can talk about the competitive environment. The revenue in Systems -- the revenue in backlog increase in Systems certainly is impacted by the acquisitions. So Anhydro last year was 1/2 a year of revenue or a little less. Gerstenberg was most of the year, but it was a down year for Gerstenberg. So both of those businesses on their own are experiencing tremendous organic growth this year, partially from the market and partially from the strength of combining with the APV and the other businesses' technologies. So I don't have a good organic versus acquisition breakdown of that. Ryan, maybe we can work on that this afternoon while we're in the tour. But it's partially from the acquisitions as well.
Sure, Nigel. I mean certainly, if you look at the growth year-over-year, we are currently benefiting from continued investment in emerging markets as our competitors are as well for just the overall market dynamics. But I think if you look at the increase, and as Jeremy said and as Don said in the initial prepared remarks, a lot of the growth has also come from leveraging combined technologies together to put more full-line Systems offerings to our customers, whereas, as an example, 5 years ago, we had one technology offering in wet technology for APV. The recent acquisitions of combining with dry technology as well as fats and oils offerings has provided us with the ability to compete on a larger scale system, whereas in the past, we may have only been competing on 1 or 2 technologies. So I think in addition to the market growth, which is pretty evident, I think you also see continued benefit from that combined offering, and I think we will continue to see some of that going forward.
Nigel Coe - Deutsche Bank AG, Research Division
And then just can you maybe talk about the process for how you price a system? Some of the lead times here are quite long, up to 18 months or so. I mean how do you protect yourself against more material pressures in that period and then the changes to customers' specifications, maybe a slightly more tomato-ey taste to the ketchup and things like that.
Sure. If you look at the pricing, the pricing model or how we price, I mean, we price based on market pricing for these projects. We typically, at the initial phase of a bidding and an award, receive fixed price material contracts with our suppliers. In cases where we do have to extend projects beyond that time, we would typically get raw material escalation clauses through. However, for the most part, those -- the purchases and the procurement for materials is pretty well fixed at the time of the bidding. In terms of lead times, the lead times on a larger system can go anywhere between 6 months to up towards of 18 months. We time and stage the material procurement as well as the material processing that goes through our factories such that we control the costs throughout the process. So for the most part, the raw material exposure is limited and is contained in terms of the fixed pricing.
Jeremy W. Smeltser
And as it relates to change in scope or change in performance criteria, that would have to come with a change order and certainly something we'd be happy to entertain.
Over here. So Jeremy, just one follow-up on the Systems mix. I mean, I think you said it wouldn't increase versus the current percentage of backlog. But you said that's 35%, right? And the revenue's at 25%. So I mean could the revenues, kind of over time, be 35%? Is that what you're saying?
Jeremy W. Smeltser
Well, I think the difference -- that is the right math based on the chart. But I think the difference is we have more book and turn business every quarter in components, so we'd probably never get to that full 35% as compared to the current backlog. So it's probably somewhere closer to the 25% to 30% range like we're experiencing in our 2011 revenues.
Okay. And then within Systems, it sounds like you're getting, obviously, a lot more of these large-scale systems. I mean what's the mix within the Systems piece between you're just shipping a skid versus you're actually building a whole plant? And also, on that part, I mean, are you actually hiring construction crews? I mean give a little sense on the larger-scale systems, exactly what you guys are doing.
Jeremy W. Smeltser
Sure. If you look at the mix of Systems, about 20% of our total revenue is the, we'll call it modular skidded systems or self-contained kind of processing skids. Now a lot of those skids also are -- go into larger systems as well. So modular skids could be sold as a standalone unit, for example, like a UHT System or it can go into a larger-scale plant such as a larger processing, dairy processing facility. So depending on how you look at it, I think it's pretty safe to say that 20% of the sales are kind of in the modular skids. Within those modular skids, we typically have a higher content. You're talking about 30% to 35% of our content is actually manufactured product versus if you look at the total percentage of the cost of a larger in-line system, you're looking at somewhere in between 20% to 25%. So I think that's how the mix would shake out. And your second point with that?
So on, for example, for this New Zealand project or something of that nature, I mean exactly what are you doing?
Jeremy W. Smeltser
Okay, yes. So if you look at -- a typical system installation require commissioning and installation are outside contract work, where we would typically bring in outside commissionary installation engineers to actually put the system together and to ensure that the system is going to meet the performance requirement. So we do have a portion of the cost of the system is dedicated to that outside work.
And is that -- that's locally procured wherever you are. You just...
Jeremy W. Smeltser
Usually, from a cost perspective, that is the most cost-efficient. And in some cases we do, if it involves a technology where we would have -- require on-site supervision from either process engineers, then we would bring those in from our engineering centers. But by and large, most of the work is procured locally so as to minimize the cost as well as take advantage of the flexibility for local installations.
I just had a follow-up question on the orders page. The 28% year-to-date order growth through August, how does that reconcile with the end-market growth rates which seem to be much lower than 28%?
Which chart are you on?
It's on Page 25.
Jeremy W. Smeltser
So you're actually comparing end markets to our total or you're comparing to the markets, external markets?
Okay. So the food and beverage, let's say, the system's up 22%, is that an organic number or is...
That includes currency. We don't have that broken out by organic versus currency or acquisitions.
Okay. So if you were to aggregate all the growth rate in the various end markets, they would seem to aggregate to a number lower than 28%?
Patrick J. O'Leary
I think it probably depends on the mix. Because our industrial processes and the food and beverage components make up the highest percentage of our revenue, and they're lower than the total average growth rate, the 28%. I think that's the math, but we can certainly reconcile that.
Okay. Do you know what the 28% would look like on an organic basis?
Patrick J. O'Leary
I don't. I don't have that broken down. But I think if you look at our total growth break out in the first half of the year of organic currency and acquisitions, it probably wouldn't be that dissimilar. So you could probably get that from our Q. And maybe Ryan might have it with him.
Okay. And then just lastly, can you comment on how July and August are trending?
Patrick J. O'Leary
Yes. I mean I think we mentioned a couple times in the prepared remarks that we really haven't seen a change in conditions in our end markets for Q3. So we've seen a pretty consistent set of order trends as to what we experienced in Q2 so far.
Can you talk a little bit about your food and beverage strategy and how you guys partner with automation players and if there's -- with your competitors, if they have an in with the Siemens or if you guys have an in with the Rockwell?
Jeremy W. Smeltser
Sure. Automation is a key component within our Systems offering. We currently have internal automation technology. So we use automation engineers internally to basically add value to our Systems. When we talk about external providers for automation, we typically use Siemens as well as Rockwell globally, depending on the region. And I think as a partnership, that continues to work very well. I think you'll see, as it relates to our competitors as well, that the platforms that they're using are not dissimilar to that. But by and large, if you look at automation as a kind of percentage of our total value into a system, it is increasing, partly as the complexity of the system goes up as well as the demands from our customers to do more processing, it drives up as well.
Nigel Coe - Deutsche Bank AG, Research Division
On the CLYDEUNION margins. I was a bit surprised that the margins are as low as they are. Is that being depressed by purchase accounting post-acquisition? And the reason I'm surprised is because the OE aftermarket split is so rich. The aftermarket, I think, it's 40% for CLYDEUNION. And I'm just wondering going forward, is that sort of structurally lower than the average margin? And what scope do you see for maybe an APV-style margin accretion story with CLYDEUNION?
Jeremy W. Smeltser
Sure. The margins we're quoting of 10% to 11% are their historical, so they don't have the impact of the future purchase accounting. On the CLYDEUNION announcement call, we mentioned that in our model, we're using about $30 million of intangible amortization, which is, on current revenues, close to a 250-, 300-basis point reduction compared to their current amortization. About 250 basis points. And we expect, over the next couple of years, that our synergies, just from a pure operating perspective on the current volumes, would offset that. So we're kind of back to that same starting point from our perspective. I don't see probably the level of improvement that we've had with APV; they’re 2 very different businesses in very different stages of their maturation process. But I have recognized the comments and questions as it relates to their margins compared to what people see in some of their competitors. I think what they have done, as Don mentioned, is invested very heavily on the front end of their business and infrastructure globally and service centers and sales force and then application engineers for quoting. And I think that, that investment is probably ahead of the current volume that's running through their factories. And so I think there's a natural leverage to come through on that. And I also would say in their factories, from what we've seen and we've toured all of their factories, and I think that management team that we're getting with the business would say the same thing. There's a lot of opportunity through their existing footprint to increase volume. So there's a lot of leverage to come from that. And then as Ross discussed, we see a lot of opportunities commercially, like we've done with food and beverage, to gain revenue synergies by packaging our products under the SPX family brand with -- especially in the oil and gas and power space.
Nigel Coe - Deutsche Bank AG, Research Division
And question for Patrick. I mean obviously, a lot of capital's been deployed in the Flow segment, and Don’s done a fantastic job of utilizing that. But Flow's now 1/2 of the total portfolio. I mean are you happy from a corporate perspective if Flow is increased to 60-plus over time?
Patrick J. O'Leary
Yes, we're extremely happy. I mean obviously, we deployed a lot of capital here. CLYDEUNION, all cash, borrowed cash, less than 3% against we're borrowing against a spread on 3-month LIBOR. I mean basically, I won’t say money’s free in this market but if you inflation adjust it, your now after-tax cost, it's still a lifetime low level. So from the point of view of 8x the deployed capital, it's hard to imagine that capital, cash capital's going to get much cheaper than it is today. So we see Flow the way we saw it in 2005, which is still a substantially fragmented overall space, particularly when you look at the types of products and then see global consumption. Our approach is customer-driven by market. So these are really market- and customer-driven strategies, and so you can't just keep adding Flow. You actually have to look at the market and what you're doing and it's about customer relevance and scale in those markets. And obviously, the confidence we have from this team's success with the food and beverage strategy, which is still a strategy that's in process and still has room to grow across additional food and beverage products, we're looking for the same kind of approach. So the traction that CLYDEUNION is getting, which is remarkable in terms of growth against the organic growth of the market, really reflects the customer receptivity. And then on the acquisition side, what we've found is since we're seen as an aggregator in Flow, our building platform capability, the small, mid-sized technologies that are having trouble with the Systems approach of customers are very willing to sell to us because they see us as a logical owner and a lot of these companies are obviously European. And so as a sort of new aggregator, there's a positive vibe towards us from direct negotiation in the sale process for those people that have smaller Flow businesses that want to sell. So from the point of view of SPX, this is a market where we will continue to deploy capital in food and beverage, oil and gas and power and energy. And as Ross alluded to, we've got very attractive niche positions even in the industrial products, and there are lots of different ways to go there. Obviously, this acquisition brings us, at the outset, above our leverage target, and so our capital allocation will be focused on debt reduction in the near term. But our cash flow is very -- free cash flow is very skewed towards the end of the year. So just in SPX alone, we should have more than $200 million of free cash flow going into the end of the year, which is a measurable percentage of what we're paying for CLYDEUNION. So it actually delevers quite rapidly between the closing of the transaction and year end. And so I still expect us to be focused on debt reduction in the early part of next year, but the aggregate free cash flow brings us back into our target range fairly quickly, and we'll obviously be focused on operational execution and integrating the CLYDEUNION financials into our own control process.
Deane M. Dray - Citigroup Inc, Research Division
I’d like to follow up with another question related to the competitive dynamics in the food and beverage business. And one of the validations that you're in an attractive market is when you start attracting new competitors and Pentair recently entered or got bigger in this market with the acquisition of the Norit CPT business and they're speaking glowingly about the opportunity in food and beverage more from a filtration standpoint. So I know you have some filtration, low-end membranes on the dairy side, but just what's your perspective on this focus on membrane? And what -- is this a potential product area you need to develop? And does it put you, at all, at a disadvantage in not having that technology today?
Jeremy W. Smeltser
Yes, Deane. If you look at our current offering for membrane filtration, we -- our membrane offering is focused primarily right now in dairy applications. The acquisition you're referring to, obviously, a little bit of different space in terms of more purification systems and focused primarily in the brewery, the beverage area. But if you look at kind of a broader perspective in membranes, and it's obviously a business that has a significant amount of runway, particularly in emerging areas, where the requirements for filtering or removing solids or bacterial content from processes is more required. I think it's an area, a growth area. As Patrick alluded to, there's probably a lot of fragmentation still as it relates to filtration. That's probably attractive for us. Currently, what we do, our model is, as I said, we have a membrane offering where we currently require outside membrane processes. We currently partner with outside companies right now. If it's going into a process where, as an example, a brewery process or a process where we're providing a significant amount of components, if we don't have the required technology there, we will go out and partner to provide and bring that in, a Norit or a Paul [ph] as an example. But I think it's an area -- it's pretty attractive, it's growing. As I mentioned, some of the factors driving it, and it's definitely an area that we're looking to grow.
Deane M. Dray - Citigroup Inc, Research Division
That's real helpful. And if I could swing over a question on CLYDEUNION and also from a competitive standpoint, you have not seen in the industry where companies have aggressively tried to combine valves with pumps. Flowserve’s done a little bit of that. And so far, up until today, SPX has been a little bit quiet about how and what those synergies could be in marrying these 2 businesses. And Patrick, you touched a little bit on this about the customer receptivity to the idea of being able to market both. And I'd like to hear a little bit more about what it is, are you just adding these 2 components onto a skid? Or might you be actually developing products that are tuned to each other, so pumped into a valve for a specific application? So just give us some insight on how going to market with these 2 products from an integrated standpoint, and again also the customers’ receptivity.
Sure. The model in the food and beverage space versus the power and energy space is a little bit different when you get to that full-line systems piece of it. When you talk about large-scale power and energy products or projects, you're typically -- our customers are dealing with large EPC firms to actually do that piece of it. So as we talk about getting more relevant in that space, it's not so much about, if you like, a systems project management piece as it is about a core set of products that, as we've said earlier, make us more relevant to our customers than these EPC firms. I mean we consistently hear from our customers again and these engineering contractors, they want to deal with fewer and fewer vendors. So if you look at the model in the food and beverage space where we started out with brand sales, discrete component sales, we're more mature in that transformation to be a full line supplier, where we've taken all those brands and we've combined sales forces to walk in with a basket of products. So we're really on that same journey in the power and energy and industrial spaces. We're just further back down the line. So to the extent that we can arm our sales force with a number of different products to walk into an EPC and say, "Okay, on this refinery or pipeline projects, I not only can supply you this discrete component, but this set of components and maybe some light engineering and fabrication around that. " We just become more relevant to that end user.
Just a follow-up to having more relevance with EPCs so I can get that with the broader offering. How is this playing out just on the pure component side going through distribution? I mean is having a broader offering giving you sort of more scale with distributors and maybe a little benefit on the non-systems piece?
It does. As we look at going to market, and as I mentioned in the earlier remarks, I mean we go to market through multiple sales channels depending on the product line and the region. Very often in the power and energy and industrial spaces, we're dealing through third-party reps and distributors, specifically in emerging markets, where we're trying to obviously attract the best distributors and reps, to the extent that our portfolio of products has more to offer, it allows us to do that. One of the dynamics we've seen as we've been on this journey, our history has been one of a very North American-based business, if we wind the clock back, say 10 years. So more of our mature distribution channels are located in the U.S. and to a lesser extent, Europe. So we try to combine those distribution channels where it makes sense, but we do it very pragmatically and practically. What we've seen, however, is that as we’ve moved into emerging markets, where all the growth is, this one SPX Flow technology approach, we don't have historical distribution channels to integrate, to choose from, if you will, so we can go into an area with a bigger basket of products. And obviously, CLYDEUNION enhances that as well and attracts a higher, more confident sales force or distributor rep network.
And then just on competition in emerging markets. I mean we know sort of the big global players, I mean what's changing from a local competitor standpoint, and why shouldn't we be more worried about them making inroads against you in these markets?
So as we look at it across our portfolio and as we've globalized our business, certainly, local competition continues to increase. If you look at our portfolio, however, what we've done, and we've added a lot to the portfolio over the last several years, we've also sold some pieces of equipment that are more commodity-oriented. So if you delve into, not only the food and beverage space, but CLYDEUNION, being a great example, I mean these are highly engineered, configured order, critical process pumps. So as we look at local competition, the barrier entry is a little higher versus what I would say more general-purpose pumps or more general-purpose valves. So we tend to stay in the more highly engineered space. And then obviously, as we talked about earlier, a lot of our localization initiatives around building out the Flow Technology platform is also about localizing our product in Asia Pacific and other regional markets.
Nicholas P. Heymann - William Blair & Company L.L.C., Research Division
Since food safety is such a critical part of the whole manufacturing process, is there an opportunity for you to do online or in-line testing for bacteria, salmonella? Or is it just strictly a quality assurance, they'll take samples into a lab. But have you seen any opportunities there?
I mean certainly, a lot of the work we're currently doing with our customers is very much in a lab environment as well to look at opportunities, where we may be able to test or pre-test for certain things. But I think, certainly, our view is obviously, as it relates to any type of sanitary equipment that's going into a plant, we obviously have safety standards, we obviously have quality assurance in our factories as well as procedures through the engineering of the product that we ensure that, that's done obviously before it hits a production environment. But I think a lot of the current work that we're doing right now in our labs in conjunction with our customers is obviously very fruitful from the standpoint that the customers look at it as an opportunity to not only prove recipes and things like that but also to ensure that the requirements and safety requirements of our customers are taken into account through that as well. So I think that's how -- I'd say that there's a certain amount of involvement that can be done upfront, and we're currently working with them to do that.
Nigel Coe - Deutsche Bank AG, Research Division
A question on the brand strategy. I mean obviously now you're starting to see APV and SPX company, how is that brand strategy going to evolve over time? So as you go, maybe specifically as you go to an ENC or a large dairy, SPX is a relevant brand but maybe that wouldn't be the case in the aftermarket. So just maybe could you just talk about how you go into market and distinguishing between the larger project business and the aftermarket.
Jeremy W. Smeltser
Well, from the very beginning, when we've started to bring our process equipment and our Flow Technology processes together, products and processes, we launch with the SPX. This goes back 8, 9 years when we first came together. We realized that the brands that we have, have generations of value, I mean a great deal of value. Many of them are spec-ed into companies' and engineering documents dating back 20, 30, 40, 60 years. So the brand is extremely important to us. We also realized the brand alone, although positive, it was -- it's still, many of these brands were niche. So when we went -- if we led with the brand, we would limit ourselves as far as the value to the customer. And many times, as the brand went forward, we lost orders because they did not see if we went -- let's say, our German operations with a Bran & Luebbe didn't have the scale and the size as an organization that an SPX does. So we realized very quickly that if we wanted to one, globalize our business, optimize our brands but also optimize opportunities, as Ross said about our platforming our products and being more relevant to the customer, we had to put SPX in front, because SPX will then give that value to the customer and realize that SPX stands behind our brand. So we started branding with SPX first and then putting the SPX brand in front and then putting the brand always associated with it, never de-emphasizing the brand but emphasizing the SPX. And that has worked for us. In many parts of our country, in many parts of our globe right now, our customer refers to SPX. They understand our brands and they understand the importance of it. We don't lose sight of that, but in many cases, that's the lead-in, but the lead may get us in with a Copes-Vulcan or a Bran & Luebbe or a Plenty Process Filtration, but it's always with association with SPX. And that then brings with it a lot more relevance to the customer. And in many cases, we've gone to the customer with the intention of selling a Bran & Luebbe pump and walking out with a Copes-Vulcan and with a Dollinger Filtration system. So it's been a -- we are now further going into emphasizing the SPX, which does have a great deal more relevance now as we've gone through this journey for the last 9 years. We would not have gotten many of these orders, the size of the orders, if we had led with our brand first. Because they just don't see the size and the level of the commitment standing behind it. When we're bringing the SPX in, it's become an easy sell. And then as we’ve brought these additional new brands in place, like Gerstenberg and Anhydro, as we’ve platformed and become this full-system supplier, now they know that SPX stands behind it. And so we have no issues with taking $5 million, $10 million, $15 million, $20 million jobs. So SPX will become a much, much more important or very much more important play. And in all of our products now as you see it, we've dual branded, we dual brand all of our products with SPX highlighted, and then the brand, second. And then over time, we won't lose the brand but we will continue to emphasize SPX further, because SPX has more value to us in a global platform than just the individual brand, and that's where the relevance comes in with our customers.
Two questions for you guys. Back to Slide 25, do you guys have some color by what you're seeing in year-to-date orders by geography? Or if your expectations have changed since the last quarter, where you know you're not relying on Europe as much and you're more focused on Asia growing or U.S. demands is -- your expectations have slightly changed over the last 3 months?
Patrick J. O'Leary
You want to start?
So if you look at our business by region and again, we have had strong growth in each of our regions, as we look at new project builds, specifically, and capital investment, a lot of that tends to get skewed to the more emerging market side of our business. They're reflected in the Asia Pacific growth. And then again, we've had additional growth in some of our more mature markets, a lot of that tends to be more MRO-related aftermarket growth, which is why we must maintain a significant amount of focus on that install base. Because we still do have a tremendous install base based on the history of a lot of these product lines in these mature markets. So that aftermarket approach is more of a component growth story. The capital investment, the larger projects tend to be more on the emerging market side of the business.
You mentioned Systems increasing as a percentage of sales, therefore, aftermarket also growing. Do you have any specific incentives in place for either your distribution sales force or in contracts that you're putting into place to increase your aftermarket exposure?
Yes. What we've done, from an aftermarket perspective and as we again continue to fill out our portfolio, it becomes easier to implement, is try to build an aftermarket structure around each of the end markets. So if you look at our food and beverage space, where, again, as we've talked about, we've got a very mature product line and a very complete portfolio, we have a very focused aftermarket approach from a direct and a distribution standpoint where we have an organization built exclusively around that. So we sell service contracts. Many times on the Systems upfront, it will include some long-term service contracts. And then we have service contracts, service people that are doing more day-to-day service on our equipment. And again, it's that scale and that product scope that allows us to put in that infrastructure. If we look at our other businesses in power and energy and the industrial spaces, we don't yet have that infrastructure yet to service all those brands. So you'll see kind of a mixed model there between a direct focus on some brands, some would be programs and other incentives for our distributors or our rep network. But our goal would be, as we fill out these product portfolios, to be able to build up that aftermarket infrastructure using again, not only our direct people, but our distribution and representative partners to increase that side of our business.
Patrick J. O'Leary
With relation to your question earlier on that Chart 25 that Sheila just referenced, the takeaway does have an error in it, it is not 28%, it's a typo. The average for the whole segment order growth through August year-over-year is approximately 20%. Any more questions for the guys? If there are no other questions then we thank everybody that participated in the webcast today. And at this time, we're going to take the group that's in Copenhagen with us on the plant tour, and so that's where I'll end the webcast. Thank you for joining us.
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