Key drivers and market trends affecting the company
The management of Robit estimates the following to be the key drivers and market trends affecting the business of the company:
Urbanization and construction of infrastructure
Urbanization continues to grow strongly. In 2015, approximately 54 per cent of the world’s population lived in urban areas. By 2050, the corresponding figure is expected to rise to 66 per cent of the world’s population. Urbanization is fastest in Africa and Asia, and is expected to gain 56 per cent (Africa) and 64 per cent (Asia) proportion of urban population by 2050. In 2015, the corresponding percentage for urban population was 40 (Africa) and 48 (Asia). In 2015, the most urban regions were Northern America (82 per cent), Latin America and the Caribbean (80 per cent) and Europe (74 per cent). Continued urbanization is expected across the globe over the coming decades.
Urbanization and the increasing need for mobility of people and goods drives demand for new investments in infrastructure construction, such as highways and subways and underground construction, especially in the emerging markets, where urbanization and population growth are strongest. In the developed countries and regions investments in infrastructure construction are also made to renovate and modernize the existing infrastructure. The concentration of people in urban areas and increasing land prices increases the need for demanding construction and tunneling applications in, for example, tunnels and bridges, underground parking halls or underground municipal water treatment facilities and oil storages that require specialized rock excavation and ground piling and underpinning. Moreover, construction and infrastructure investments increase the demand for minerals and rock material.
Customers’ concentration on their core processes and increased demand for services
The drilling consumables have an important role in achieving efficient and uninterrupted drilling. Any interruptions in drilling process usually lead to substantial additional costs for the customer. However, the drilling consumables constitute a fairly small part of the end customer’s total operating expenses and therefore drilling contractors and mines regard guaranteed availability and consistent high quality of the consumables as important purchasing criteria.
As drilling contractors and mines concentrate more and more on their core processes, their suppliers and service providers need to constantly develop their services in order to maintain their competitiveness. Alternative pricing models, such as pricing based on the amount of drilling or service agreement models, are being increasingly used in purchasing consumables. The management of the company estimates that the customers desire to buy bigger delivery lots from fewer suppliers and the package deliveries become more important.
In the mining industry, the average grades of ore bodies are declining, leading to processing of larger volumes of materials and increase in extractive waste. The declining ore grades in conventional areas force mining companies to operate in more demanding circumstances, such as deeper mines, and to explore ore bodies in new areas often in demanding, remote or unconventional locations. Usually in such circumstances drilling and mining for greater amounts is required in order to achieve satisfactory production volumes of metals. This leads to increase in demand for drilling consumables as well as emphasizes the quality and durability of the technologies and solutions used in more demanding drilling circumstances. In addition, as the mining activity increases in new, more demanding and remote locations the demand for infrastructure building in these locations increases also.
Automation of manufacturing and adding intelligence to products
Automation is increasing across industrial manufacturing and process industries. Automated and robotized manufacturing and automated processes are beneficial and efficient, since they enable, for example, consistent product quality, efficient processes and high production volumes of manufactured products, such as drilling consumables. In the drilling industry, quality of equipment and consumables means also efficiency and is a material work safety factor.
The drilling contractors and mines also seek to automate their processes and to increase their efficiency by using for example remote controlling, automation and robotics. For example, there are projects underway aiming at automated mining as well as remote-controlled and fully automated drilling technology. Digital applications attached to the drilling equipment and consumables improve for example monitoring and measuring of drilling results. When drilling in the urban environment, the automated measuring improves the safety in the surroundings of the construction site.
The importance of intellectual property rights in the drilling industry is also increasing and new techniques can also provide with new opportunities in the future.
Governments, enterprises and consumers are paying more and more attention to environmental aspects, energy consumption and emission reductions. In the mining industry, manufacturers and service providers are increasingly expected to take environmental aspects into account in their operations ranging from supply chain management processes and raw materials to after-sales services and recycling. In drilling consumables, environmental aspects concern, for example, use of raw material as well as recycling of used consumables.
Global energy demand is expected to increase about 30 per cent during the review period of 2012–2040. According to the understanding of the company’s management, the growing energy consumption, governments’ emission reduction initiatives and environmental policies together with volatile energy costs increase demand for alternative, renewable and more environmentally friendly energy solutions, such as geothermal heating and cooling.
During the past decades, access to drinking water has improved globally, but still globally at least 1.8 billion people use a drinking-water source contaminated with faeces. In addition, by 2025, approximately half of the world’s population will be living in water-stressed areas. The management of the company believes that the challenges relating to the water supply increase the demand for decentralized water production and water wells.
Competitive market conditions
The Top Hammer drilling consumables market is relatively consolidated. The management of the company estimates that the leading manufacturers of Top Hammer drilling consumables market are Atlas Copco and Sandvik, although investment products constitute the majority of the revenue of those companies. According to the management of the company, other well-known suppliers of consumables for top hammer drilling applications include also (in alphabetical order) Boart Longyear, Brunner & Lay, Furukawa, Gonar, LHS Rock Tools, Mitsubishi Materials Corporation and Rockmore International.
The Down-the-Hole drilling consumables market is more fragmented than the Top Hammer drilling consumables market described above. The management of the company estimates that the leading manufacturers of Down-the-Hole drilling consumables also are Atlas Copco and Sandvik. In addition to these companies, well-known suppliers of drilling consumables for DTH drilling include (in alphabetical order) Drillco Tools, Drill King, Everdigm, Holte Manufacturing, Mincon International, Mitsubishi Materials Corporation, Numa and Rockmore International.
The field of Digital Services business is not structured yet, and the management of the company estimates that it is not possible to take a stand on who are the competitors. In addition, the company is focused on making use of the technology in the drilling result rather than in the investment products, which many other operators, such as manufacturers of the investment products, are developing their services into. The Digital Services products of the company are designated for use with the other products of the company and so are not replaceable with the products of other operators. The management of the company estimates that other operators who offer digital services or products include Stockholm Precision Tools, Inertial Sensing, Transtronic, Leica Geosystems, Hexagon mining, Trimble, for example.
Market areas by segment
Robit serves customers in four market segments, which are mining, construction, tunneling and well drilling.
General. Mining includes excavating works associated with excavation of naturally occurring solid substances, such as mineral ores. Mining includes, for example, underground and surface excavation and quarrying. In addition, mining also includes exploration services such as taking core samples and making geological observations at prospective excavation sites.
In mining, drilling is used in addition to actual mining, i.e. underground and open cut excavation, in support activities for mining, such as construction of mining corridors for the actual ore, supporting the mining tunnels as well as construction of roads and other infrastructure needed at mining places. The consumables manufactured by Robit are used in both Top Hammer and Down-the-Hole drilling in mining activities.
Market trends and market overview. According to the view of the company´s management, the mining markets are driven by urbanization and infrastructure construction due to the fact that demand for excavated raw materials increases as construction and general well-being increases. In addition, the decreasing mineral content in ores requires mining in deeper mines and more demanding circumstances. New ores are discovered due to new developed research methods.
The demand for mining products is directly connected with the level of mining activities in the area in question. The global increase in mining activities is likely to affect positive also to the demand for machines and equipment used in mining activities in the coming years. The market for machines and equipment used in mining industry, including both consumables and investment products, is estimated to increase 7.9 per cent a year on average during 2017–2022. The management of Robit estimates that the total value of the drilling consumables market used in mining is globally approximately EUR 700–900 million.
General. Construction markets include broadly different kind of construction and technical projects, such as highways, railways, airports, harbors and community development facilities, industrial buildings, skyscrapers and power plants. The construction projects may include entirely new objects or they can be additions or alterations, or maintenance projects. According to the division of the company´s market segments, tunneling has been separated to its own special field and therefore not included in the construction markets.
Drilling methods used in construction are excavation of foundations of buildings and excavation of road cuttings, piling, micropiling and underpinning. Piling and underpinning are used to support soft soil before beginning the actual construction or to prevent sinking of existing constructions. In addition, drilling in the field of construction is used in so called anchorage, in which softer soil is fastened to bedrock, horizontal drilling for inserting different kinds of cables and water pipes under roads and other constructions without breaking the surface as well as sampling drilling to determine the soil in the ground. Drill and blast method is also used in production of rock material required in manufacturing concrete and tarmac.
The consumables manufactured by the company are used in construction as well as in Top Hammer and Down-the-Hole drilling.
Market trends and market overview. According to the view of the company´s management, the construction markets are driven mostly by urbanization and infrastructure construction, especially in the emerging markets, where urbanization and demand for associated infrastructure is increasing. In the industrialized markets, construction requires more demanding techniques, among others, in expanding subway and other underground facilities as well as road network. Usage of drilling piling, which reinforces the foundation, is increasing worldwide and the market seems promising as the projects and operators grow and international contracts expand. The demand for consumables relating to excavation is growing as the buildings reach further down to soil.
The market for machines and equipment used in international construction industry, including both consumables and investment products, is estimated to grow 4.6 per cent a year on average during 2016–2021. The management of the company estimates that the total value of the drilling consumables market used in construction drilling is globally approximately EUR 600–800 million.
General. Tunnels can be constructed in rock and soft ground, in varying diameter to meet the requirements for a wide range of applications. Tunnels are constructed, for example, for needs related to roads, railways or public utility services (for example water supply and electric cables) in congested urban areas or for undercutting of waterways, such as rivers, channels and harbor basins, or mountains. Construction techniques for tunneling based on excavation are drill and blast method applied in phases and excavation with continuously-working tunnel boring machines or road headers. In cut and cover tunnels method, cutting is dug on the ground, and the walls of cutting are supported and the roof is covered in the shape of a tunnel.
Underground construction requires drilling to both excavate and support the rock and ground. The application areas include among others: face drilling, bolting and tunnel roof supporting with for example forepoling method. Face drilling means drilling (for example drilling for blasting holes) and excavation of tunnel. Forepoling is a method used to strengthen the roof of the tunnel, which is used if the soil is soft and loose. In forepoling, the drilling system consists of drilling tubes, which are drilled through the unstable, softer rock material and filled with cement.
The consumables manufactured by the company are used in tunnel construction as well as Top Hammer and Down-the-Hole drilling.
Market trends and market overview. According to the view of the company´s management, the market of tunnelling is most affected by urbanization and infrastructure construction. Especially in the emerging markets, the demand for drilling consumables increases due to urbanization and related required construction of buildings as well as general infrastructure. In industrialized countries, especially infrastructure construction, requires more developed methods due to additional construction taking place, among others, in existing cities. An example of demanding tunneling applications in industrialized countries is expansion of subway network.
The market for tunneling and drilling equipment, including both consumables and investment products, is forecast to grow 5.6 per cent a year on average during 2014–2018. The management of the company estimates that the total value of the drilling consumables market used in tunneling is globally approximately EUR 200–400 million.
General. A geothermal heating system (geothermal heating pumps) utilizes the thermal energy of soil or water to heat and cool buildings. Geothermal heating pumps are energy efficient and may be utilized in domestic and industrial applications. Water wells are drilled in the ground or rock to access groundwater for use in various purposes, including for example drinking water. The depth of the drilled well varies depending on the characteristics of the ground and how deep the water seams are located.
Casing drilling implemented through Down-the-Hole drilling products is applied in drilling geothermal heating and cooling systems as well as water wells.
Market trends and market overview. According to the view of the management of the company, as the energy consumption increases, the demand for geothermal heating and cooling is mostly driven by the need for renewable and environmentally friendly energy sources. Global environmental changes and technological development increase the demand. The need for renewable energy sources is based on broad international aspiration to increase the use of renewable energy sources due to, among others, environmental protection as well as high price fluctuations of fossil fuels. In addition, the management of the Company estimates that the possibility for cooling premises combined with the geothermal heating will open new markets for the Company´s products and the demand is increasingly shifting from traditional Nordic markets to areas, where the use of geothermal cooling is emphasized. Increased depth of the geothermal wells characterize the market. Nowadays the depth of the drilled hole is approximately 300 meters whereas some years ago the average depth was 150 meters. This is likely to increase also the amount of drilled meters. The demand for water wells is globally fairly stable and depends on the increased demand for drinkable water. The Company has got new potential for growth on this market segment due to the expanded DTH product portfolio by means of acquisitions.
The capacity of installed geothermal heating pumps is estimated to grow 12.8 per cent a year on average during 2014–2020. The management of the company estimates that the total value of the drilling consumables market used in well drilling is globally approximately EUR 400–500 million.