Good afternoon, and welcome to Outokumpu 2018 Capital Markets Day, now for the second time here in London. My name is Tommi Järvenpää. I am the Head of Outokumpu's Investor Relations. Today, you will hear that Outokumpu is delivering on its promises. Let us take a step back. Back in spring 2016, Outokumpu announced its vision to be the best value creator in stainless steel by 2020 through customer orientation and efficiency. Linked to our vision, we also introduced our financial targets for 2020, as well as a set of short-term goals that need to be achieved before we can meet the targets and claim the victory. Today, we will show you that we have delivered. Every single one of those goals that we set back then have been successfully accomplished.
We have become a company that is generating value to its stakeholders, customers, shareholders, and employees, even when the market sometimes throws challenges. This journey continues. We remain committed to our 2020 financial targets. Today, we will get down to specifics on the progress we have made and take you through the actions we are taking to close the final gap to the targets. We will have a very interesting program ahead of us today, but before getting started, a couple of practical notes. Safety remains a key priority with us in Outokumpu, and it is one of our must battles. If you hear a fire alarm, please proceed to the exit and continue to the meeting point outside and listen to the instructions from the Outokumpu employees. This event is being webcasted live. I would like to warmly welcome everyone watching us online as well.
The presentation materials can be found from our website, and a recording of the webcast will be available shortly after the event, too. There will be a Q&A session after each presentation, but the main opportunity to ask questions will be later in the afternoon in the breakouts. Last year, we got fantastic feedback from the participants about the breakouts, and thereby, we decided to host a set of very interesting sessions this afternoon as well. All right, let us start delivering. During the next 30 minutes, our CEO will elaborate how we are delivering on our 2020 targets. Please welcome our Chief Executive Officer, Roeland Baan.
Thank you, Tommi. Good afternoon to you all, and thank you for taking the time to join us at this Capital Markets Day, which by the way is interesting reading some of the reports leading up to today. Fairly often I found that there is a remark saying, "Well, we are not expecting that much to come out new out of the Capital Markets Day Outokumpu." Whether it is true or not, you can judge after today. But I would say something else, which is you should be glad if you hear nothing new. Because what we have been doing over the last 2.5 years is quite extraordinary. We have made a tremendous turnaround from a very big low point where we were the laggard in the industry. We have delivered or over-delivered on every single target that we set.
Forgive me to say so, but you should be very happy that we continue this absolutely boring over-delivery forever to come. This is a bit the story that you are getting, is how boring we are in our delivery. Talking about is one thing. Seeing facts is something else. Let me take you back 2.5 years, which is when I took over this company, and when, to be very frank, Outokumpu was the basket case in the industry. We had, in the years 2014 and 2015, accumulated cumulative EBITDA of EUR 300 million. Our two main competitors, Acerinox and Aperam, in the same period, had EUR 800 million. Almost 3x as much. We were a third of what our competitors were doing, and we are bigger. Our balance sheet was a disaster.
We had gearing over 100% up to October of 2015, and only by the sale of our Chinese venture we could get it back to something more palatable of, I think it was 69%. So really not good. We had to do something. We announced, as you know, in March of 2016, the new company vision, which was to be the best value creator in stainless steel by 2020 through customer orientation and efficiency. You have seen this many, many times because every single presentation I give, I start with that because it matters. It matters to you, but it matters to the people in my company as well. You can go to any one of our 10,000 employees and ask them, "What is the vision?" Word perfect, they will say it.
You will see that later as well when we talk about organizational health, how strong that is as a way of presenting your company and getting your people aligned. With this vision, we had a number of targets. I show here the financial targets. Again, you should know these by heart almost because we have been talking about a lot and I read a lot about it as well. People saying, "Yes, the 750 you will get there." Others say, "You won't get there." We say, "We are getting there." How are we getting there? We did a tremendous restructuring and reorganization during 2016. We launched that in March together with the vision. In less than four months' time, we radically changed the organization in the way it is structured, in the way it operates, in its processes, in its procedures.
We moved streams of products around from one plant to the other so that we have an optimal use of our system rather than the scattered system we had. In the process as well, we actually shed 700 white collars, 700 people of directors and up level. 2.5 layers disappeared out of the company. I have had a relatively long career in various businesses and almost always in restructurings. This is one of the biggest restructurings, most perfectly executed, and quickest I have seen, probably because we didn't use any consultants. On our way to these targets, we set a number of other targets as well. One of those, safety. Safety has been an absolute priority in the company.
We came from an abysmal performance where we had a recordable incident rate of 15, which is really high, and we said we will get it down to 5 by 2020. In 2017, we were at 4.4. We over-delivered. Same goes for organizational health. Just to bring back to memory, what is organizational health? This is the Organizational Health Index. It is a McKinsey tool, 1,300 companies in this index. A very large questionnaire that you send into your organization, and out comes a number. It is a temperature of your organization. Why is this important? Because the top quartile in this index outperforms the stock exchanges for the last three decades consistently by a factor of three. The bottom quartile, very consistently, underperforms by half. There is a 6x differential between the bottom and the top quartile.
We did it the first time in 2016, we had 17% response rate out of our 11,000 employees, and we came out at the bottom quartile. Not surprising given the performance of the past. We reconfirmed the statistics. We were committed to get ourselves to the top quartile by 2020. How have we done? We just finalized our 2018 questionnaire. We had an 86% response, which is amazing given the fact that we have predominantly blue-collar workers who actually take the time to sit and do a 25 minute, 30-minute questionnaire. We are now in the second quartile in two years. Talking to the McKinsey guys, they say this is a rarity. We have seldom, if not never, seen a company move up this fast with such dedicated, focused action with, if you talk to people in the company, with such clarity of purpose. We over-delivered.
We said as well we want to be the best value creator to our customers by 2020. How did we do? We improved our Net Promoter Score by 30% in those 2.5 years, more than anyone else in the industry. Actually, I will come back to that later, in absolute terms, we outperform any of our competitors in absolute customer satisfaction. We over-delivered. We said we would do the restructuring in order to set us up for a net debt of EUR 1.2 billion maximum by the end of 2017. EUR 1.2 billion, we said, coming from EUR 1.6 billion. We returned EUR 1.1 billion. We over-delivered. Then we said, very important, our SG&A costs are just too high. We need to get 25% out, from EUR 400 million -EUR 300 million. Today, we are at EUR 260 million. 33% of our SG&A has disappeared out of our cost base. We again over-delivered.
All said, in the nine quarters since we restructured the company, we have produced EUR 1.2 billion of EBITDA. If you look at it differently, I told you the numbers for 2014 and 2015. If you now look at 2017 and 2018, then we will produce over EUR 1 billion in those two years, over EUR 1 billion of EBITDA, versus our competitors, EUR 900 million. We outperform our competitors coming from a position where we were at a third of their performance. We have delivered on all our promises, and we will continue to deliver towards our 2020 target of EUR 750 million. This is where we are. We came from EUR 165 million. We are now at an LTM of EUR 482 million, which is a good proxy for 2018 as we guided that the fourth quarters are more or less the same. Then to EUR 750 million.
If you do the math, you see that actually this trajectory will bring us to over EUR 790 million. But look, we stick to the EUR 750 million. It is good enough for us. We deliver. One of the remarks coming very often is, "But it is so volatile. You are more volatile than your competitors." And we are. You can see that in this graph where 2017 was a blowout and 2018 we are basically back on the same trajectory that brings us to EUR 750 million, which again is good enough, but it is of course volatile. It is to a large extent the benefit and the curse of having our ferrochrome business. But trust me, the benefit is much larger than the curse of having a bit of volatility.
However, to try to put it into perspective on where we are really, we said 2015 was the sort of benchmark in terms of market circumstances, market environment, to which we set our targets. That is a sort of mid-cycle. If we use those market numbers, that market environment of 2015 to correct these numbers against, we have a few elements there. We have tailwinds. Ferrochrome prices were higher, and the U.S. base prices were higher. We had headwinds. Graphite electrode prices, 10x up. European base price, EUR 50 per tonne down, which will have 1.6 million tonne- 1.7 million tonne, is a lot of money. The ferrosilicon price is 30% higher, and then truck freight prices we talked about in the U.S., 15% up is EUR 15 million headwind. Altogether net net, we had a headwind of about EUR 100 million.
If you then redo the graph that I showed earlier for the underlying, you will see this, that actually 2017 corrected for the tailwinds was exactly on the trajectory. That 2018 was already on the trajectory in its normal numbers, but now actually shows that we are over-performing. We are running ahead of the trajectory that we set out to get to EUR 750 million. I just want to make that very clear because up to now we have been talking a lot about it. Getting perspective of history and put it into the trajectory shows you that we are delivering and performing. Now, of course, looking forward, because you are very interested in how we are going to do when we move on to the next phase. What do we expect? We might expect a sort of stabilization of where we are today.
Input cost levels are not rising at the moment anymore. We see actually a slight reduction in electoral prices. We see the trucking costs in the U.S. coming down a bit. We think it will stay at a relatively high level, but it will not go up. If anything, it will give a little bit of leeway. Then Section 232. We said it, we predicted it, there will be deflection. As soon as Section 232 is effective, port will be deflected from the U.S. to Europe. It happened. Unfortunately, the preliminary safeguards have done up to now nothing to help the market. There are some reasons for it.
One of them is that between February, when the European Commission announced that they would investigate safeguards, and July, when they were announced, that gave four months of exporters to basically press as much as possible onto the European market, which was easy because already America, the U.S. was closed due to Section 232. We saw an enormous increase in imports leading to imports becoming 33%, one full third of consumption in Europe. When the safeguards were announced, the big design error was that material already on the water was exempt. A second tsunami came of material exempt from quota into the market. The quota only started filling up somewhere in October. You could say that the safeguards were well-intended but didn't do what they had to do.
However, going forward, we expect that the quota will stay the same in the permanent safeguards, which means that it comes down to about 72,000 tonnes a month, which is equivalent to about a 22% market share. We expect that over time, as the overhang of material is being taken out of the market, we will go back to a run rate where imports represent 22%, 23% of the market rather than the 33% we have now or the 27% it was during 2017. So stabilization. A good thing, ferrochrome is expected to become tighter. The stainless steel market is growing, the demand for ferrochrome is going up, and it's not a very elastic supply situation. In order to boost supply significantly, it needs big investments, and that will not be fast. We see that clearly tightening.
Altogether, and that's the clearest message I can give, our 2020 financial targets remain unchanged. We are fully committed and confident that we will reach EUR 750 million of EBITDA at minimum of 12% return on capital and a maximum of 35% leverage. How do we get there? Because there's a EUR 270 million gap. We get there with two big buckets. Commercial, EUR 110 million, efficiency operational, EUR 160 million. Where does it come from? EUR 110 million commercial income from EUR 50 million actions in Europe and EUR 60 million in U.S. I will not go in depth into it because Mike will talk very deeply in his main session here about this, but then in the breakout session again, we'll do a deep dive in the commercial side in the U.S. where there is tremendous opportunity still. Don't forget that mill only started up six years ago.
Six years ago, we plunked into the center of the U.S., the third largest market in the world. We plunked a machine that could satisfy 30% of consumption in that market. It takes time to get your commercial position optimized and into good order. On Europe, Mac will go deep into the EUR 50 million commercial. Of course, the market growth there is a big element. If you look at the efficiency measures, we see a whopping EUR 100 million still coming out of Europe. Again, Mac will address the specifics. Another EUR 40 million coming out of the U.S., or the Americas, where Mexinox restructuring is a big one. You are all good at math, so you see that EUR 140 million is here on the left, EUR 160 million on the right. That seems to be a gap of EUR 20 million. Don't worry, it is there.
This is Long Products, Ferrochrome, and a few other efficiency things in our general operations. These are the big numbers. Again, looking at putting it into perspective, where does it go? We come from EUR 165 million in 2015. We have already delivered, I do not know whether you realize this, we have delivered EUR 320 million of efficiency gains in 2.5 years. We have delivered EUR 100 million in commercial growth. Very little volume, most of it value. Just pure value selling, both in the U.S. as well as in Europe. To go the EUR 270 million, set against what we have done, I know it is hard work, but it is absolutely not impossible given the track record we have already there. We are operating in a growth industry. This is one of the things that we should not forget.
If you look at base materials, there are very few base materials that show the growth that we have in stainless. Carbon steel, its intensity is going down. It is projected to be somewhere at the 0%- 0.5% growth for the next decade. Our material has been growing at 5% CAGR for the last three decades. It is expected to grow from 4%- 5% for the next decade as well. Of course, it is growing. That is great. There are counterweights as well. We see global cost pressures. We see intensifying competition. We are very confident that with our model, and what we have shown as well in the past couple of years, we will be able to actually take advantage of this growth rather than be pushed away by the competition that is coming in. This growth that we are talking about, where is it?
You can see here, we see about 20% going up in the next five years. As I said, about 4% CAGR. It is very much equally divided between the segments. We are basically very well positioned in all these segments. We are actually, if you look at building construction architecture, that is where we probably have the relative largest market share, where we actually punch way above our weight. That is why you see a 28% growth. We are pretty well into automotive, but given the volatility of automotive, I am very happy that we only have 13%. Consumer goods, 18%. Oil and chemicals have really a well-spread portfolio. As I said, we will be able to take advantage of this growth.
Actually, not only will we get our share of this growth, we will get more than our share of this growth because we have competitive advantages that our dear friends, competitors, do not have. First of all, sustainable solutions, and I will go into detail into that. We are the most sustainable producer in the industry. Digitalization. Jan will have a special session on digitalization. It is not that we hang our head on it, but it will have great impact on how we operate. We are way ahead of the curve if you compare it to our stainless competitors, and even within the steel industry in general, we are absolutely at the forefront of digitalization, our platforms, and where we are going. Then customer satisfaction, as I said, we are number one, and we will extend that position. Back to sustainable solutions. What do we have?
And don't forget, today's sustainability is almost a financial penalty if you don't have it, but it will be the financial opportunity of the future. It's where you are going to start making money, because those who are not sustainable, ecological, et cetera, will not compete in many markets and in many OEMs. Just a case to show what it can do, what the capabilities of stainless steel are. This bridge was built in 1975. It collapsed, literally after many repairs, it collapsed in 2010. 45 years lifespan. It was rebuilt with stainless steel. A 60% lower carbon footprint versus what it would have been with carbon steel. First of all, because this bridge will be there for 100 years at least. This is not just a number because it's nice, 100 years. No, we have tested the materials. We have done all the time testing.
It's there for 100 years. It's low maintenance, and it is totally recyclable. In the end the life cycle impact, 60% less carbon footprint, and on top of that, a lot lower cost. Just as an example, if you take the Eiffel Tower, one big structure built in 1889, I think. Stainless steel was not invented yet, otherwise they would have built it out of it. But it was carbon steel. That thing has to be repainted every seven years. There's an army of painters climbing all over it. They put 60 tonnes of paint in it. It takes 2.5 years to go through it, and by the time they're done, they almost have to go back down, start scrubbing everything, and preparing for the next paint job. The thing has been repainted already 17 x.
The cost of just that painting, I'm not talking about anything of the other maintenance, just the painting, is 3x the cost of building the Eiffel Tower. Now, if these poor guys had built it out of stainless steel to start off with, they could have built three or four of these things at the same price as what it has cost now, because it's virtually without maintenance. Of course, we are the world leader in sustainable steel production. If you look at our energy intensity, coming down year after year after year. We are, in terms of energy use per tonne, we are amongst the most efficient companies in the world. But more, on CO2, we have not only come down every single year, we are actually 40% lower per ton ne than the average in the stainless steel industry.
If you look at recycled content, we actually, year to date, are now at 89% of recycled content in our production. The next one is at probably about 72% or 75%. We are way ahead for anyone when it comes to sustainability. That brings me to, again, our ferrochrome. Ferrochrome is a big element for our ferritics, and actually is 35% of the carbon footprint of stainless steel. We have the lowest carbon footprint of any ferrochrome operation in the world, by 60% less. This is stuff that is going to bring us business, because we have things that especially the Asians who use NPI, et cetera, do not have. This is where we will be way ahead of any competitor in the future. Talk about digitalization. Here you see a little bit what the areas are. Again, Jan will talk in detail.
Doesn't say AI and robotics. We rather call it learning machines rather than AI. We have launched several pilots already in this space. We are implementing our single platform that enables most of, if not all, of these moves. We are far ahead. Cutting to the chase, what does it tangibly, what gives it to us? Over the next five years, it will unlock 100,000 tonnes of new capacity just by being more efficient, more streamlined, working our assets better. It's very low investment with high return. It releases 20 days of inventory, which in itself is a few hundred million EUR that we would release in terms of capital. It ensures much better customer experience still, shorter lead times, increased delivery reliability, and of course, because of the binding in of the customers well into our systems, higher customer satisfaction.
This is while we are already the best value creator to our customers. 63% of the market of our customers is absolutely all very satisfied with our product and our service, versus the next competitor, 58%. We have a target of 75% here. 75% is not, again, a nice round number. 75% for any business is in the top decile. We want to be in the top decile of any business, whether it's steel or Amazon, we need to be there. This is our target, and we will be there in 2020. We are the best value creators to our employees. Said it before, OHI from the bottom quarter to the second quarter in two years. To you, interesting as well, and maybe you have not seen this before, we are already the best value creator to our shareholders.
If you take the journey from the 1st of January 2016, when I took over, to today, we have delivered 42% of total shareholder return. ArcelorMittal a negative 13%, Acerinox a paltry 9%. I think we can claim to be the best value creator at this stage. We have delivered on all our promises. On safety, we have reduced our accident rate by 70%. We put a debt down by more than EUR 500 million. We moved our organization up two quartiles in the Organizational Health Index. Our SG&A costs are more than 30% down. Our customer satisfaction is 30% up. Our nine quarters adjusted EBITDA is EUR 1.2 billion. We have delivered on every single point, and we will keep on delivering. EUR 110 million commercial, EUR 160 million on efficiency gains. We are determined to execute this to perfection as we have done in the past.
We will achieve our adjusted EBITDA of EUR 750 million in 2020. You know why? Because we deliver.
Thank you, Roeland. We are ready for the first Q&A. Just would like to remind you that please state your name and company when answering the question and wait for the microphone as well. Another reminder, we also take questions online. Anssi was the first one over there.
Great. Thank you. Anssi Kiviniemi from SEB. Quick question on past. You had that slide from 2015 to last 12 months, improvement of EUR 420 million in EBITDA in your internal execution. The SG&A is the most perhaps evident part, but could you elaborate a little bit what else you have done, pinpoint what exactly are the key drivers for the efficiency improvement?
Well, it's especially SG&A is one. The other one is that we have a very clear target on productivity. We have a unique system in following our productivity. We do not do projects and then deliver the projects and then say, we made it. We actually measure both our savings by projects as well as the leakages that might come out on what you do not concentrate on. So we manage both the base and the projects. We have a 3% productivity gain a year throughout the company as a target. We have achieved in the Americas, and this is by heart, I don't have that, but I think it was about 6% or 6.5% in 2016. We delivered another 5.5% in 2017. We are up now about 4% in 2018. In Europe, we delivered about 4.5% in 2016.
Just over 3% last year, and we're now hovering at about 2%. So if you looked at on our total operating base, those are buckets of money that comes in. So it's purely, and Martin will talk about it's purely the operational effectiveness. It's a manufacturing excellence drive. I don't know whether you were there when I first talked about our vision. But my own vision, my dream, is always by having this manufacturing excellence rolled out through the company, where you have best practices immediately adopted and then improved and then readopted throughout the company.
Ultimately, I would be able to be dropped blindfold in any Outokumpu mill, and the only thing I would see, could see, is that it is an Outokumpu mill because it is running the same way, it has the same organization, it has the same layers, which is three layers from top to bottom. It has the same visual manifestations of how you operate the equipment. The only thing I would not know is where it is, because they are all the same. That is where we are going, and that is what I see happening, and that is where the money is coming from.
Cedar.
Oh, yeah.
Cedar Ekblom from Bank of America Merrill Lynch. I have got two questions. Firstly, on your EUR 750 million EBITDA target, in terms of the outlook that you have provided, you have spoken about lower costs, import safeguards providing some kind of boost to the European market, and improving ferrochrome price outlook. Can you talk about why you think prices should be higher in the European market from here? I assume you are baking in some kind of price improvement to get to that number. On the ferrochrome price outlook, we see a weaker rand in South Africa, and we also see a lot of PGM producers trying to extract as much chrome or byproducts to lift their own profitability. Can you talk about why you have got a bullish view on ferrochrome pricing? The second question on the import safeguards-
Third.
Okay, third question. On the import safeguards, can you confirm basically you are not expecting any change to the current quotas you said for the final?
Before I forget all three of them, let me start answering. On the first one, we actually are not talking about a big increase in pricing in Europe. We are talking about a stabilization of pricing in Europe. So in our plans, you do not find anything baked in, maybe EUR 10 per tonnes or EUR 15 per tonnes, but that's about it. We're not looking forward at huge hockey stick pricing. It's not happening. On ferrochrome, it's not just our view. It's the view that actually our austere colleagues of Goldman Sachs have been looking at it. The people from Glencore, who are, I would say, pretty important in this space.
Biased.
Biased. Very well. It is ultimately, you have to look at how much can you extract. The fluctuations in between are very much a result of is China buying or not? And you see this all the time. Currently, China is not buying, so the price is taking down. If they start buying in two weeks' time, it will come up. Overall, just the longer term is that there is not enough new capacity coming on to satisfy the demand sufficiently. On the safeguards, we do expect a few changes. We do not expect so much of a change in the quota other than that the quota will be reduced by the volume that South Africa is actually importing into Europe, because South Africa is exempt and erroneously had been taken into the quota. It's now going to be taken out.
The second one that we are pretty confident about is that it will be country-specific rather than global. The third one that we are less at this moment confident, but I would say with an 80% certainty, is that it will be calendarized on a quarterly basis rather than a yearly basis.
Indonesia wasn't part of the original quotas because imports from Indonesia have been quite low. Obviously, there's a lot of capacity being added in Indonesia. Do you think that Indonesia will potentially be included in the quotas?
Again, two things. You have the 3% rule for developing countries. We have requested, and I think that is acknowledged by the European Commission, that there is an automatic trigger if you go over the 3% then puff, you are in the quota. But at this moment, actually, Indonesia is at 6%. If you do the measurement today, they are automatically into the quota.
All right, time for one more question. Over there.
Thanks a lot. This is Krishan from Citigroup, and congratulations for the very strong message on EUR 750 million EBITDA by 2020. Going by your chart of EBITDA accruing or growing in a linear kind of a fashion, is it fair for us to assume in our models that okay, the EUR 270 million of efficiency gain will accrue linear way, like half up in 2019 and 2020? If we assume that way, if you are comfortable with that, are you guiding for close to EUR 600 million over EBITDA for 2019 in that way?
We do not guide for annual results, as you know. It is not linear because some of them are linked to projects that will come on stream later on than others. It will not be one linear thing. It will not be overly back-loaded either. But I would say it will be more accelerating than anything else.
Okay. The second question, in 2017 or the past, say four, five quarters, the operational disruption, especially on the maintenance or the ferrochrome side, has been a key part of sort of volatility into the numbers or profitability. Now, since you've mentioned, okay, you've done a lot of restructuring and a lot of new process streamlining, how confident you are that you are not going to see any kind of out of ordinary operation disruption or maintenance kind of a shutdown?
Yeah. So our five-year vision is always cut into yearly missions. The first mission that we had in 2016 was a radical change in how we do business in order to set it up for the maximum EUR 1.2 billion of debt. The mission in 2017 was competitiveness, just to make our cost competitiveness with our and we measure that with specific KPIs for every mission. 2018 mission was reliability. Reliability of assets, reliability of how we deliver to our customers, reliability of our administrative functions. That has been our sole function, sole focus, and I can say that we have done extremely well. We have had, and there's no wood here, but I don't need any wood because it's something that we do ourselves. We have had absolutely exemplary performance from every single mill. We had no incidents. We had no unplanned stoppages of any size.
I am extremely confident that we are stable.
Thank you. Thanks, Roeland. It's time to move on.
Yep.
As said, there will be more opportunities for discussions later in the afternoon. This year, I have heard we have seen extremely difficult markets in Europe and historically low base prices in this market. However, even in this extremely difficult market environment, we have been able to show that our Business Area Europe is generating solid earnings and creating value. Next, the Business Area head of Europe will explain how we continue to unlock significant value. Please welcome Mac Gwozdz .
Good afternoon, everybody. When I was sitting around 2003 in Fontainebleau at INSEAD listening to Professor talking about manufacturing in Europe, there was a classroom full of people representing various industries. He said that it actually takes one thing to do manufacturing in Europe over two decades, and it is you have to be the best. It is not only being the best in Europe, but being able to compete globally. Some of the companies present at this table and some of the people are no longer in business because through 2008, they were pushed out of the business. Some of them struggled over the last few years. Outokumpu was one of the companies that did struggle quite a lot.
My vision and my mission with the team is actually we need to make sure that the European business of Outokumpu is profitable even in difficult market conditions, and we can survive even through intense import competition. We have seen that our underlying business has improved significantly over the last two years. While the market conditions are extremely hostile, we are still delivering cash and delivering profit in this environment. We see that the European market is in complete imbalance. The import surge over 20%, 30% in certain months, leading to imports going to 30%, 32%, 33% of the market share, is something that is actually unprecedented. We are actively working with commission and with colleagues from steel industry to try to restore that, because even within WTO, the unexpected events like Section 232 give rights to act. We have been successful to put the safeguards in place.
Roeland have discussed about the efficiency. I am moderately optimistic on how it is going. Having met Commissioner Malmström a few weeks ago, she made a clear statement that the safeguards will be permanent. My head of finance is in Vilnius today, meeting both Commissioner Malmström and Director -General of WTO to discuss about the steel over capacity and what is happening on the European market. There is a lot of things happening right now. But we are not waiting for safeguards to come and rescue us as cavalry. Between the raw materials, general procurement, and operational efficiency, we have the projects identified and in motion that will bring the run rate that will give us additional EUR 150 million profit in 2020.
I can recall sitting with my procurement colleagues over two weeks ago, when we went project by project and confidence level, and there is also a bit of a buffer on top of what we have seen there. We also deliver in Europe on things that are important and critical for us. The key priority is safety, and over the last two years, we actually have improved our safety by 50%. So from the situation when we were the middle of the pack of the safety in the industry, we are now almost leading. This is cultural.
When you go to our operations and have a meeting early in the morning, every day, when the teams in Sweden, Finland, Germany, are discussing safety, are going through risk assessment, are going through near misses and making sure we eliminate them, this is the same type of the culture that we apply to our quality performance, our yield, our customer satisfaction. So from the beginning of the journey, when the change and transformation was very much top-down driven, now we have much more ownership and much more lower-level leadership driving the important things for us. You can see that in the Organizational Health Index results. In my area, over 73% of employees have stated that the vision is clear, the goals are clear, and the strategy is driving us to get there. One of the key items for us is the raw material cost structure and efficiency.
I will talk about that more, but the most disruptive business model in stainless steel is Indonesian Tsingshan model with the Nickel Pig Iron and how they drive the nickel unit value. We are finding our ways to remain the competitor in this difficult environment. So while it will be extremely difficult to match the Tsingshan model, we are quite bullish on our ability to be at par with the Chinese cost of material coming into Europe, and we see we can compete still. We have generated EUR 90 million production cost savings, and Martin will take you through the planning, how we add to it over the next two years. Market this year. As you all know, we had extremely difficult import situation, resulting in the base price in Europe going down by around EUR 160 per tonnes.
We have suffered the graphite electrode prices, and also ferrosilicon hit us quite a bit. So calculating, we had over EUR 200 million of the headwind hitting us this year. We are not expecting that it will get significantly better next year, but we are not expecting any further deterioration, particularly as a lot of this input material pricing was driven by Chinese development, and now we see that the market in China is slowing down. We also didn't see last year the events like hurricanes in Texas hitting the nickel production. So this stability is going there. Also, I have met quite a number of Chinese companies that are manufacturing graphite electrodes, and we have seen starting already last year, a lot of new capacity being brought upstream. So in commodity market, usually what the effect will be in a year or two when all this new capacity will come upstream.
If you look at our underlying performance, compared to 2017, we are actually ahead in operational and commercial performance if you deduct the headwinds. What is particularly hitting us is the market balance. When we look at the import flows in October and November, the imports are still quite high compared to previous year. I think October was 20% up compared to 2017. With that high imports, the quotas are filling in, so we can actually expect that January will be down to around 70,000 tonnes. If the quotas are quarterly, then you can expect pretty much monthly inflows of 70,000 tonnes in 2019. European market is growing. The growth is not as impressive as the global growth. Particularly, this forecast is quite bearish, because it is done in October.
The good part for us is while the commodities are not really growing, we can see that the premium grades, particularly driven by oil and gas and chemicals, as well as architecture, is moving up. We are over-represented in this market segment. For the premium grades, we have the global position of around 50% global demand being manufactured in Outokumpu, and we do benefit from them. As I said, we are on our way to deliver EUR 150 million. It is split with EUR 50 million of commercial growth coming from higher volume and richer mix, and EUR 100 million coming from efficiency gains. Starting with sales, we are not only selling stainless steel, we are actually selling stainless steel solutions and know-how.
We have a number of examples where our Pro family grades have tremendous growth this year, actually to the extent that we need to distribute our Pro family grade production because our Swedish assets are fully utilized right now. One of the good examples is Ultra Grade, which is currently used for scrubber manufacturers. This is the new trend coming from stricter norms of the marine fuel and, as the limits are coming higher in 2020, the demand is really, really strong. Another area is the state of our facilities. We have a combination of Tornio Mill, and I will talk a bit more about it, but the unique setup with ferrochrome integration.
Then we have our Swedish mills that are unique in terms of Pro family grades production, and then our presence in Germany with over 50% market share, where our mills and distribution centers are delivering unique value to customers through very short lead times, specific quality requirements, and that all putting our long-term commercial efforts. I had a review with my teams over last week on the annual contracts for next year. Actually, they are very successful making sure that our base of annual contracts is similar or slightly better than in 2018. We had a bit of concern about that going into the annual contract negotiations, looking at the current pricing situation, but overall trend is rather positive.
And part of that is coming from the fact that we have unique offering on our Pro family grades, that we can do combined selling between the commodities and the high-end production. And over the last few years, our share of Pro family grades have increased by 10%, and we see that trend continuing over 2019. We can see that our booking forecast and booking outlook for the Swedish mills is actually strongest in quite a few years. We are booked a few months ahead for the Pro family grades. And the Pro family grades have given superior margin, and it's not only coming from what are the properties of the materials, and it's not coming from us being currently the only manufacturer that can run them with very high yields, but it's coming also from the fact that they are integrated into our R&D pipeline and they are integrated into our service offering.
So when we are working with customers, getting customer feedback on the satisfaction survey, we are actually going to selected customers and asking them, what are they expecting from European manufacturer? What are they expecting in terms of lead times? What are they expecting in terms of quality? What they are expecting in terms of R&D involvement? Just a few weeks ago, I was sitting together with Roeland, with one of the major tier 1 automotive manufacturers, and we've discussed that they really appreciate the fact that we are present in the room when they are going through material selection and they are designing the future platforms. So we are the one guy in stainless steel who is invited to the table to discuss whether stainless is alternative for aluminum, carbon, or other material.
Then we have superior network of service centers, both coil service centers and plate service centers, which gives us the customer proximity. But also, for example, now we can see that south of Europe, the pricing of commodities is really low because of the imports. But our average pricing is still pretty okay because we can extract the value through our service centers. So we are not that exposed to imports as some of the other players with less of the network. And when I look at the growth and when we discuss the product strategy for the next five years, it's a dual path or something like sandwich strategy, because we are very keen on our premium grades, where we have technical expertise, where we have unique efficiencies in Swedish system, and we have strongest R&D.
But we are well aware that we don't want to be a niche player just with the premium grades. So we work very hard on our cost base, which is coming from raw materials, it is coming from operational efficiency and also general procurement, because we want to be able to undercut the competitors on our cost structure. So we can choose which volumes are we manufacturing, and we are not forced in the price war. A very important factor for us is our access to the markets. We are certified with Japanese Industrial Standards JIS, which is opportunity for us with the trade deal between Europe and Japan coming in motion around February, March. So we will have unrestricted access to Japanese market, and we have certified our mills in Avesta and in Tornio, so we have access to this market.
We are certified on NORSOK for oil and gas. We have the certifications for nuclear. We are IATF certified in Germany. We are certified for Indian industry standards, so we have actually global access to our quality performance. Very important, lowest carbon footprint. We are actively working with European Commission to reflect the fact that European manufacturers have superior carbon footprint. I would say we can expect that over a number of years, it will be increasingly recognized to the state that something like carbon tax on the border of European Union might be possible. Efficiency gains. Raw material optimization and the cost of nickel units, general procurement. We are coming from the company that was a bit of silo mentality between the countries and not necessarily as progressive in low-cost country sourcing.
We were sourcing two to three years ago, mostly in the radius of 100 km from the local mills, and this is something which we are pushing very hard. We have discussed 3% annual productivity increase, and Jan will talk a lot about general manufacturing and sales. For me, it is very important that the AI machine learning is already in-house. We already have benefit. To your question about the ferrochrome stability, using IBM's Watson was one of the factors that enabled us actually to have the record production in ferrochrome ever in last three months. More on raw material. We are optimizing scrap value, working with our partners. We are working a bit on circular economy, making sure that we pick up directly from our customers, the scrap.
We are also investing in the scrap processing so we can get the access to the most efficient scrap, even removing oil, removing other obstacles. It is well on the way. We also increased the use of alternative nickel units, and there is quite a number of projects in there. One of the examples, as you know, when we look at the batteries, the nickel from recycled batteries cannot be used for producing new batteries. We are working with the partners, giving us access to this recycled batteries nickel, and it is quite efficient way. We are also optimizing our ferronickel portfolio, and we ran a number of pilots using NPI, and that gives us flexibility to choose the optimal mix for our production. The projects that are in pipeline for the next 13 months are totaling in around EUR 40 million savings on raw material.
General procurement through category management and global sourcing, we expect around EUR 50 million saving coming over the next 12 months. When we enter 2020, we have the run rate supporting the achievement of the vision. Quite unique feature that I brought from my previous industry is the fact that we are working through matched pair concept. Procurement is not working with isolation. Every procurement lead has a sparring partner in operations, and they have joint responsibility for delivering those savings, because that is making the change easier and it is faster in removing organizational barriers. On productivity improvement, we are using the tool which is actually called Wave. We are not discussing about generic productivity improvement, but we have it distributed between the projects. For every facility and every month, we have identified what has to be delivered.
In any point of time, you can check whether we are on track or we are not on track. We have single operating system. We are driving working capital reduction and reliability is a very important part of it. One of the examples, it is actually the beginning of additional 100,000 tonnes of capacity and sales, is what we have done in Tornio melt shop number two. This is the most efficient, cost-efficient melt shop we have. We are actually compared to first half of this year, already 50,000 tonnes ahead in terms of monthly capacity. We have additional few actions to be completed and that gives us, with very limited investment, additional 100,000 tonnes of capacity. This is also the melt shop that is facilitating highest scrap utilization. From improved mix, we have EUR 10 million savings. It does not stop here.
With the 100,000 tonnes of melting capacity, we can push it further through our system to actually deliver 100,000 tonnes of cold rolled. The digitalization initiated in Tornio will turn Tornio into first stainless steel mill, fully digitalized by 2023. What I mean by this, we will have the closed-loop manufacturing with the common platform provided by our strategic partner, which Jan will talk more about. The benefit for us that currently the sensing technologies, the neural networks are becoming available. It is no longer elitist technology. It is no longer something you need multimillion investment. It is something that we can actually do with limited initial investment and then roll it out across the company using the savings coming from initial projects. It is well on the way in Tornio.
We are also working on digitalizing our mine, and the team is very active there, and we are confident that by 2023, we will have the benefits across our global operations. The last point is we are looking what further benefits in terms of CO2 footprint and also in terms of cost of nickel and chrome units we can get looking through the waste material of our own operations and also things that are available on the market but not fully utilized. We are looking at the technology opportunities, and we are also working with our key partners. When I go beyond 2020, I can see that there is further opportunity for us to improve the competitiveness. We continue to unlock significant value. We have delivered a lot and in hostile environment, we are competitive. There is no risk to our stability.
Within the next two years, by delivering additional EUR 150 million, we will become the top value creator in stainless. Thank you for your attention.
Thanks, Mac. All right, time for questions. Who would like to go first? Peter.
Can you talk a bit about the ERP systems and what you inherited and what you are investing in, and how important they are going to be for improving the performance going forward?
The ERP?
ERP.
Yes. We inherited the landscape that was quite fragmented, as you can imagine. We are driving the Project Chorus, and this will result in end state in single consistent system that is driving our operations. We are in testing phase in our operations in Germany, where we go live early next year, and then we go operations by operations. The end state is one ERP instance based on SAP HANA. It is covering operations and all the support functions, and it is also giving us benefit of centralized functions with our shared services in Lithuania and Mexico. It is enabler also for the further digitalization.
When do you get to that point where it's one ERP system?
In Europe, we'll have one ERP system in the major locations by 2020.
Johannes.
Hello, it's Johannes Grunselius from Handelsbanken. Two questions. You don't mention cost inflation when you talk about 2019 and 2020 targets. Is that because you foresee inflation be so low on the cost side, or are there areas where you actually see cost inflation?
The EUR 50 million savings on general procurement is net of saving activities and some limited inflation. We believe that on a lot of items, the cost have peaked in 2018. We have some others where we see the risk, but the overall EUR 50 million saving is net of inflation.
Then perhaps, I am not sure if this is a part of the capital markets, but I am just curious. It is a very depressed nickel price. Could you elaborate perhaps a little bit on how customers are thinking or the behavior of the customer when the nickel price is low? I guess you have some positive and some negatives. I guess you are becoming more competitive versus Asian producer, for instance, but on the other hand, it has an impact on apparent demand and so forth. Could you perhaps touch upon the dynamics because the nickel price is down now if we compare to previous months?
I think my preference for nickel price is a stable price around EUR 10,000 because stainless steel is becoming more and more competitive versus alternative material, and the stable price is eliminating the speculation in the market, giving more stability. I think for the end users and customers, their preference is similar. The high volatility in nickel price is mostly supporting the speculators. How does it look? You have seen that the spike in nickel was actually initiated, I think, last November by the conference in London when there was a lot of hype about electric cars and the usage of nickel in that. Then people realized that the electric cars are not coming that fast, and actually the consumption in electric cars is marginal. Unfortunately, this is the metal that is driven by sometimes rumors.
Do you see any difficulties, or is it sourcing of your nickel through scrap getting more difficult with the low nickel price?
No, it is not.
No. Okay.
Yeah, Menno.
Thanks. Menno with Morgan Stanley. Just two questions. First of all, the scrap savings or the procurement savings for raw materials, which are very significant. If I remember, in Q3, you had very significant scrap benefits as well, which offset the weak prices. How unique is this to Outokumpu? These must be close to EUR 75 million-EUR 100 million a year of savings. I mean, Acerinox and Aperam are clearly not sleeping. So how unique is this, and how sustainable is this over the two-year period? The other one is on. Well, answer this one first.
Okay, so everybody's trying to get the benefit of working. We have the benefit in Europe of being the biggest, which is giving us a bit of advantage. But I strongly believe that more sustainable advantage is coming from the way we run our assets. The way we blend the scrap, particularly if you look at the Pro family, when you need unique metal mix in those. So that's something that I think we do better than the others, literally, in terms of planning and in terms of blending. Also our investment in making sure that we get access to the local markets, and we can get access to the cheapest possible metals. It might be unique. I can't tell because I don't have full visibility on what the others doing. I'm pretty sure they're doing their best as well.
Sure. Okay. On the commercial growth, how much market share gain have you built into this?
Actually, not that much. We look at additional 2%, assuming that safeguards will have some effect, and also coming from our ability to push more progress and to push a bit of more of the standards. We look also at our annual contract negotiations, which are pointing in that direction. But the commercial growth is also our service solutions. Not necessarily pushing coils to the market, but investing further in our service center network and making sure we can get more direct customer access.
I should have asked the CEO, but you talked about sustainability, and obviously, we care, but Indonesia doesn't care. So why is it relevant?
It is relevant because of the mood that you have in European Union. So we have more and more discussions about carbon footprint. We have more and more pressure into car manufacturers, white good manufacturers to actually report their carbon footprint. So if the carbon footprint of Outokumpu Steel has 20% of CO2 compared to Tsingshan, it will make its way in the system one day. I'm not saying tomorrow, but it will. So that specific advantage is not baked in our short-term plan. But if you look at the 2025 outlook, I'm pretty confident that we'll start seeing the result of it. I was meeting Commissioner Cañete a few weeks ago, as well as Commissioner Bieńkowska a few months ago. So both commissioners are pretty strong about it.
We are working also with Eurofer on proposals for lean steel CO2 standards that could, for example, be used in the public tenders within European Union, it is getting pretty positive response.
Thanks.
Thanks. One more question from Carsten or from Bastian. You can decide which one wants to ask the question.
Let us take both.
Yeah. Okay, we can take both.
Thank you. I just wanted to follow up briefly on your productivity gains and the digitalization. Are those basically the same? Is basically the 3% productivity gain leading to the 100,000 tonnes higher output, or are those separate? If so, could you put a number to the productivity gains as well, please?
Thanks, Bastian, for the question. Productivity gains and 3% is something that we are driving through manufacturing excellence and traditional tools. Digitalization is coming on top of that. While we will see the additional 100,000 coming, till 2020, mostly through the traditional measures, the digitalization is taking it beyond. When we look at responding to market in the next year, we see some benefits, for example, from yield. We see some benefits from reduced consumables already. Digitalization, I would say the big wave is in the next five-year vision.
I imagine this must be an internal learning process. Are you working together also with external advisors on that front? Because it is obviously something very new and I think something which some of your competitors are working on as well, but no one is really talking about it.
I don't want to spoil the message and the punchline of Jan, but we have signed the contract with one of the key companies driving the digitalization recently. We have a partner and we have a platform, and we also have a clear vision and clear strategy. That makes me believe that we are most advanced in stainless, comparing to what we've seen from competitors.
Thank you.
The first pilots working with the partner are going live actually now.
All right. Now the very last one from Carsten.
Thank you very much. Carsten from UBS. It is on the same line, the 100,000 tonnes increasing Tornio melt shop capacity. I am always getting a little bit nervous in the market apparently too, that if we see debottlenecking, which leads to higher capacity, at the same time we are talking about protectionism, that is some stuff which does not really work together. So either we are getting the volumes stuck as it is right now and increase utilization rates and have an argument why we actually ask for protectionism, or we debottleneck. Because you are not the only one, 100,000 tonnes here, Acerinox another 100,000 tonnes, then we are trying to drive about 20,000 tonnes a month in imports. It just does not add up for me fully, because where should actually the margin expansion are coming from when we actually try to get always to the next level with the capacity?
Okay. In terms of the melting capacity, it is specifically melt shop number two in Tornio, which is the most cost efficient because previously we were taking the slabs from other mills that are less cost efficient. Then we go to the system, we are still selling hot rolled. We do not need to push 100,000 tonnes of additional capacity to the market. We replace 100,000 tonnes of hot rolled with cold rolled, which is giving us significantly higher margins. Then also we make the mix richer because if I look at Ultra grades and other grades, they take twice as much capacity compared to the commodity, but they generate multiple of margin. I am not assuming that I will bring additional 100,000tones or 200,000 tonnes of capacity into European market. I will have the higher value added through cold rolled and richer mix.
Okay. Thank you very much.
All right. Thank you, Carsten, and thank you, Mac.
Okay. Thank you, and I will be happy to have the follow-up discussion afterwards.
Yep. Now it is time for our first break. There will be some coffee and cold drinks served outside. We will continue in roughly 10 minutes at exactly 2:00 P.M. So 2:00 P.M., we will continue with the presentations. Thank you.
[Break]
When we usually think about scarce resources, we hardly ever think about water. Water is one of the things that we now will take as for granted. Water is increasingly a scarce resource. For us, it is difficult to understand because you turn on the tap, water comes out, you turn it off, and if you need more, you turn it on again. We seem to think that most of the shortage of water is in far remote areas where it is hot and sandy, Sahel zone, the Middle East, but it is much closer to home. Just imagine, the U.S. alone is losing 1 trillion gallons of water a day, 4 trillion liters a day. Mexico City has over 30% of their water lost. London holds the unfortunate record of being the city that has the highest water leakage in the world.
If we now look beyond these figures, it is not just the water leakage itself, it is the drain on resources beyond that, because all the water that is being lost has to be replaced. That means that water filtering and cleaning systems have to work overtime. Extra manpower, extra energy, extra installations. The good news is that there is a solution to stop these leakages, and it is called stainless steel. Piping in cities made out of stainless steel eradicates virtually the whole problem. Not only that, it has far more longevity. Stainless steel piping is there for 100 years, literally, whereas the conventional solutions are there for 30 years. So it is less maintenance, it is less cost, and it is a savings of tremendous amounts of water. In the city of Tokyo, using this solution, they brought the leakage down from about 20% to now below 2%.
Outokumpu, as the original inventor of stainless steel, has an unparalleled expertise in this absolutely amazing material. Whether it is to help solve water leakage problems, or have ships run cleaner, or enable electrical vehicles to be more efficient, we are the proud provider of solutions to society to look beyond and farther towards a world that lasts forever. I am Roeland Baan, CEO of Outokumpu.
Securing a clean water supply is just one of the great opportunities we have in working together with the customers and the society. Sustainable solutions offer significant commercial growth opportunities throughout Outokumpu. To capture that growth, we need solid operational foundation. Establishing a solid operational foundation is a great achievement, especially in the U.S., where we started operating only six years ago. Next, the head of our BA Americas will take you through the actions how further efficiency gains and commercial growth will enable and improve our profitability in the Americas. Please welcome the Head of BA Americas, Mike Williams.
Thank you, Tommi. Good afternoon, everyone. Our primary focus over the last couple of years is to build up predominantly the Calvert facility and its operational capability. The topics I am going to review are going to talk about or reflect on how we've evolved in that regards. I am also going to talk about how we continue to streamline our operation, particularly since we've been faced with some significant cost leakages this year and how we're addressing that. Ultimately, the biggest value proposition that we will bring through to 2020 is our commercial development and how that how we kind of see the market defined, and how we see that development going forward. Where we've been. Since 2015, we've made over a 20% improvement in our safety.
As both Roeland and Mac said, this is a key indicator of how our business is operating. The more safe you are, the better efficient you are, the better productivity you have, the better quality you have. It's something that we focus on very closely. Since 2015, the Americas team, and particularly focused in Calvert, has delivered over EUR 60 million in cost improvements, and there's still more yet to come. Organizationally, the Americas has ranked in the second quartile with a strong aspiration to get to the first quartile. As Roeland indicated, as well as Mac, the key component here is it's about our people. The better our people feel about the company, the better our people perform within the company. I like to always say the more passion they have, the more successful this company will become.
Since 2015, over EUR 140 million in EBITDA improvement out of the Americas, and we're not done yet. Over the last two years, you have to really put this in perspective. We've increased our deliveries, and this has predominantly come out of Calvert, right? The new capacity in the market. I would some say a well-served market, but new capacity in the market, and we've increased our deliveries or sales by 65%, which also means we increased our production. You kind of have to increase your production capability and your product capability before you can sell it to the customer. We've kind of had to balance that hand in hand. We've done that while reducing our headcount significantly. We've done that while we have made some targeted talent upgrades within our organization, and we've been working on reducing our exposure to commodity products.
We are a commodity product, but we are trying to evolve to more profitable products. You have to put that in perspective of when you bring that kind of capacity to market, where do you start in the supply chain of servicing those customers, right. You do not automatically achieve the most complex products. You do not necessarily get access to the most complex supply chains either. It is an evolution that we are going through, and we will talk a little bit more about that. However, everything is not easy, right. This industry does not sit stagnant for a moment. We have had some significant headwinds in the Americas. Both between the graphite electrodes, it has been well over a negative impact of EUR 15 million, and the logistical cost, which is really the freight cost.
We are working on programs to try to increase electrode life that allows us to purchase or procure less electrodes over the period of time. But even more so, I am going to talk in greater detail of how we are addressing this truck cost scenario. Just to kind of give you an idea, in the southeastern U.S., it got so bad in the second and third quarter, for every one truck available, there were 300 tenders out there for that trucker to choose from what loads they wanted, what routes they were going to take. It was definitely a seller's market in that regard. Our journey here in the Americas has not been an easy journey. It has been a difficult journey.
But I believe we have come a long way in the last couple of years, and we still have a good opportunity going forward, and you are going to see some of that in the next couple of topics discussed. If you look at the market, the market projections particularly, is going to go about 10% between now and 2023. If you look at the specific markets, like the consumer good markets, the HVAC and the infrastructure sector, as well as the automotive heavy transport, that plays very nicely to where Calvert, not only its locality, but its product availability. It positions it very nicely to evolve into that growing market demand. We will talk more about that in the breakout session later this afternoon. What has happened in the market. Section 232, right. I get the most questions about Section 232. What does it mean. What is the impact.
How do you see it going forward. Section 232, in our view, is short-term. None of our plans consider a Section 232 environment forever going forward. It has had some short-term benefits, right. What we saw was we saw imports drop about 7%. What is that 7%. It is about 14,000 tonnes a month out of over 150,000 tonnes a month of cold roll. It is about 14,000 tonnes. It is not a big number. It has had some price influence, right. We have seen prices improve, we have seen prices stabilize. Our commitment to our 2020 vision and our 2020 targets out of the Americas is $100 million. The makeup of that is $60 million, and I will show you that here shortly, in the commercial development, and $40 million in efficiency gains.
Around the efficiency gains, the topics I am going to talk about is, last year at this time, I talked about the Mexinox restructuring. I am going to give you an update of where that is and how that is evolving. I am going to tell you how we are addressing the higher truck rates. We are going to talk about raw materials optimization and the benefit of that, and then also reliability. Because one of the key things to our commercial development is our reliability in our product portfolio, our reliability in our delivery or ship on time in full to our customers, and our reliability to service the products to the customer in our back office as well as our technical support. The Mexinox restructuring, we completed that about mid-year. It was really an organizational-orientated restructuring, and we got about 15% of our cost improvement through that restructuring. We have now moved into phase two.
Well, one may ask, "Why do you have to do that?" There are two reasons why we actually were focused on that. One is, over the years, we have been losing market share through the import growth into the Mexican market. Secondly is the Section 232 deflection out of the U.S. also put some more imports into the Mexinox. This is why we are progressing into phase two. We need the lower cost. The Mexinox facility in San Luis Potosi is the only stainless steel plant in Mexico. It should be the dominant producer supplier in the market. It is. It has a fairly sizable market share, but it has declined slowly over the past couple of years, mainly through import growth and penetration there.
We need to recalibrate our cost structure there so we can compete better with the imports and recover some of that market share. That makes sense to you. The phase two we are implementing has a number of initiatives to it. So, we have some equipment that needs to be upgraded with very modest improvements to get the reliability and the efficiency where it competes within our system at Outokumpu. There are some maintenance improvements to get availability of machines up and actually lower the overall maintenance cost with some more predictability tools. But also there is some robotic applications there where we can reduce our cost structure even more by making some modest robotic investments, packaging machines and so on, and other types of activities where we can reduce our costs even further. The truck has been an interesting scenario. As I mentioned, statistically, it was a seller's market.
Our strategy here is alternate modes of transportation. This was our first pilot program that we got set up. As we experienced the freight escalation predominantly in the second quarter and third quarter, we took action quickly. However, it took time to set this up. When you are 98% truck delivery to your customers, where you can deliver within one to four days anywhere in the country, and to go to an alternative mode of operation, which is of course cheaper, like rail or barge, which then takes supply chain delivery to 10-12 days on rail and 14-20 days on barge, we had to work with our customers to set up that network. This is an example of what we set up. There are significant savings out of it. I am not going to go into that. There is a phase two, phase three, phase four here.
We could talk a little bit more offline in the breakout sessions on this. This is our countermeasure to an escalating truck cost in southeastern U.S. We are seeing some relief of that now because the huge agricultural season is over with in that region. There is a little bit more availability, but we do not, at this point in time, expect it to revert back to what we saw in prior year. As we have increased production out of Calvert, particularly in the melt shop, one of the things that has lagged is the ability of the supply chain to provide the lower cost materials to Calvert.
What that really means is we have been forced to use more prime nickel units and prime materials in prior years versus getting scrap where we can recover the intrinsics out of the scrap at a lower cost than buying the prime materials. One of the things that we focused on very heavily in the second half of this year is getting that supply chain set up. Now, we have had some help. I think China did some things in regards to what scrap can be exported or imported into their country. I think there has been some capacities, according to some of the scrap suppliers, some EAF capacity taken off in China. There is no desire for the scrap. The scrap development in the U.S. has become more robust. The commitments to the scrap supply chain to us has been very positive. We see this opportunity going forward.
Honestly, we appreciate when Mac talks about 90% scrap, when we have struggled to get to 80% scrap at Calvert. Now we have gotten there, and we expect to sustain that going forward. That is going to deliver over EUR 25 per tonnes melted. That is approximately somewhere between about EUR 20 million or EUR 20 million in improvement. Reliability. Again, it is the journey that we have been on. This is predominantly Calvert, but it is also Mexinox has been affected too. A lot of this has been driven by the inconsistency of our toll roller, but also some of it is by how we set up supply chains, how we move material, how we stage material. Coming out of last year, when we had significant disruptions with our tolling partner, we went through a lot of analysis.
The target here is, if we are going to get our product mix and our product reach into the more complex demanding applications where you can look at margin uplift between 20% and 25%, we have to be reliable. Historically, we have been less than 70% on time delivery to our customers. This year was about reliability. Our mission was to become more reliable. That is what the Americas team has been extremely focused on, because we will never get that commercial uplift that we expect to achieve if we are not reliable. We have gotten to, most recently, we have evolved throughout the year, but we are at that 85% +, and we have actually seen Calvert around 90%. That is critical for us going forward as we approach the 2019 contract discussions and business development for 2019. We can talk more about that in the other session.
Let's look at the commercial development. It is about product mix and customer mix. It is about regaining the market share in Mexico. It is also, we have been heavily focused on the current products that we make. Now it is time to start expanding, predominantly because we have customers asking us to expand, and I will talk a little bit about that, but they are asking us to get into ferritics with Calvert. Calvert has a limited capability to make ferritics. When the initial investment was made, it was slightly cut off. Not slightly, it was cut off by the original builders of the mill. We have not reinvested in it. We have developed ways to make a small amount of ferritics, and now we are getting a lot of demand from our customers to get Calvert into the ferritic market.
One of the key developments here for Calvert is, as it has ramped up its production and footprint and capability, subsequently leading to higher sales, a lot of those sales were export. You can see the differential here between the export in 2017 to the export in 2018, was about a 14% improvement. This still implies that there is still more we have to do. The reason why we want to domesticate 100% of our sales is because there is about a 15%-20% margin improvement by doing that. Our mix. You can see the development of our product mix here. Again, starting out with Calvert, and this is predominantly Calvert, but starting out with Calvert, we were all into the semis, we were into the hot bands, we were in the less profitable product areas.
Now we have been evolving into more cold roll, getting our cold roll accepted into the domestic market and building that capability. Just since 2015, we have improved our cold roll sales by 42%. As you can see in that chart, there is still a lot of room to get more cold roll into the market. Our expectation, that is about EUR 60 million of upside. Mexico. The Mexican market, the automotive market, it is heavily a ferritic market in Mexico, mainly because of the automotive and appliance sectors that are built there. Import pricing has gotten extremely competitive in Mexico, particularly from the Chinese, Taiwan, and Vietnam. They put some pricing pressure in there, and we are kind of recalibrating our cost structure through our restructuring, but we are targeting more distribution in Mexico and more appliance in Mexico.
We see those as the right sectors to go after based on the analysis that we have done. I talked about new products. We are introducing at Calvert to bring in what I would call the primary duplex grade of 2205. We are going to leverage our colleagues in Europe to help us develop that. We are in development. To be honest with you, we have melded it before and we have sold semis of 2205. Now it is about now rolling it, hot rolling it and cold rolling it and bringing it to market. We have a series of trial orders from customers that are asking us to get into this. Predominantly, it is the pipe and tube sector itself. We are moving forward there. This is kind of more of an advertisement.
Outokumpu Americas has been the leader in what they call painted stainless, predominantly for the appliance industry, but we now see, and we are marketing this in greater applications across other sectors. We see commercial kitchens, we see elevator, we see escalator that want to brighten up their world to more psychedelic. There is a whole portfolio of colors that we now offer to the end users, and we are marketing it pretty heavily. Just like Mac talked about, one of the differentiators we have in the Americas is the leverage of our technical solutions team. We have our R&D footprint we have in Europe, strong support there, looking at product substitutions, and it is just not competitor substitutions. It is working directly more with the OEMs to get either aluminum, plastics or even carbon steel desourced and get stainless steel put on those products.
We have also introduced a series of new polishes where it allows us to attack different applications in the market. We are expanding the portfolio. Now, we have limited ferritic capability. Everything I have said so far is how we are going to target to deliver the $100 million, $60 million out of the commercial development, $40 million out of the operating optimization efficiencies. I am just going to leave this for you. There is an additional step going forward that is beyond 2020. Here is the opportunity. We have customers asking us to get into the ferritic segment at a much higher level than we are currently capable. We are analyzing that project now. We have looked at the commercial opportunity. We are looking at the operational requirements and footprints to do that. This would allow us to better diversify our product mix.
One thing to keep in mind, the ferritic market in the U.S. is 35% of all stainless steel demand in the U.S. Basically, Calvert is locked out of that. We believe there is space for us of that 35% that we could participate in. Right now, our view is that that investment, which is a modest investment, could potentially provide additional profitability of EUR 40 million annually. As I said, the EUR 100 million commitment from the Americas, 60 million of it commercial, 40 million of it efficiency and operational. We are committed to it, and we have high confidence that we can deliver it. Thank you.
Thanks, Mike. All right. Time for questions. Peter, the first one.
Mike, could you talk a little bit about that relationship with ArcelorMittal? We have had the issues in the past and have not heard much negative currently. As you move to more complicated product mix, how does that cause any issues? Does it mean you have to have a bigger inventory hold than you otherwise would? Also, there has been talk that some of the other relationships which you were trying to negotiate are now, because the U.S. steel industry is generally operating at full operating rates, are not so viable, whether those are still in place or not.
What is the last question?
Say, whether the other rolling arrangement, which I do not know whether you actually signed or inked-
Oh, okay.
-is available or not available if there was need for it.
Yeah. Good. ArcelorMittal has become much more reliable this year. I think their management team has been very focused on servicing us as well as their outside customers. We've seen improvement in what we call the days to roll. So when we ask them to roll, they've lowered the days to roll. All right? We've seen improvements in their quality. We meet every month with them. There's teams that meet every day, both from a planning and scheduling standpoint as well as quality. But we have an executive meeting every month. We review the key KPIs for the relationship. That, I would say, they've become much more reliable. So that's why we could not get to that OTIF development that we've had this year if they were not reliable. They've been reliable. Second question.
The second question was on alternative rolling.
Okay. Yes.
Alternative available.
We continue to, just from a risk management standpoint, to establish alternative rolling. So we have a second party involved. We've perfected the logistics set up for that. They are doing some specialty rolling for us, and we'd like to keep. That's where it's at right now. We, however, do continue to look at a potential another alternative, which I can't talk about right now. But we will always look at that, just from a risk management standpoint. We need to have options when options are required. Okay?
Yep. All right. Bastian.
Thank you. Just on the commercial improvement and the improvement of the mix to achieve the EUR 60 million, is there any further investment needed for that? Could you also roughly quantify how much the theoretic investment would be if you would go ahead with it? Then just again on reliability, and you already talked a little bit about it. My understanding is that at least when it comes to your perception in the market, it is still one of the key issues. So have you been making more progress in essentially reestablishing some of those relationships? Someone was telling me that it was basically a bit of, say, talk in the market that if you put in an order with Outokumpu sometimes, never really sure whether you get the delivery. Is this still the case today, or has that improved?
No. The customer base will tell you that our delivery, our OTIF, ship on time and full, has improved significantly. As the data chart said, we were below 70% sometimes. Now we are above 85%. Our mission this year was to be a reliable supplier, and that is what we focused on. We have analyzed our manufacturing processes. We analyzed our commercial processes in that regard on how do we supply our scheduling and planning processes and how we supply on time. We have made some strategic changes to it, and we have become a much more reliable supplier. I can tell you how I read that, and we can have more color discussed at the breakout sessions because these are topics I do not prefer to offer up to our competitors. The more reliable you are, the better opportunity at the more complex products and the more complex supply chains.
They have their value-added opportunities there. We can talk about more of that in the breakout session.
Okay, next Menno.
Yes. Lucas from Exane. Two quick questions. First of all, with regards to the slab exemption that Tsingshan ATI is trying to secure, you have been pretty clear that there is a spare market for a slab, that you could source or provide these, and ATI is arguing the opposite. Maybe if you could elaborate a bit more on this issue and on the timing, maybe as to when we should have the ruling on this exemption. Secondly, with regards to your performance, in the chart you were showing marketed wins as an explanation for the steady or slightly declining performance of Calvert or Americas business, 2018 versus 2017. It looks to me that the base price context has been pretty supportive. Even though you have been facing extra costs from graphite and trucks, et cetera, I do get it.
It seems that there is a missing part in this equation. Maybe if you could quantify some of the reliability issues you are referring to.
Okay. I had a difficult time clearly understanding the questions. One's about the ATI Tsingshan joint venture, right? And slab supply. Slab supply from domestic producer?
Yes. If I understand right.
Yes
Outokumpu and others are arguing that you could provide, to the JV, some slabs, and therefore, that there should be no exemption to the Indonesia slabs, essentially.
Yes. Yes. We've communicated to ATI directly that we can supply some slabs.
There's never been any slab market in the U.S. for stainless.
We understand that, but we have excess capacity that we can supply the slabs. We can't necessarily supply their full quantity that they're searching for. Outokumpu alone, I think the industry looks at it as a complement of all the other domestic suppliers, there is slab supply available.
Why would anyone be willing to provide these slabs to a competitor, essentially? I think that's the argument.
Well, again, it goes to melt utilization, right? If your melt costs are 65% of your total product cost, the higher utilization you get in your melt shops, that flows into all your other products that come out of those melt shops, as well as the slab. So it becomes the utilization influence business decision.
When would you expect a decision on these exemptions?
Can I just add for? You are right, there was no slab market, but that was because ATI had withdrawn from the market. ATI comes back to the market and creates a slab market that now is being attempted to be filled by imports. Of course, if there is a slab market, then it makes much more sense for us to participate in that and make a margin than to have an outside agent do that. Simple.
Is there a timetable for the decision?
Again, it is with the Federal U.S. Government. It is in their process. I have no predictability of when a decision will be made.
To my second questions, I was trying to better understand what were the negative coming from the reliability issues you have been facing at Americas that could explain some of the stability in performance, whereas the prices have been great in the U.S., and I mean, your competitors are showing great results.
I am not sure what the question is.
Although there have been headwinds on cost there have been tailwinds on pricing.
Yes. Yes.
Although, of course, if you take the full pricing 2017 against full pricing 2018, it looks a bit different, but up to you.
Yeah. I actually probably would prefer to answer this in the breakout session, versus answer it in front of the video camera. Is that a good arrangement? Okay.
Right. Menno here.
This is going to be a slightly unfair question, so I apologize up front. You have clearly done a tremendous job from bringing us, Roeland said, a total basket case to a break-even situation. But if you look at it from the other side, you had a fantastic U.S. market. According to our earlier speaker, your competitors are printing cash, and Outokumpu makes EUR 17 million a year of EBITDA. I remember in the second quarter, the conference call, the CFO said, "More than willing to look at all kinds of other solutions to radically change this business." Is it now not time to radically change this business and look at these alternative solutions? And where are we on that path?
Well, I guess it depends on your strategic view of where this business is with its journey. If you think it is exhausted the opportunity, then I guess one could take that view, right? But I think strategically, you have to look at where the development of the business is, both from an efficiency standpoint as well as a market standpoint. And have we tooled it with all the products that you need to compete in that region of the world? Do we have the supply chain with the raw materials optimized to compete against those competitors that already have that? So I think it is your perspective on how you have to see where the maturity level of that Calvert business is. And do you Okay.
Right.
Yeah.
I just want to add a few things. Because first of all, ArcelorMittal is not printing cash. They were actually net cash negative for the first nine months. Secondly, it is a good market, but not a great market. The prices in the first half of 2017 in the U.S. were actually higher than they are currently. So yes, it is better than the second half, but over the whole year, it is not such a big improvement. But the most important point I want to make is we are not looking to do anything fundamental to our position in Americas. It is a position that is an absolute cornerstone of our strategy. It is the third largest market in the world. It is the most stable market after Europe. It is a market that strategically we will be staying in. I want to be very clear on that.
Thanks. I think that's a great way to conclude this Q&A. Thank you, Mike, very much for your presentation. One of the key drivers behind our improved profitability has been a relentless focus on costs. Our significant cost reductions are a result of successful self-help actions we have taken over the past 2.5 years. The competitive cost position enables our business and secures our business in this volatile market. Next, our CFO will talk about costs, balance sheet, and reconfirm our targets for 2020. Please welcome our CFO, Chris de la Camp.
Thank you, Tommi. Good afternoon, ladies and gentlemen. I hope as you've listened to my colleagues this afternoon, you've got the sense that we in Outokumpu are highly committed to delivering the targets that we promised you. We've come a very long way, but we recognize that we still have some way to go. But we are committed to the targets that we set back in 2016, and I'd like to just go back for a moment and remind you of what those were. You've seen them several times this afternoon already. Which is an adjusted EBITDA of EUR 750 million. It is a return on capital employed of 12% and a gearing of less than 35%.
Just to also remember, this means an improvement over that period of EUR 600 million EBITDA, a more than 12% return on capital employed improvement because we were negative back in 2015, and to gearing improvement of 34%, halving the gearing from where we were back in 2015. In this, we've come a very long way. We have delivered, as Roeland said earlier this afternoon, we have delivered on those targets so far. We've improved our adjusted EBITDA in a difficult environment this year by over EUR 300 million on an annualized run rate. We've generated over EUR 550 million of cash, which we've paid EUR 150 million back to our shareholders in dividends. Gets us over half the way to the net debt targets that we've set.
We've delivered well over the EUR 100 million of SG&A cost savings that we promised, and our gearing is down 25 points versus the 34-point that we've set ourselves. So it's been a significant improvement. We recognize there's more to do, and I'll come back to that. But in terms of the progress we've made, it's been carried by all of the businesses. We've seen Europe in a very difficult environment, where prices have been historically low, still outperform versus 2015. We've seen Ferrochrome in a better market environment, admittedly, continuing to contribute positively to these results and much better than back in 2015. Long Products contributes. It's a strong third leg, as Kari Tuutti would say if he was here.
But most particularly, and I think this is important in the context of this slide, is the Americas business has made an outsized contribution to the improvement in the business so far. From EUR 120 million of loss in 2015 to an LTM EBITDA of EUR 17 million. That is a very, very significant leap, and we should always bear that in mind as we think about what's been achieved. The achievements have come, and you saw this earlier from Roeland, from predominantly self-help. In fact, exclusively from self-help, because we actually faced net-net a lot of market headwinds. I'd like to focus on the cost development in particular, because this has been the biggest contributor so far. Now, it's easy to say, I know a lot of you are having a financial background.
Your accountants say, "Yep, but where do we see that?" I'd like to delve into one particular element in particular, because you can see that on the quarterly statements that we have, and it's now to SG&A costs. Let's take a closer look at that. Again, back in 2015, EUR 400 million of SG&A costs. LTM, EUR 271 million. So it's a very, very significant improvement and above what we actually promised to deliver. Where does it come from? We've done a huge amount of different things that we don't talk about very often. I want to just go into one or two of those in more detail. You're aware of Chorus and the work we're doing there, simplifying our IT landscape. It will reduce, has already and will continue to reduce our IT costs. It enables us to standardize some of our processes.
That will continue, but we've also done that excluding outside, of course, by trying to bring people more together. For example, we now have in our service centers in Vilnius and in Mexinox over 200 people that were sitting dispersed around the world before. These people are now working much more cooperatively together. They're standardizing processes, and they're doing things in a much better way than they were done before. For example, we used to outsource a lot of our services to service providers in other countries. We've brought those back in at no additional cost, and they're being done much better today. That is a significant improvement. Roeland has also talked about the hundreds of white-collar workers we've released. This has removed bureaucracy. We're doing a bit less than before, but we're doing it more efficiently. We've reduced, as another example, the number of legal entities in Outokumpu.
Two years ago, Outokumpu consisted of 100 legal entities. Each of those legal entities required accountants and auditors in the background support it. 60 of those remain, 40 have gone. This is another area. We've drastically reduced our consulting costs. It's yet another example, and so on and so forth. These have come from very, very difficult measures we've taken in the background. This is one example. We're really, really stepping on the costs to try to get them down. As an example, you can see very visibly in our financial statements. So much for the P&L. This is support of the EBITDA, and will continue to support the EBITDA as we continue pushing on this, and as Project Chorus gets rolled out and we can further standardize that for our associates.
I'd like to move on to some of the other elements that drive both our cash flow and ultimately the strength of our balance sheet. Let's look at the biggest of those first, our CapEx spend. We try to find here a good balance between what has to be spent to keep the assets compliant, and safe, and in good operating shape. On the other hand, not forget that we're running a business for the long term, that we need and want to invest in the growth of that business as well. We have annual maintenance spend of between EUR 90 million-EUR 100 million. Those of you who are on the debt side, and invested in our debt will wonder, well, what would happen? Can that be reduced if there is a crisis? Of course it can be.
In a crisis, it can go lower, but we do not have a crisis, and we do not have to go lower at the moment. We want to maintain the good quality of our assets. We're investing in the business, in our mining business, in our ferrochrome business in Kemi. As you saw earlier, EUR 180 million in round numbers is generated by that business every year. Most of it is cash. It converts straight to cash. Making a EUR 250 million investment in that business over a five-year period, we're already investing it now and started last year, is actually a very, very good investment. We think this is one of the best investments that we can currently actually make. That's another consumer of cash. We're also investing in Project Chorus, as you know, the digitalization of our business.
That was mentioned earlier by Mac, and there'll be more on that this afternoon in the breakout sessions. In securing the cost effectiveness and the supply of energy in the future, and in other projects such as converting, for example, from propane to LNG in Tornio. These are projects that secure our energy costs in the future and our competitiveness. You can see on these charts the growth part is relatively small. For the next year or two, we will continue to be restrained in our CapEx at a level of EUR 220 million. As we work our way through some of these big projects such as Kemi mine, we will have more money available to spend on some of the growth opportunities that were outlined by Mac and by Mike earlier on. Moving on. Our financing costs. What have we done here?
In 2015, we had a spend of EUR 130 million a year. This year so far, LTM, EUR 75 million, and that includes still the fourth quarter of last year. When we get to the end of this year, the interest costs will be half of what they were in 2015. We've done a lot of things. I talked about some of them last year, and since the capital markets day last year, we have continued to do a lot to improve this. For example, we have refinanced with the support of many of you in this room here today, a revolving credit facility at better terms. We've prepaid or repaid expensive notes to next year, which carried a coupon 6.625%. They've gone. We refinanced earlier this summer notes due in 2021 carrying a coupon of 7.25%. Today, those same notes, we have to pay 4.8% on.
It's a significant additional saving. In the background, there are also lots of smaller things that we're doing to continue to optimize our financing. We have more potential here, clearly. The convertibles are out there, 2020. They are significant. They are now our largest single cost of financing still, and we will address that debt in due course to make sure that it contributes to that target of EUR 50 million. In fact, once we have addressed those, we're very confident that that's the last big piece we need to do to reach the targets. We feel very confident about achieving it. Many of you will say, okay, you can always do this by moving into the shorter term, but we've also been very mindful of the maturity of our debt. The revolving credit facility would have matured in February of this year.
It's now pushed out to 2021. That's one big piece. In the notes, of course, that we refinanced earlier this year, we moved from a maturity of just over a year to something which is now out over five years. So we have significantly improved the maturity as a result of that. But again, we're not at the end of this. We need to do more. The convertible needs to be addressed as it becomes short term, and we are going to, in the very short term, address some of the current debt that's very significantly financed to the Finnish commercial paper market. We are currently looking and working on a project to move that into longer term debt at a very low cost. You'll read more about that before the end of the year.
Let's then look at the next big item on the P&L and in cash flow, our tax position. Unfortunately, Outokumpu has lost a lot of money over the years, and that as a silver lining, over silver lining really, has been that at least we've developed some tax loss carryforwards. Currently, there's still over EUR 3.5 billion. We've done a lot to try to bring them back onto the balance sheet. You'll recall that we brought the Swedish and the Finnish tax losses back at the end of 2016. We brought back the German tax losses that we had at the end of 2017, and this has been many hundreds of millions of euros. But we continue also to have tax loss carryforwards, huge tax loss carryforwards in the U.S., over $1.5 billion, and in the U.K. As we move forward and we deliver the plans that Mike has outlined.
Those will also come back onto the balance sheet and will enable us to protect cash taxes going forward. It's a significant amount. But recognizing this, as you get more profitable, of course, you do end up in a position where at some stage you have to pay taxes. So in Finland, for example, we will probably move into a tax-paying position towards the end of 2019. We haven't just been watching this quietly and saying, "Well, this is one of those things." We're now also working with the Finnish, the German, and the Swedish tax authorities, bringing them together in groups to make sure as we go forward, those tax loss carryforwards can be utilized and will not all be pushed into one country. Again, we've made very good progress, and we expect to have a result there within the next few weeks.
On the tax side also, we're working very hard on making sure that on the one hand, we want to pay our fair share, but on the other, we want to pay no more than that to maintain the benefit of those huge loss carryforwards that we have. Where does that leave us? As we move forward, you can see we will generate a very healthy EBITDA. That has been detailed by some of my colleagues and will be further detailed later on this afternoon. With the other big cash blocks of CapEx, interest expenses, and cash taxes, together we estimate those to be around EUR 340 million a year. We will have over EUR 400 million of cash left at the end of each year to invest in other things. What might they be? Well, one area is, of course, to invest in further efficiency improvements.
There were some ideas floated around on that earlier. Other opportunities, as outlined earlier, might be in growth opportunities. Of course, we do not want to forget our debt holders and our shareholders. We're mindful that both groups need to be satisfied, although, to make it very clear, debt reduction will remain a key priority in all of this. It'll come ahead of the others because we recognize this is also good for our shareholders. Just in terms of the track record, we started back in 2015 with a net debt of over EUR 1.6 billion and at the end of September, we were at EUR 1.2 billion. In terms of leverage, that's come down from a huge 9.8 to a 2.5.
Many of you will say, "Well, that's still higher than at the end of last year." Just bear in mind that we actually also paid a dividend of EUR 100 million earlier this year. The other thing that is a bit of noise and a bit of a factor in all of this is swings in working capital. It's something that we're very mindful of and it's something that we are working very hard on. We don't always get it exactly right, but we've made really good progress. Our neutral inventory levels have declined, our payment terms have improved both towards our suppliers as well as to our customers. We continue to work on this, but there are factors that are outside of our control, and they will always create some noise in the cash flow numbers from quarter to quarter.
Nickel prices have a big impact on the value of our inventory. Ferrochrome prices have a big impact, and of course, there is seasonality. Those of you who've been watching this business for a long time will recognize that the beginning of the year always needs more working capital than the end of this year. This is one of the factors that also plays into some of that increase we've seen through the first three quarters, and I feel very confident that we'll be addressing that and rectifying it to the end of the year. That brings me then on to the last point, which is dividends. We adjusted our dividend policy earlier this year to become more flexible, still to remain prudent, but also to allow some stability in how we can make those payouts.
One of the key things in paying a dividend is that you need to have a positive net income, and you can see that the development here has been very positive. From minus EUR 1 billion of net income, goes back to 2013, to nearly EUR 400 million of last year, has allowed us in the last two years to start paying back some of the cash that we've generated in the form of dividends. Of course, I cannot predict what it'll be next year, but clearly we want to continue to reward our shareholders in the form of dividends as well. To conclude, we have made tremendous progress. We've delivered on our promises. We're well on the way to deliver the EUR 750 million of EBITDA.
The actions that we're taking to improve our cash flow and our balance sheet will deliver the ROACE of 12%, and it's already solidly positive now from a negative in 2015. Our gearing continues to come down. It's on a very positive track and overall, we're making good progress in all of these areas. But we do recognize that we still have a long way to go. You've heard some of the things that we need to do and that we will continue to do. But you can be assured everybody in Outokumpu is firmly committed to meeting those targets. It's not just the few senior managers in this room. We have 10,000 people, each of whom have their piece to contribute. It's very clearly laid out what they have to do, and they're all working very hard every day to deliver that.
I personally feel very confident that we're going to deliver these targets in 2020. Thank you.
Thank you, Chris. It's time for the final webcast Q&A. I would like us to ask Roeland to join us on the stage so that you have now opportunity to ask questions from both of the gentlemen before we finalize here. Who would like to go first? Bastian.
I have one question on the dividend, and you talked about it already, but I guess if we look at the EUR 0.25 you are paying and the total amount which you are issuing back out, it is obviously a large amount relative to where your earnings are trending in the fourth quarter and also probably relative to the environment we are in. Stability has been one of the parameters which you mentioned when you actually framed your dividend policy. Are you still comfortable with this level, or do you feel that in hindsight that may have been a little bit too much and it did reflect the environment at that point in time when you reinstated when ferrochrome prices were very high, and maybe it is a bit of a stretch today? Could you basically talk about this a little bit?
We feel comfortable with the dividend we paid at the beginning of this year. To address that question, I do not want to speculate at this stage what the dividend will be next year. We are in a cyclical industry, but nonetheless, we try to achieve some measure of stability. We are very confident that we can continue to deliver on that in line with the financial targets as I have outlined and as we deliver those.
A second one then on working capital. I think one of your targets has been to bring down the inventory days, and if I remember, that was until 2023. Is the idea to bring working capital down by, say, another EUR 300 million if I work it out correctly? Will this be by end of 2023, or will the benefits materialize early already?
In terms of the underlying working capital levels, we will continue to see an improvement. There are going to be short-term fluctuations because of the seasonality that is always there. There will be short-term fluctuations in terms of value because of the pricing levels, but that is factored into the working capital days. That will also be there. Sometimes you will actually have periods, and this happened at the end of Q3, where you get surprised a little bit by very rapid developments in the market, where the market suddenly destocks and you sit on high inventory, then you need to work that out through the next quarter or two. This is, for example, what we saw at the end of Q3, which is why we ended up with slightly high inventory levels.
But in the long term, we do see a continuous progression of lowering the working capital, cleaned up for pricing effect.
Then maybe just to follow up on that, and I think the uncertainty which we all had at the end of the third quarter was very high given that some customers basically just stopped ordering and there was almost like a freeze in the market. How has that been developing since then? So has the situation normalized a little? Are you still seeing very severe destocking? And are you progressing and bringing down your inventory level as expected?
Yes, we are bringing down the inventory levels as expected. Oh, sorry.
And-
Yeah. To address both questions, Bastian. At the moment metal prices have continued to fall. You know that nickel prices have fallen. You're aware at the moment that customers are somewhat cautious going into the back end of the year. Everybody tries to destock and reduce their own inventory levels. So there is this seasonality effect. We're seeing some of that. But we are working very hard on reducing our inventories. We've made significant progress on that over the last six to eight weeks since the end of the quarter, and it'll be reflected in our Q4 numbers.
-Then just again on the operations side, and sorry for the amount of questions. But has the market started to normalize a little? Is what you see in the market very much in line with what you have, I guess, baked into your assumptions when you were basically talking about the fourth quarter outlook? Or has the market actually continued to be weaker and you basically still see a lot of uncertainty until the end of the year?
So maybe I take that.
Yeah.
We don't see uncertainty towards the end of the year. We don't see strong order books at the same time because indeed destocking has continued as metal prices have been going down. It is not far away from what we predicted it to be in Q4. So we can still maintain our Q4 guidance.
Thank you.
Carsten.
Thank you very much. Just one question from my side as we are in London. The political landscape is kind of shaky here, and you have a U.K. asset. Have you done any risk adjustments to those assets? As you mentioned, you have quite a bit of deferred tax assets on those U.K. assets. What would a Brexit mean to that asset? Did you do any sensitivity what it could mean for your financials when we see a hard Brexit or a soft Brexit? Thank you.
Of course we have done that. I actually spent quite a lot of time as well here in London talking to the politicians, which normally is a very unthankful job. But the good news is that there is very clear realization of the politicians, the ministers in charge of the necessity of certain things to happen. Now you get to the whole question: Are we going to have a real hard Brexit or are we going to have a half-baked hard/soft Brexit? Currently the deal that is on the table is a soft Brexit with a customs union that will linger for a while. That will mean that actually nothing will change. If you get to a hard Brexit, then you have to start looking at the flows.
The flows are that we have slabs and billets going from the U.K. into Europe that will not be affected, not even in a hard Brexit, because there will be no tariffs on that. Then you have the exports of finished products and half products to the U.S. That will not change. On the contrary, probably it will be better because there will most likely be a bilateral deal between the U.S. We have looked at all the scenarios. In most scenarios, we do see risks. We have clear plans on how to address it.
We have, for instance, for the U.S., even if there is no because this is a far bigger worry, if there is no deal between the U.K. and U.S. or the U.K. stays in the Union for a while, then we have a risk that there is 25% forever on our products that go into the U.S. So we have asked for our exemptions. Actually, our exemptions are rolling in. On flat products, we actually had 167?
167.
167 exemption requests that have all been granted, every single one of them. We had 108 on Long Products, of which I think at this moment about 20% have been granted and are still in the process. Altogether, we do not see major risks to our business in the U.S., in the U.K.
Thank you.
Thanks.
Peter.
The large CapEx mining companies have had a lot of success by giving us a hard CapEx number, guaranteeing that they are not going to spend above a certain level. Can I take the numbers you have given us, EUR 220 million out to 2021, and say they are pretty hard and fast, or do you reserve the right to make further investments? The second part of the question is, what do we need to see in terms of returns for investment to make the grade? Then how much is the optimum level of debt or the perfect level of debt for you?
Shall I answer this?
Go ahead.
Okay. We have always said, Peter, and the slides confirm that we see an optimal level of debt in the EUR 700 million -EUR 800 million range, which would equate to leverage of about one through the cycle. In terms of the CapEx-
Can I just clarify, factor receivables, are you including those or not in the number?
-No, the way we measure the debt today. The receivables and the factors are not debt.
How much is that roughly?
It varies between EUR 300 million-EUR 400 million at any one time. The second point is around CapEx, EUR 220 million. You saw in the slides that was a firm level going forward. We will have some headroom for growth CapEx in 2021, as we saw from that slide. There is perhaps one additional point that we should make, and it's that in the past, we've been able to sell what I'd say non-business assets or very non-core assets. Think, for example, certain pieces of land in the U.K., in Sweden. We've sold some smaller mills in the U.S. And actually, on our balance sheet, we have some assets that we never talk about much that are non-business assets, if you like, from previous closures that we've had. We're still sitting on some of these assets.
To the extent that we are able to monetize those in the future, we would reserve the right to be able to allocate those to further CapEx spend. But the next CapEx, the numbers that we showed.
Cash neutral.
Just as a follow-up, do you have a long list of small incremental high return investments you want to do and you are kind of holding them off until you have hit your targets?
That is what I said. That is why we have opportunities to monetize some non-business assets that we would, which we would then do and use for that.
What would the threshold be for an investment in terms of?
In terms of,-
Returns or IRR or?
-I mean, the mathematical, it has to be at least our weighted average cost of capital, which is around 9%, but our threshold is actually a lot lower than that. We are currently looking seriously at projects with a payback. I mean, anything that has a payback of more than 2.5 years, three years would get serious consideration.
Less.
Less than. Sorry, less, payback less than 2.5%-3% at three years would get consideration, yeah.
And the last question, Menno.
Thanks. Just a quick question to get a sense of the deliverability. Clearly, the market doesn't believe you. You have EUR 400 million of free cash flow in 2020. The market cap is EUR 1.5 billion. If you hit your numbers, this is the biggest steel on Earth. Clearly, the market is struggling, as I am a little bit, with the deliverability from here on. On the one hand, you've done a great job, but you could argue the low-hanging fruits were the first ones. How can you help us to get more confidence that this is actually doable without much market improvement, given that the low-hanging fruit is already done? You have more experience, you have more stable business, but
Let me play this by you. 2018 has been an awful market. We are two-thirds of our business sits in Europe. Europe has been inundated by cheap imports. One-third of the market is now covered by imports. Prices have dropped to notional base price of EUR 700 per tonne-EUR 750 per tonne, unparalleled in the history of stainless steel. Still, we are pumping out quarters of EUR 130 million. I mean, how much more do you want to know? That's a EUR 500 million run rate in an awful environment. Our current share price, if EUR 500 million would be our standard return, is ridiculous already. You have your answer.
My question.
All right. Thank you. Thanks for the great questions. Thank you, gentlemen. Before finalizing, obviously, we'll continue discussions in the breakouts, but then I would like to ask Roeland to give a final summary before finishing here.
I have to give the summation, which it makes me feel like I'm in one of these courtroom dramas where you address the jury with the last words. You have listened to the story of my colleagues, myself. You have heard the achievements of the past. You have seen our plans for the future. I want to stress, this is a unique company in its space. We have unparalleled expertise. We have unparalleled assets. There is no other company that have assets of the quality that we have. We have an unparalleled product portfolio. There's no other company in our space that has the width and the depth of our portfolio. We have unparalleled R&D and patents in our company that no one else can get to. More importantly, we have an unparalleled capable workforce.
We have incredible colleagues, 11,000, that are all totally geared and focused in getting to our targets, that have bought in, as you can see from the OHI, that have bought in to what we need to deliver, what we have delivered already. It makes me completely confident that we will indeed reach that target because every single person in this company is dedicated to get there. We'll get to EUR 750 million by 2020. You know why? Because we deliver. That's how I would like to end. Thank you very much.