Good afternoon, ladies and gentlemen. My name is Tommi Järvenpää. I am the Head of Investor Relations at Outokumpu. I have a pleasure to warmly welcome you to Outokumpu 2017 Capital Markets Day in London. I am glad to see so many people in the audience today sharing this extremely interesting afternoon with us. I think many of you also attended our CMD last year in Helsinki. At that time, Outokumpu had just returned to profitability, and the primary focus on that event was to elaborate how we will achieve our 2020 vision and financial targets. Today, we will give you a comprehensive update on where we are on our journey. You will be hearing a lot of examples about our top line growth and efficiency achievements. Especially, the breakout sessions at the end of the day will provide you a unique opportunity to hear more details and real-life examples.
Before kicking off, just a couple of practical notes. First of all, safety. Safety is the top priority for us in Outokumpu. If you hear a fire alarm, please proceed to the exit and to the meeting point outside. This event is being webcasted live. The presentation materials can be found from our website, and the recording of the event will be available shortly after the event too. There will be Q&A sessions today after each presentations. We will first have the two presentations by our CEO and CFO, joint Q&A for them, and then separate Q&As after each business area presentations. All right. I think this is it. I can feel the excitement. Once again, warmly welcome. I am pleased to introduce our CEO, Roeland Baan . Roeland, the stage is yours.
Thank you, Tommi. From my end as well, a very warm welcome to our CMD. As Tommi said, last year in Helsinki, this year in London. Last year in the office, this year in a train station. It is funny because it makes me feel a little bit like Harry Potter. We are here on platform 9 3/4, and this gives the opening into the magical world of stainless steel. Let us go ahead and do this. What we want to do today is give you a good overview of where we are on our vision 2020. It is 18 months now since we launched that, and we have fantastic stories to tell on how far we have come along this road and how close we are getting to achieving that vision. We give a lot of insight.
We will give you a lot of details, a lot of granularity as well on where we are. As always, I would like to start with our vision. For a change, don't be afraid, I will spare you going through it in detail. I will not spell it out for you. You know it by now. I would like to actually concentrate on the stakeholders in our vision. So concentrate on our customers, our shareholders and employees, and where we are in achieving the vision with them. To start with customers. Last year, towards the end of third quarter, we launched a worldwide survey of 1,220 of our customers around the world globally, and asking them on a variety of aspects. What makes them tick? What makes them actually choose one supplier over another?
What is it that they really value, and what is it that's less important? For us, very important, how does it actually differ from one segment to another segment? It was interesting because a lot of the results were counterintuitive to what we thought they would be. Some things that we would say was absolutely logically very high up in the hierarchy weren't, and others where we hadn't even thought about it in some segments were up very high. I would love to give you details. Unfortunately, this is a webcast, so our competitors are listening as well, and if they want to know it, they have to spend the money themselves. I'm not going to give it to them. What I do want to do is, ultimately in this survey, it comes down to one thing, which is how satisfied is a customer with you?
If you look at that, we actually are pretty good. If you define this as those customers that are very satisfied and absolutely satisfied because customers that say we are satisfied basically are not, they are just neutral. But those two that really bind you to it, we are at 58% versus our competitors, 49%. So we are well ahead, 20% ahead of our competitors. More important for me is to look at it the other side. As an industry, we are getting a satisfaction response of about 50% from our customers. That means that basically we suck. If you only have 50% of your customers that are really satisfied, there's a lot of work to do. That for me and for us is where we have tremendous opportunity. We have a target of 75%, so we will do this every single year. Same survey.
We have a target of 75% of customer satisfaction, and when we reach that, we will differentiate ourselves significantly from the rest of the pack. That's exactly what it's all about. We know the drivers, we have the information, we can work it. The next group of stakeholders is actually you. It's a financial community, it's our shareholders. I can say that if you measure our share price performance from the 1st of January till now, we handily, hands down, beat our competitors by a long way. So we have, up to now, made good on our promise of being the best value creator to you guys. You can say, "Well, but this is only share price. How about total return to the investors?
So dividends." As you know, we started paying dividends again in this year, and we will continue that practice, and we will have a best-in-class dividend policy in place. So again, here we are well on our way and actually have outperformed beyond what many people, what many of you guys actually thought was possible when we launched our vision back in March last year. Now, all this that we want to achieve is only possible if we have the best employees, my colleagues, our employees. The way to get the best employees and retain them is to create the best environment for them to work in. So we have embraced something called OHI, and you have heard me talk about it before, but this is extremely important. OHI stands for Organizational Health Index. The Organizational Health Index is something invented by McKinsey over three decades ago.
There are 1,300 companies that participate in this. They, every year, do a survey questionnaire in their companies, about a half-an-hour survey addressing a multitude of questions, measuring the company from an employee's perspective on what they call 37 different practices. What does that mean? What it means is if you look at that index and you take the top quartile of that index, consistently for the last 20 years, the top quartile has outperformed financial markets by a factor of three. The bottom quartile has underperformed the market by half. The top quartile outperforms the bottom quartile by a factor of six. Pretty important, and this is where the biggest differentiator is.
We said, "Okay, we are going to do this." The value that you get is you do these questionnaires, you get all the answers, you can see exactly where against the averages you fall short, where you are better, and you can work very targetly on improving. Not unexpectedly, when we did it last year, we came out in the bottom quartile. Not unexpectedly, because we had been losing money for nine years. We had restructured seven times. There was uncertainty, insecurity, et cetera. When we redid it just now, literally, the results are in now 10 days, we have moved up to the third quartile. We moved one quartile by very diligently working on these aspects, as I just said, where we know that we fall short. Our ultimate goal is, of course, to be in the top quartile.
By 2020, this is where we need to be. We will repeat this every single year. An important thing to note is that McKinsey told us the average response rate in an industrial company is 50%-60%. Our response rate last year was 70%, and this year, because of all the importance we are giving to OHI and all the stuff we're doing on it, there was over 80% of our people that responded to the questionnaire. Very big engagement from our people, very much ownership from our people. Another thing on, by the way, our employees, of course, and their well-being is safety. We have moved our safety performance from admittedly pretty poor performance in 2015. We have improved by 70%, 70% by literally forcing safety through. It now reports to me. I manage safety directly.
I have a monthly call with all the operators in our company around the world to go through safety issues, initiatives, actions that happened. It's not just, by the way, that we need to ensure the safety of our employees. There is a very big operational efficiency part to it as well. I'll give you an example. I was, just a few months ago, in one of our facilities, and what I normally do is I sit down, pull up a chair, sit with the operators, chat a bit, and watch things going. This was at a specific mill, the skin pass mill, where a new coil came in, and that went into a pit, and then had to go onto a spindle in order to then be positioned in the mill. Down in the pit was a gentleman, literally where Chris is sitting is the coil.
This is the wall, and he is standing between the wall and that coil. At eye level, looking at whether the coil is properly centered on that spindle, and signaling to his mate up there with a little crane driver, a bit forward, a bit further. First of all, incredibly dangerous. One single mistake, and the thing comes back and crushes him. Secondly, it took nine minutes to get that coil centered. It took $20,000 to install a system that automatically centers it with infrared sensors. It saves two people, it saves the safety, and it took only two minutes to put the coil on. You see that safety and productivity go very much hand-in-hand. Moving to the business environment, because that is, of course, an important thing. Steel markets are continuing to grow. Stainless steel markets are continuing.
Actually, they are continuing to grow at a very high rate, 4%-5% a year for the next few years are the projections. Bringing up to 2020, the overall steel demand by 23%. I think one of the things that is important to note as well is that we have seen growth in the past, GDP growth, fueled by governments spending money. What you now see coming in is consumer spending. People are more secure in their jobs. They are more secure in their spending. You see cars, especially in Europe, car spending going up. In the U.S., you see a lot of appliances, building, construction go up. Significant growth rates, as you see there, 26% on consumer goods, 31% on building and construction. These are the areas where we are extremely strong.
Interesting thing about stainless steel is that the growth rate of stainless steel is higher than the growth rate of industrial production as such. It is one of the fastest-growing base materials around. You can see that here. It outstrips by 50%+ industrial production. You could say, "So why? Is that sustainable?" It is. First of all, you see that stainless steel is seen as a luxury product, especially in the developing world. When people move to a place where they can afford a bit more, they buy a washing machine, which has, of course, a lot of stainless in there. Or instead of a stone sink, they want to have something which is more pleasing to the eye, and they have a stainless steel one. That is one reason. That will go on.
As these developing world is moving up, you see stainless steel intensity grow extremely fast. Even in the, let us say, developed world, the substitution is a big thing. A good example is stainless steel water pipes. Water piping traditionally in the world has been carbon steel. It has then moved to plastic pipes. But the biggest issue with this is leakage. Tokyo, as a city, discovered this a long time ago. A few decades ago, they studied the problem, and they said, "Okay, the solution is we are going to replace all service pipes with stainless steel for two reasons. One, it is less maintenance. It does not rust. It does not break as easily, et cetera, as plastic. Two, it lasts 100 years." Their tests show that it is in the ground for 100 years versus plastic, 20 years, and carbon about 30 years.
They had a waste of about 17%, and they brought it down to only 2% of water. Seoul saw this, took the product on. They had even larger waste. They had 27%. They took it on. They implemented as well the same stainless steel pipings. They brought it down to 2% as well. To bring it home, that is 500 million cubic meters a year saved. The production of a cubic meter is about $ 1, $1.5. So you are talking about half a billion to three-quarters of a billion saved per year in the switch to stainless steel. Taipei is now the next city taking it on. If you go here to the U.K., the U.K. is leaking 3 billion liters a day. 3 billion liters a day, which is the average rate. London is double the average rate.
They are at 40% of all water produced is leaked away. The opportunity for stainless steel is tremendous. I can go on with more examples because I have many of them. Stainless steel intensity is growing because it is a better product. Full stop. This is important because there is overcapacity. You know this. If you look at the supply side, there has been overcapacity for a while. It has been growing, especially in Asia. Because of the strong growth that we see going forward, this is diminishing. In Asia, we now have approximately, I would say, a 30%-40% overcapacity that is coming in significantly going forward. In Europe, we are already in a pretty good balance, but that balance is now going to be even tight.
If you look at the projections for the American market, we are looking at a potential shortage of cold rolling capacity in the Americas. The whole story about overcapacity is very relative because it is being eaten up by these growth rates very quickly. Then one more thing, which I always tell to my colleagues as well, we have, as Outokumpu, with our main markets, Europe and the U.S., and with the main overcapacity sitting in China, we have still to 2022, a very nice protection through the anti-dumping that is there. Look at this chart and then think about being protected until 2022, and you get a picture of that the overcapacity is not as big an issue as it might be portrayed from time to time. All right. Back to specific Outokumpu and our financial performance.
First of all, let's get back to our targets. You know our targets, we launched that in March. We launched it then, when you talk about income, we launched it on an EBIT level. We have meanwhile changed from EBIT to EBITDA, adjusted EBITDA, so we adjust as well our targets. From the EUR 500 million EBIT, we now say it's EUR 750 million EBITDA. There are quite a few of you that have asked me this year, "Yeah, but if you look at the projections for this year and the projections for next year, you are basically there. Are you going to change your targets?" The answer is no. Why? Because part of these results have been helped by the market itself. You can see here that the European base price went up by about 6%, a bit less.
The U.S. base price went up by 6%, and ferrochrome went up significantly by 50% versus 2016 when we announced our vision. Our vision and the targets, the measurements to that, are based on the environment of then, with small adjustments here and there for inflation and the like. So more of a sort of mid-cycle element. So what we do internally is we readjust our results for the difference between our assumptions and what the real market has shown. So we would readjust the base prices down to what we have in our projections. When you do that, we come to the conclusion that we are still well ahead of the curve. We are well ahead of the trajectory that leads us to 2020, but we are definitely not already there.
The only thing I can say is, guys, we would love to arrive at our vision earlier than 2020. We will not change our targets. We will just declare victory early. So if we get there, we will let you know, and we will be over the moon to be there, but we will not change the targets. So with that, of course, you know what drives our performance. It is our Must-Win Battles. We have always said this is all about self-help. Now, I have touched a few of the Must-Win Battles in the talk just now. Just would like to pick out one extra one, which is the high-performing organization. So the rest, for instance, world-class supply chain, manufacturing excellence, commercial excellence, they will be addressed as well in the breakouts. So safety, I talked about high-performing organization.
There is one thing which I think is unique to our company that we installed at the beginning of this year, which is a unique form of alignment in our company. We have put into place an alignment system that starts basically with me. So I have my objectives in a year, and with that, I have my measures of success. I then go to my team, the guys sitting here in front of me, and they have their own part of responsibility for these targets, and they have their own sets of measurable targets. They then go to their people, and it goes to them. Ultimately, it goes down to about 300+ , 350 people, 400 people in the company.
I can sit at my desk and look at my measures of success and see where they are, and if there is something out of whack, I can follow the trail all the way down to where it is deviating. But same for the people in the organization. They can look at their targets, and they can look what the effect is going up. Secondly, they know exactly what the deliverables are. They know the interdependencies horizontally as well. So this is totally aligned and driving for one single goal and one single set of measurements, which are the ones that I have at the top, which are the ones that you actually get fed back. I think that is pretty unique. I have not seen, definitely not in our industry, a company that has that capability. That drives a lot of our self-help.
The self-help, as you know, we said last year at the CMD, it is a EUR 600 million turn from 2015, 2020. We have EUR 600 million to make up. About 45% of that will come from top-line growth, sorry, 45% from the cost side and 55% from top line. In other words, the cost reduction side is everything we are doing with manufacturing excellence, SG&A, all these initiatives that you know, and then we have commercial excellence that is going to deliver the other 55%. How are we doing on that? If you look at commercial excellence, I would say that we have achieved between 25% and 35% of what we set out to do. So significant progress, but still quite a bit to do as well. This is a mix of volume, mix improvement, upselling, et cetera.
Again, in the commercial excellence presentation, you will get more meat on the bone on that. On the cost reduction side, we have been extremely successful. I would say we have done about 70%. Still a lot to do, and do not get me wrong, we will continue. We have this one thing that we said, every single year, we need to improve by 3% our productivity. This is non-negotiable. We measure this, we follow this. We have a system to be absolutely certain that we make this every single year. We follow this every single month, whether we are on track. There are scores and scores of products underlying this process. So it is not just that we say, "Okay, let us see.
Let us tinker a bit and then hope that the productivity will come out now." At the beginning of the year, every unit sets a slate of projects that has to drive them to the 3% improvement in productivity, and every month the progress is being recorded. More than that, we record as well, whether there is any leakages anywhere else. So we are completely certain of what we achieve with our productivity. You will see later, we have actually achieved 4% already. So pretty significant on our variable cost. Not taking into account SG&A, not taking into account fixed cost. So extremely positive results on this side. As we are talking about the rigorous cost management, so in absolute numbers, what does it mean? We have announced that we are going to save EUR 100 million on SG&A. We have done that through the restructuring.
We took out a number of layers. We have taken out over 600 white collar employees from director level and above. We achieved EUR 85 million. We will have, with total certainty by the end of this year, in the last quarter, we will have achieved a run rate of EUR 75 million for a quarter of savings, sorry, of SG&A, which signifies the EUR 100 million. We do think that there is still sufficient way forward, so it does not stop here. We will come up with the next phase after this. Variable cost per ton, I told you 4%. Where does this come from? It comes from yield improvements. It comes from something that we call the triple R, so reject rate, reallocation, and rework.
If you put a piece of metal through your machines to produce product Y and out comes something that is slightly different from product Y, then you can either rework it and it is still product Y, but it costs you money. You have to put it back into the oven because it is useless and it costs you money. Or you have to reallocate it to a different market, sell it for less money, so it costs you money. That is a tremendous driver of productivity. Then I think one of the things we are very proud of is the progress we have on procurement. We kicked off somewhere in the third quarter of last year, a specific project on procurement, where we have most of the big categories scrutinized.
To give you an example, on transport, what we did is take the U.S., we have identified all the possible transport lanes that you can think of, and there are tens and tens and tens of those. Then we got about 40, 45 transport companies into one room, and we auctioned off the lanes. So basically it is almost like a Dutch auction, so the clock turns back until someone say, "Okay, I will take it." And we have saved close to 20% on that procurement. But just being hard-nosed about it, different, there is no holy cows. We can touch everything. We achieved EUR 90 million already of procurement savings, and we see that there is still significant further savings to be done. We do believe that we probably have another EUR 60 million over the next few years to save. Let me be very clear.
When we talk about procurement savings, it is not what you normally see, which is, well, the price went from 80 to 90, and we only paid 85, so we saved 5. No, you actually lost 5 extra. We work on pure dollars. So if the price was 80 and you do not get it for something less than 80, there are no savings. These are real dollar savings to your bottom line. We are progressing just as much commercially. I said to you, we are 25%-35% on the way on our commercial excellence. A big part of it is volume, and a big part of the volume comes from the U.S., where we had over 40% improvement in our volume performance.
But equally in Europe, we had fantastic results on our mix improvement, on taking out, again, leakage, where in your pricing discipline you might give discounts that are not necessary or erroneous. We probably added about EUR 100 million to our top line just out of the European commercial excellence activities. As said, we have the best customer satisfaction in the industry. We want to go to 75%. One thing that is very important as well, you see it here, stainless, the value-based selling. Now back to what we said about the intensity of stainless steel. So we had, for instance, together with one of our customers, our R&D group went with this customer to one of their customers, which is Statoil, for the largest offshore development that Norway has going. It is called Johan Sverdrup, former Prime Minister in the late 1800s, if I am not mistaken. Huge project.
They always used galvanized steel and galvanized steel pipes. We went there and said, "Guys, we can show to you that this is not the right way to go. We actually have the data. We can show you how to operate this in a different way so that you save a lot of money. It's more expensive to start off with, but over the lifetime of your product, you save a lot of money." Lo and behold, as a team, we won that deal for a big amount of tons. This is what we do all the time. We have done it in the U.S. with one of our customers going to an appliance, who doesn't want to be mentioned. But with that, we got a supplier's price because of the fact that we helped them out.
We gave them a new vision and view on how to use stainless, and they actually gained from it. That's one of our most important drivers. Something that I think, again, is unique for Outokumpu. I already said that we were helped a bit by the market. Still, if you look at stainless, just the stainless part in Europe and in that improved, it's impressive. From a EUR 58 million EBITDA in 2015 to almost EUR 400 million in the first nine months of this year. I think there are very few companies that can show improvements of this sort. I just want to say, you see here for the first time, split out our ferrochrome results. It just shows you that we are a stainless steel company, and a bloody good one, because we have fantastic results here on stainless.
You could say, well, a bit disappointed about ferrochrome, but we had production issues, so that's icing on the cake. But this is what we have done on the stainless side, which I think is extraordinary in two years' time. Talking about ferrochrome, you know it already because the information went out, but we have decided to go from our three reportable segments to four reportable segments, where we have ferrochrome as a separation out. What does this do? It gives you more insight in the machine room. It gives you a better view. This year, I have had from you a lot more questions about ferrochrome than about anything else. Whereas I keep on saying our main business is stainless steel. When I compare our performance with our competitors, we compare our stainless steel performance with them, because that's where we compete.
We have a fantastic competitive advantage with ferrochrome, but stainless steel is what is ultimately the core that the company floats on. Coming back to that fantastic asset on ferrochrome, we do have one of the very best ferrochrome operations in the world. We are in the top decile of most efficient operations on ferrochrome, and that is mining plus smelting. Here you see this is not us. This is CRU that put this together. You see that we lose out to Kazakhstan, which is the first three bars, and then you have a few in South Africa that are slightly more efficient, and then it's us. The good thing is that this is not the end.
We have an extremely rich seam of ferrochrome, as a result, we have taken the decision as well to do a significant investment of close to EUR 240 million in the expansion of the mine. I need to tell you a little bit about the mine, because I think it's a fascinating story. The ferrochrome seam used to run on the top 10 years ago, for some reason was tilted and is now running down. We first were digging up on the top, at some stage you can't anymore, so you have to go down. We have been mining at about 500 meter deep, we're now going to the next level, 1,000 meter deep. We already have the exploration tunnel down. We have explored the seam.
It's the same quality, we will now open it up for the next phase in our ferrochrome production. Very big investment, but very strategic. Before anyone asks in the Q&A, no, we are not selling off ferrochrome. This is absolute core to our competitiveness. Not only do we have an extremely competitive asset, as I said before, logistically, operationally, this thing is 20 kilometers from Tornio. We have all the processing in Tornio, so there's hardly any logistics cost, we can charge the hot ferrochrome without having to cool it down and reheating, big advantage in energy, straight into the stainless steel. This is an absolute core asset. Lifting a little bit up on the future. This is one of the future things, a very big expansion. Another one that we are doing is what we call Chorus. Chorus is a business transformation project.
The core in it is a move to a single ERP. We come from a system where we have 32 different ERPs in the company running. We have hundreds of peripheral systems around, that either communicate poorly or not. We have taken the decision back in the end of 2015 to radically change that landscape, go for one single instance ERP, and use that as the platform for our future growth, I'll come to that. I want to be very clear, this is not an IT project. This is a EUR 120 million project that, yes, is changing the ERP, but as well as part of it, we have changed our CRM and that is linking in there. We are changing into supplier portals where suppliers can actually get into it. We're changing to portals for our customers, so customers can join us in our system.
We have put in a new scheduling and planning system into the plants so that we have more efficiency, better planning, less waste. This is something that is going to change very significantly how we operate and how we perform. It's something where we think, because we started already in 2015, we designed the system over 2016 and 2017, and now we implement it already in the first quarter of 2018, starting in Germany. We are way ahead of the rest of the industry. No, way ahead of the world. I think the metals industry is not that forward-looking, but we are in an extremely good position there. What will it do to us? As I said, it will allow us to integrate our suppliers, our customers into our own systems to make them part of our supply chain, to be much better able to respond.
Which, by the way, the only thing I say about the customer service, the one thing that the customer wants is to have total access all the time, anytime to the supplier and know what's happening. This does that. It does create us a platform as well where we can change how we operate. It changes, for instance, our maintenance processes. Things like intelligent bearings. You just put lots of sensors in your equipment as an overlay. It's not very expensive, and you can predict when maintenance comes up. Intelligent bearings are bearings that basically have a sensor, and as they are in these big things rolling around you, from time to time, you go with your iPhone, you keep it close, there's communication over Bluetooth, and you can see whether there's anything wrong there. You can, before anything breaks, you can actually do what you need to do.
Same with quality, predictive quality. Weeks before you have a quality problem, it actually tells you that you are going to have a quality problem because of something. So it improves your whole operation system. It enables you to be much more flexible and as a result, have very short lead times. In other words, we can become an almost bespoke producer of stainless steel for every individual customer with extremely short lead times. Revolutionary to what you have now, where the steel industry runs campaigns, and as a customer, you have to wait until your campaign is being run. So this is not just a little thing. This is a game changer, and this is what we see. We are confident that we will make our vision 2020. We are absolutely confident. We are so far on the way there that we're going to be there.
We already have to start thinking now on what's next. What's next is this company that will change the way you do business in stainless steel. With that, thank you very much. Tommi.
Thank you, Roeland. Outokumpu's financial position has improved significantly, and we are currently at healthy levels. With improving profitability going forward, we will continue to deliver solid cash flow. We will now move right to the next presentation by our CFO, Chris de la Camp. Chris, go ahead.
Thank you, Tommi.
Good afternoon, ladies and gentlemen. It is great to see so many of you here, and I know that many of you traveled quite a long way to be here, so it is very much appreciated. You have heard from Roeland the tremendous progress we have made in our operations, in our commercial activities, the internal culture change that we are going through, and of course, this has significant positive impact on our financials as well. I want to talk a little bit about not just the EBITDA improvements we have seen, but also how we are driving those EBITDA improvements through to cash flow. We have made tremendous improvements in the way we generate cash. It has had a significant positive impact on our balance sheet. This, of course, will create options and flexibility as we get to 2020 and beyond to grow the company further.
I would like to start by going back just a little bit and taking stock of where we started in early 2016 when we laid out our vision. You will recall that there were three key financial targets that we set ourselves. We wanted to achieve an EBITDA by 2020 of EUR 750 million. It is now an EBITDA target. A return on capital employed of 12%, and a gearing of less than 35%. So let us just take a look at how we are doing now. In the first nine months of this year, we delivered an EBITDA of EUR 549 million. Our return on capital in the first nine months of this year had already moved beyond the target of 12% to 12.4%. Our gearing has moved to 44.4%, which is within sight now of the 35% that we are aiming for.
If we take a step back for a moment and move away from the quarter-on-quarter changes that we often discuss in our investor calls, in our investor meetings. Let us take a step back and actually see how that journey that we laid out last year has gone. 2015, if we take away for a moment the disposal of assets in Asia and in Mexico, generated an adjusted EBITDA of EUR 165 million. That nearly doubled in 2016 against significant headwinds. Prices were not so good in 2016. Raw materials were down in 2016. This year so far, we have guided to a level of over EUR 600 million. Yes, market environments have helped. We have seen higher base prices. We have seen support of ferrochrome prices. We have also seen some support from nickel.
But as Roeland has outlined, the self-help has contributed very significantly to this result, commercial progress and operational progress. Each of our three businesses has contributed very positively to this. Let's take a look at each of them very briefly. Europe, which is now split into ferrochrome and into stainless as of this morning, has grown significantly. You can see there's been an increasing improvement as a result of all the initiatives that you've heard from Roeland about, and you'll hear more of this from some of our colleagues later on this afternoon. The Americas, often a topic of much discussion and debate. Yes, it had its issues in Q3, one-off.
Again, if we look at where this business has come from, EUR 120 million of EBITDA loss in 2015. An improvement to - 27 last year. In the first nine months of this year, despite the setbacks that we've already discussed, a year-to-date EBITDA of EUR 22 million is improving. It's on an improving trend. Long Products has also made its contribution here. We've seen the Long Products business take a dip last year as a result of weakening oil prices, and a lot of the business there is in the oil segment, but they've done a lot of work on their cost structure.
They've opened up new business opportunities, and this year in the first nine months, we're already significantly ahead of the 2015 results, and certainly well ahead of the 2016 results. So there has been significant progress, and of course, our EBITDA improvements are driving improvements in our cash flow. So let's take a look at the next big element of cash flow, which is CapEx. Apologies, CapEx. We have, in the last two or three years, generated a CapEx level of between EUR 150 million and EUR 200 million. That has been well below our rate of depreciation.
We've been very conservative and very disciplined about it. As we move forward now, it's enabling us to invest majorly in key projects such as Kemi, in key projects such as Chorus. But with those projects coming on stream, we also have the predicament that we have many good smaller opportunities that we would have to bypass and forego if we did not move that CapEx target up. So we've taken the decision that we want to do some of these smaller short-term payback projects in order to further improve the performance of the company. So our new CapEx target is now moving up a little bit above EUR 200 million. That still remains below our rate of depreciation, but it will move the performance of the company further, and it is still very disciplined.
I want to just give you an example of one of those projects, one of the bigger ones that Roeland has already discussed, and you'll hear more of it later on as well, Chorus. So what does Chorus actually mean, for example, in the area of SG&A costs? One of the targets that we've obviously set ourselves for this year to be 25% better on a run rate, and so far, we're on target to deliver that by the end of December. Chorus is around a change in business, improving business capabilities, but it also helps us improve our SG&A costs. It'll reduce our IT costs because we are now simplifying our landscape. It means we have simpler process to support it. That reduces costs in terms of licensing an IT organization. But we're also now in a position to start centralizing and standardizing processes throughout the organization.
Give you an example. In the summer of 2016, we did not have a single person in Vilnius and decided we were going to set up a service center there. As of today, we have over 100 people. These are people that we've moved from other areas or recruited to new in Vilnius to start working together on harmonized processes. They will ultimately be supported by Chorus, by a single system, and this will drive significant cost benefits in terms of lower manpower. We're also using the arbitrage between Lithuania and other countries. As we go forward, we have the opportunity to move more and more back-office functions into Vilnius. We're doing exactly the same in Mexico and San Luis Potosí. Of course, beyond that, Chorus will enable us to move into new areas.
We're going to be able to create a new platform digitization, work on improving our maintenance costs, use big data, analytics to improve our customer experience. So this will further drive business, and you will hear more of that a bit later. The second big area of cash flow impact comes from interest expenses. We have worked very hard so far this year on making a dent in our interest expenses. At the beginning of this year, they were at a run rate of EUR 100 million a year. We set ourselves the target that by 2020, we want to reduce this by half, so down to a level of EUR 50 million. How are we going to do that? Well, we've already made a good start. You'll all be aware that we have recalled the 2019 bonds, so they will be out by the end of this year.
We've made major changes in some of our longer and shorter term financing. We've reduced our factoring programs that are more expensive. We have refinanced pension loans, which were at high coupons. We have redeemed some term loans from the disposal of assets that we've made in the United States, and we continue to work in other areas to improve our cost base here. We've called the 2021 bonds the first 10%, the second 10% will come at the end of this year. We're continuing this effort as we go to the end of the year and into 2018. The revolving credit facility will become short term in February, so we're looking at that, and that'll be dealt with over the next two or three months.
Going on beyond that, we're of course very well aware that the markets out there are very favorable to refinancing other long-term debt that we have, which is very expensive today. So here we will see significant improvements in our P&L and in our cash flow. Our taxes are another factor that can have a big impact on our cash flow. Of course, our cash position here is very favorable. Everybody, I think, in this room is aware that we've generated huge losses, unfortunately, in recent years, and this has built up a huge amount of tax loss carryforwards. These tax loss carryforwards have had to be written off in years of no profit because there was no credible way of ever being able to utilize them.
But as we have put in place forward-looking plans to make profit at legal entity levels, we are able to start bringing those back. Last year, we brought back over EUR 180 million of tax loss carryforwards as deferred tax assets onto our balance sheet in Finland and Sweden. We still have 2.5 billion sitting out there, predominantly in the United States. and in Germany and in the U.K. As we go forward, this will protect us from cash taxes for some years to come. So what is the impact of this? It is not just lower cash taxes, but it also has a positive impact on our net income. It has a positive income on our equity, strengthen our balance sheet, and a positive impact on our gearing.
And we have shown here that if we take a typical example of EUR 100 million tax loss carryforwards, the impact of each of those in a country that might have a tax rate of 35%, which is normal in some of the countries that we operate in. So this could, for example, generate 35 million more of net results, 35 million more of equity, and improvement for each EUR 100 million of 0.6 in our gearing. And we have EUR 2.5 billion to go, so you can do the maths yourself of what the future impact might be. The impact on our balance sheet has been significant. I do not want to go back to the days before 2016 when net debt was sky high. But over the last 21 months, we have reduced our net debt in Outokumpu by nearly EUR 0.5 billion .
That has driven down our gearing from a level of 69% to gearing of 44%, and our net debt leverage from 9.8 to 1.7. And we are not going to rest here. We are going to continue pushing this down. The next hurdle, of course, is EUR 1.1 billion or less by the end of this year. And you can see we are almost there. Beyond that, we want to move to leverage of below EUR 1 billion. So you can do some maths as to what the target on net debt would be around that. It is very good to see that this has been recognized not just by some of our banks and our creditors, but also by one of the rating agencies. Moody's recently upgraded us for the second time this year to B1 from a B2 rating. We started the year at B3.
So this has been tremendous progress on that front as well that we are extremely pleased about. So where does all this take us in 2020, once we have fulfilled the vision, or perhaps even a little earlier? By 2020, we will be generating EUR 750 million of EBITDA. We will have very disciplined CapEx, we will be having a modest level of interest expenses, and our cash taxes and other cash outs will be relatively low. So we expect that we will be able to convert at least 50% of our EBITDA into positive cash flow. This creates flexibility and options. For those of you who are investors, it will allow us to pay 1/3 of our net income in dividends on a stable basis. And of course, even more exciting for us, it enables us to invest in growth. So we have a lot of ideas.
Roeland has already outlined some of those, the opportunities opened through digitization. We have opportunities to invest in our operations to generate more EBITDA on the basis of that. We have opportunities to invest in growth opportunities in certain geographies and in our commercial operations. Going forward, we can invest more and more of our cash flow in growing alongside paying shareholder returns. All of these things, I think, make for a very bright future in Outokumpu, and we are very confident that we have the ability and that we will deliver what we set out to do. A lot of self-help, not just from our operations, from our commercial activities to generate more EBITDA, but also activities going on to convert that into solid cash flow.
It will continue to strengthen our balance sheet as we go forward, and it will continue to create options and flexibility for future growth. Thank you for your attention.
Thank you, Chris. I would also like to invite Roeland back to stage. We are now ready for the first Q&A session. Just a reminder, when asking a question, please wait for the microphone and also please state your name and company. We will aim to keep the Q&A pretty short today as the main discussions then will be in the breakout session in the afternoon. We will also take questions over the web. Who would like to go first? Bastian over there.
First question.
Please, just a minute.
Thank you. My first question would just be on the Kemi mine expansion. Is this mostly a replacement of the existing capacity, or is there actually any incremental volume expansion? Then, as you basically carve out the Kemi or ferrochrome operations in your results, I think there will be a bit of a stronger performance focus on that business as well, even though you basically see it as a bit of a, say, side leg of your business. My impression is that you have never really stretched the operations to the max. There have been a lot of operational issues, not just this year, I think also in the last year. I think we've never really been seeing the full potential. What's your view, first of all, on the volume side, and then also on the performance?
Then maybe on the financing side, I think you've been suggesting that there is a lot of scope to cut interest costs, and you've been giving the target for 2020 also on the balance sheet. But given all of the initiatives you've got in place, I guess there should be already quite a good scope to cut interest costs as of next year already. You mentioned the bank loan. I think every bank at the moment is very happy to get actually cash off their balance sheet. I think maybe you can give us an update or maybe more detail here. Then also on the balance sheet target, you basically say you aim for 1x net debt to EBITDA. You will have reached that pretty soon.
I think what's the timescale you're really looking at, and is there possibly a bit of, say, upside to CapEx even on top of what you have announced for the next years once you've been hitting that target? Thank you.
All right. Starting with Kemi. Yes, the current mining level would run out by 2024, 2025. The next level is to make sure that we can keep on going. Theoretically, you can produce more. There is enough seam there that you can get more ore out. The bottleneck is on your smelting side. We are not planning at this moment to put more smelting capacity. Have we run this at its absolute total maximum? Definitely not last year and this year, but this was hampered by issues. Having said that, I am sure that once we are applying the same principles to our ferrochrome production as we are doing to our stainless production, so the same methodology that we use to improve OEE efficiency, productivity, et cetera, in stainless, that we will be able to still eke out more on our stainless just by improving operations.
You are right, we have not had the necessity to put a tremendous amount of focus on getting even more out. There was a second part to-
There was a second part.
-to Bastian's question, which I will address. You talked about the short-term opportunities. Yes, indeed, they are there. Clearly, the revolving credit facility is out there now. It is going to be into the short-term terrain in February, and we are going to look at that and make sure that it does not move short term before then. We expect to get improvements on the current terms there. I would expect there to be very big interest in participating in that. In terms of the other opportunities, I have outlined some of them. We are well aware that currently the high-yield markets are extremely strong. We will be recalling and redeeming the 2019 bonds this year. That still leaves EUR 200 million or thereabouts on the 2021 bonds.
Currently, with a coupon of 7.25%, and rest assured, we will not sit on it until maturity, so we will address that, too. There is obviously also the convertible. We will have to see what happens to that. That is a little bit outside of our immediate control, but there are further opportunities to reduce the interest costs in the short term. Whether we can achieve all of that before 2020, we shall see. But by 2020, we will have delivered all that.
[Is EUR 20 million roughly the right number for interest cost cuts next year?]
Well, we are going to be 25% down by the end of this year on run rate already on that target.
Seth.
Thank you. Seth Rosenfeld from Jefferies. Just a couple of questions. When you think about the new Chorus program, can you give us a better sense of when you expect that to actually begin to benefit your P&L over the next couple of years of implementation? In particular, with lead times, what sort of benefit do you think that would have in terms of your cost base, in terms of your ability to supply customers and working capital? I guess strategically, you talked about looking at it from being a bespoke producer of different steel grades. I think one of the first moves you made when you joined from the commercial strategy was walking away from certain bespoke grades in order to better optimize the large scale capacity that you have.
Is there any sense that you are trying to go back into some areas that you previously kind of walked away from in the last two years?
Starting with Chorus, of course, when we started this project, we had an overall objective of what it can achieve. We are currently in what we call the blueprinting process, where we are actually working out exactly what is going to hit where and what savings we need to get out at what stage and what it means for our organization. Obviously, this will not be in one go, because if you look how Chorus is being implemented, we have the CRM, we have the planning tool, and we have the portal that we are now opening, but it will only start really working if your whole company is connected. Germany will be done by the middle of next year, then Sweden will be done by the end of next year.
Tornio will be done by the beginning of 2019, and then Calvert will come in 2019, towards the end of 2019. So that is when you can really start getting all the benefits out. On the phasing, I assume once we know exactly how it is phased, when we have done our homework exactly, then we will be able to more specifically feed that back. On the bespoke bit, I did not say we do bespoke alloys. It is bespoke orders. As I said, now for an order, you have to wait in this industry until a campaign is run on the specific product. If you have a more flexible system, you can much easier switch from grade to grade.
It does not mean that we will have more grades, because I still do not believe that having very small grades for one single customer, unless they pay through the roof, will make any sense.
You, Mike.
Thanks. Mike Shillaker with Credit Suisse. I think we all understand and appreciate the big picture of what you're trying to do in terms of improving the company, turning it around, et cetera. But even through your tenure, there has been a number of operational issues. The ferrochrome issue, I think, took longer to resolve than you would have thought. Last quarter, we had the issue with the toll rolling. How much focus are you giving on, and have you been surprised by the operational issues that keep cropping up, and how much focus are you giving on operational? Because if the operations don't work, then you're not going to be able to achieve the rest of what you're actually trying to do.
My second question is, I guess a lot of people in the room found it amazing when you put up the slide showing that an industry that's been around for over 100 years still has a 50% approval rating from its customer base. Is it possible this is just a very tough industry to actually supply the customers and keep them happy? Because it's amazing that after 100 years, this still hasn't been achieved. Or have you identified something that no one else has identified in that 100-year period to get yourself up to 75%? Thank you.
The two questions are very much related. There is unfortunately something in the metals industry, and I've been in carbon steel and aluminum I should say in this environment, and stainless. You cannot make everything work flawlessly all the time because you do not know when it breaks down. These are engines the size of this room with all sorts of moving parts and 20,000 kilos of pressure on. You don't know when it breaks. You can do all the maintenance, you can preventive, et cetera. Sometimes it suddenly breaks and you get problems. That is one of the main reasons why every single mill has unexpected outages. What our vision is to be able to have so much big data, quantitative statistical analysis that we predict when this will happen, so we can take it offline earlier and make it work.
This is the core to becoming a better supplier. The 50%, again, is something you will find in carbon steel and in aluminum. It is not different. I think everyone knows it. No one has found the silver bullet to solve it. With the depth that we have done on our customer survey, independent of the operational issues, we think we have enough information to move us up to that 75%. The last question, do we occupy ourselves too much with the big picture? I am more often in the mill than I am in the office. I look at Mike, I look at Mac, I look at Kari. They live in the mill. It is where it happens.
I said this early on when I took on this job, I said, "That is where the rubber hits the road." This is where we as a company have failed to put emphasis on, and we are now singularly focused on that. Still, we have issues, yes. The ferrochrome furnace, we were puzzled. We were really puzzled. We now know what it was, and it was actually ultimately the quality of the coke that went in. We had one specific supplier, and you talk about a percentage or 1% or 2% of a different element, and that caused the whole issue. Now, to find that is just mightily difficult. So solved, no problem, done. I am not saying that we will go into the future without any problem ever. But we will get better and better.
Cedar.
Thanks very much. Cedar Ekblom from Bank of America Merrill Lynch. When you did your survey, how important was cost to your customers? The reason why I ask is, I know it is very early days, but we have seen this deal in the U.S. between ATI and Tsingshan, and it could be pretty powerful because you have the low cost base of Tsingshan, and you have got ATI's production facilities, which potentially produce a very good stainless product. So I am just trying to understand. We do not know what the market will look like. We do not know where they will come in, and obviously, it is a few quarters away before they are real competitors in the U.S. But how do you compete on cost, and how much does cost matter when you did that survey with your customers?
Yeah. So cost price is actually one of those that came lower on the list than we expected, but it doesn't mean that you can be $200 more expensive. There's a limit. So we are the most expensive. We are perceived to be the most expensive. That is one of the things that comes in the survey as well. We are perceived to be the most expensive supplier. But they still like us because we are perceived to have the best quality, we have perceived to have the best interface with the customer, and as a result, we have the best customer satisfaction. So you have room to play with the pricing. Being good gives you a premium. Being excellent gives you a bigger premium. This is one of the reasons why we want to be excellent. ATI is a different thing.
After Mike's presentation, I think we'll talk about it. I think there will be an impact on the U.S. market. However, it is not as clear cut as you think. It's not that suddenly, oh, my God, the market is flooded with product that is way cheaper. That's not how it's going to work. But we'll get to some more detail.
Then Johannes.
Hi, it's Johannes Grunselius, Handelsbanken . Just curious about more potential for further cost cutting. I think you said in your presentation that there were another EUR 60 million here to be benefiting you in your plans. How should we think about that in the next, for 2018, 2019? Will most of the benefits already come into your books in 2018, is my question?
Yeah. If you look at run rates, just a few buckets. SG&A, we are running at EUR 85 million savings of EUR 100. For 2018, that additional EUR 15 million will be there. We actually think that there will be another EUR 10 million approximately that we can achieve during 2018. The EUR 60 million is procurement. We have EUR 90 million done. We think we can get to EUR 150 million. Not all will be in 2018. Probably a smaller part will be into 2019, but a big chunk we can see going into 2018. If you look at a few of the other things, there are still operationally, for instance, the closure of Benrath. Although it is closed, there is still some legacy costs hanging over there that will come out, so there are a few bits and bobs.
We have embarked on, and Mike will talk more about it, on a value stream mapping of Mexinox that will lead to significant savings in cost. We are doing value stream mappings of several parts in Europe as well to get to a next level of cost. There is, not quantified yet, but there is still sufficient potential for further cost reduction.
Question over there.
Hi, thanks. Fraser Jamieson from JP Morgan. I think you said in the presentation around the EUR 750 million EBITDA target that that has clearly benefited somewhat from pricing, and you internally kind of roll that back to pricing of the day when you were instituting those targets. Can you maybe give us a bit of context around, if we look at the EUR 600 million plus for this year, where you see that on a kind of rebased basis, and how far are you from the EUR 750 million? Then I guess on Chorus, a sort of general question, does that program, particularly the kind of ERP aspect of it, open up any geographic opportunities that maybe have not been available for you in terms of shipping and raw materials that you have not had available to you up until this point? Thanks.
Okay. We do not disclose what our assumptions were that go into the target setting. The target, by the way, stays the same, right? EUR 750. How close the EUR 650 is, I am not going to tell you. I do tell you that we are probably, a quick sum, we are probably about 15% over our rebased trajectory. On the rebased trajectory, what I have always said is the first two years we have to make the biggest steps. If we do not make in the first two years of the five, if we do not make at least half of the steps, then we will not get to the end point. So, comfortably on track.
Hi. Philip Ngotho, it is ABN AMRO. My first question is related to, you indicate that you are moving up your CapEx budgets. It is still below depreciation. I was wondering, are you still under-investing then? Is that what the conclusion that we should draw from it? Or do you perhaps have a bit of an aggressive depreciation schedule? It is a bit related to the earlier question, so should we see a higher CapEx somewhere after 2020? My other question is, on the target that you issue, have you contemplated also issuing really just more a cost savings target or something that is easy to track rather than an absolute EBITDA number, which is also influenced, of course, by macro aspects?
The last one first. I think we have given the cost savings numbers. So that is there. The rest is in the magic of Olli-Matti and the commercial side, which we do not disclose. So it is both sides, and that is why I cannot give just one number. But 45%, we said, is cost, and 55% is top line. We have given the SG&A. We have not given the improvements on productivity. You can more or less see, as I said, how much we achieved. So the number is there. We have still about 30% to go. We are definitely not under-investing. This is a business where, and this is not just us, but I do not know a single steel producer that is actually, even when they maintain up to top notch as we do, that will actually make the full depreciation in investment.
It would not make sense. You will be bust in no time. These are machines that are just very high capital when you put them down. But once you have them, then relatively speaking, your maintenance, you do not have to replace in 10 years. These things, as you know, steel mills live forever. They are there for 50 years, 60 years. So by definition, you will be along. What I can tell you is that we have, and this is not just me saying, you can go and ask my competitors, we have some of the best assets in the industry. I would say the highest degree of automation in the industry. I would say we have very well invested in assets. So no worries there. There is a question over there.
It's the last question from back there.
Not there. All the way in the back.
Thank you for taking my question. Luc Pez from Exane BNP Paribas. I had one question left with regards to working capital requirement. Maybe if you could be more specific when it comes to your debt reduction target and how you see your ability to better control, given the volatility we are all experiencing on the raw material side. Thank you.
Take that?
Yeah. We've done a lot in terms of managing our working capital down, and we talked about that quite a lot last year in terms of the EUR 200 million target, and we have delivered on that. Clearly this year with prices being higher, working capital levels have moved up. We tend to look particularly at the underlying drivers of working capital, the stock levels, the DSOs and the days of payables, because these are the things that we can control. We cannot really control the prices of raw materials and to some extent, the market prices that are out there. There will always be a fluctuation because of working capital that will move the cash up and down. This year it's been up a little bit, and there will be times when it's down.
The overall, I think generally with the level of working capital we've now achieved, we're broadly happy with that. In the future, and that's why we did not particularly talk about it today, because a large part of it is out of our control. We'll be focusing on those elements of cash flow that we can control and maintain the working capital fundamentals at the level that they're at. Always obviously trying to optimize and squeeze, partly also through the implementation of Chorus. But at the end of the day, you will always see some volatility as prices move up or down.
Thanks, Chris. Thanks for the questions. Thank you, Roeland. Thank you, Chris. We will now have a short break. Let's all be back in the room in roughly 10 minutes as we will continue at 2:00 PM. sharp.
[Break]
Welcome back. We now move to the business area presentations. Europe has made tremendous progress over the past couple of years, but this is not the end of the story. Roel will come back to the stage and now explain how there's still tangible growth potential in Europe.
Sorry, guys. It's me again. Tangible growth in potential in Europe, and I'll get to that. The trouble I have is that talking about our European business is not very different from talking about what I've just said about our overall business. Because the way we are growing our business, the way we're approaching our business, the underlying efforts we do, are exactly driven by the same principles, the same must-win battle, et cetera. The good news is that this can be a pretty short presentation, and you can then fire questions at me later. As I said, a lot of what we're doing is what we're doing around the company. You see here the same must-win battles, and you see what we are achieving, and I'll come back to it in more detail.
But most importantly, I think, again, equal to what I said in the other presentation, what is good to see is how tremendously, even in our very steady, stable business in Europe, how tremendously we have improved our performance. Up 80% on the stainless side, from EUR 200 million to almost EUR 400 million in nine months. So almost a doubling, and the year is not over yet. I think that's a tremendous achievement in a market that is basically relatively mature at the first site, I'll come back to that, and where more or less it looks as if market shares are sort of fixed. There's not a lot of movement. It's especially impressive because this happened in an environment where the market didn't help that much. If you take a look at stainless, prices were up 6%, base prices, and that was basically in 2017 over 2016.
2016 over 2015, actually, base prices were down slightly. You see that it is really a story of self-help, of excellence on our delivery of cost, on our delivery of top line, and nothing else. Talking about that, what are the main drivers of this performance? One, of course, is the change in the footprint. You know we changed the footprint in Europe significantly. We closed altogether over 1 million tons of melting. We closed 200,000 tons of cold rolling. We changed the whole organization into an interdependent mill system rather than separate mills that do their own thing. That has been, for the cost side, one of the biggest drivers. Connected to that is the ferritics operation investment. That was EUR 110 million in Krefeld, which came online and literally within three, four months was running at full throttle.
As a result, although we closed Benrath, which is a significant amount of volume, we didn't lose a ton in the market because we could, in our system, with the new efficiency, take it over, and that has been one of the largest cost drivers in Europe. We have done a lot on, as I said before, the manufacturing excellence, bringing up OEEs. Ultimately you could say, "Well, that doesn't say a lot to me." What it does, if you can get your OEE up and your efficiency up, what you do is you can actually bring up your delivery performance. For instance, in Germany, which was the first focus that we had on operational excellence, that first focus was on those three mills. We went from delivery performance of 70% on time to now 90% on time.
We moved the focus to Sweden, where we have moved up to now over 80% delivery performance. As they are improving and are a good level, we are now moving to Tornio. You see that we still have tremendous amounts of work to do. Tornio, by the way, is today on a delivery performance of just over 60%. Important. Delivery performance is, of course, very important to the customer. It is extremely important to us because if you have a better delivery performance, it means that your facility is running more smoothly and it means lower cost, lower working capital, et cetera. Then, of course, as I said before, we have realized a lot of SG&A savings. At the same time, that's a cost side. We're looking at the same time at a very healthy market. The underlying market in Europe is really good.
As I said, driven by consumers. Strong automotive sales, strong appliances. You see as well now slowly starting the oil market to be kicked in. Product sales are going up as well. All in all, a very positive trading environment where stock levels at our distributors are basically sitting at a historical average moment at a time that the underlying markets are improving. Tremendous support. By the way, you see imports have increased, particularly it should read from Korea, because we do realize that Taiwan is somewhere in Asia. So it is Korea and Taiwan, not Asia and Taiwan. That is an absolute fact. It has moved up about 3% or 4% over the last couple of years. This is on the one hand because the market is growing, and don't forget, we are exporting ourselves as well.
Two of our biggest markets are, strangely enough, Korea and China, where we sell very high added value, high-end products, and are absolute market leader, with probably about 50% in that segment, in those countries. The most important thing, and this is what people, I think, do not really have on the radar, is that in this boring European market, we are expecting the next few years, we are expecting 400,000 tons of cold-rolled material growth. That is over 10%, it is 15% of the, it is even more. It is almost, yeah, it is 15% growth in the cold roll market. With our market share, that means that we are looking at getting our fair share, which is about 150,000 tons, which reflects our market share. This is what we are looking at in the next few years to add to our sales portfolio. Significant opportunity.
If you look at, again, our path for the future growth, we have a tremendous market position. We are the number one in this market by far. We are number one in Germany, which is the largest of the consuming markets by far. We have the widest footprint, and we have tremendous assets. We have the best assets in the industry in Europe, and we are improving them time and again with the operational excellence, the global production standards we are introducing everywhere. As I said before, the innovation side, especially in the developed markets, is important. I gave you the example of the Norwegian offshore field. I gave you example of the pipes. There is another one which is interesting, where in Stockholm they are redoing the whole infrastructure of the inner city with all the roads leading in there.
In that project, they have to replace three bridges. We have been in touch with this project and talked a lot about and helped the authorities come to the conclusion that it is much better to make these bridges out of stainless steel than to make them out of carbon. You would say, why? Because it is expensive. The reason is that a carbon steel bridge has a lot more maintenance than a stainless steel bridge. Now, if you are in the inner city, every time you have to do maintenance on a carbon steel bridge and you have to close it, mayhem ensues. Mayhem in terms of traffic jams, pollution, you name it.
They calculated that investing in stainless steel for those three bridges was ultimately on a life cycle calculation, multiple times cheaper because of the savings on the traffic issues, the cost to logistics, the pollution, than had it been carbon. Again, this is where we are good. This is where we have the power to actually help grow the cake of stainless steel in metals. As said, we are using Chorus as a unifying tool to be even more efficient between our mills. It is basically, as I said, short presentation. We are doing the same as we are doing in the rest of the company. We are doing it extremely well. We are extremely successful. The one thing that, as I said, is probably not that much on your radar screen is how much growth potential there is in the European market.
And we are going after 150,000 tons of that growth. And we are confident we are getting it. That is it. Thanks.
We will take couple of questions. If you will, you can stay on stage.
I will.
Just a couple of questions from the audience before moving on. Cedar.
Do you think that the growth rate in stainless is accelerating from where we are now? Because if you look at those charts where we talk about where cold roll consumption was in Europe, it looks like it has grown by a similar amount, about 400,000 tons over the last few years, which ultimately implies a slower rate of growth. Is this really something that exciting? Or is it simply stainless continues to grow roughly in line with where it has been in the past and hopefully you take more of the market?
No, we are not looking to take more of the market even. I am just saying that we want to have a fair share. If you take stainless growth over the last three decades, you probably will see the same, about 5% year-on-year growth. That does not make it non-exciting. It makes it extremely exciting because consistently it is outperforming other base materials for a long period and for a long period to come. It is one of those, whereas if you talk at carbon, we are actually looking at diminishing steel intensity and diminishing growth. Actually, if you listen to world steel, the prediction is to zero to negative growth on steel consumption. We are growing. That is exciting, and we are in there, and we are a leader.
Peter.
If you look at the volumes of the European system, they have fallen a lot from the original merger. I assume you have sort of given away a lot of the sort of volumes you did not want. Could you talk about how much potential sort of capacity you can squeeze out of the system? I assume that would be very beneficial in terms of sort of unit costs. Secondly, just a quick word on Sheffield. Does it make any sense keeping Sheffield open if you can squeeze a bit more out of some of the other plants?
Okay. Let us start with Sheffield. Probably melt shops are the most optimized in the system. Although you can still bit by bit get your productivity, and let us say you get 2%- 3%, and it is on the outskirts on a melting shop, we would still grow faster than we could open up melt capacity. So having Sheffield as a reliable, high-quality source remains important. How much can we squeeze out? It is very difficult, Peter, to say. But I would say that the 3% that we are talking about on, for instance, improving our cold rolled performance is conservative. Especially because we have not done a lot in the past in running these places, in an optimal way. So, I am going out on a limb, and I would say that ambition that we have, we can probably serve that from debottlenecking in the existing assets.
[Audio distortion]
150,000.
Sorry.
Yeah. A million is would like to do that.
Seth.
Can you speak a bit about import penetration in the European market and how you've seen a shift in terms of different source countries and also the product mix, hot rolled versus cold rolled? I know earlier in the year, you really downplayed the impact of hot rolled imports on pricing. We ultimately saw a pretty severe downtrend in pricing in the summer. I know part of it was raw materials, but how are imports ultimately impacting your pricing power in the market today?
Yeah.
What potential is there for more trade protections looking forward?
Yeah. Let's start with hot rolled. As you know, hot rolled is not protected. We have seen the Chinese share of hot rolled in Europe go up to about 50% of the market. Now, it is a minor part of the market, but significant. I would be lying to say that I am fine with that. We as an industry, European industry, we have lost clearly market share on the hot rolled side. At the same time, as I said, it is smaller and it is lower added value. It does really not put a cap on the cold rolled market because a lot of it goes straight into, for instance, pipe manufacturing, et cetera. It is not necessarily re-rolled. The rest of the imports, you said, is there a shift from two countries? The shift took place already. The big countries now are Korea and Taiwan.
They have taken to a large extent the position that before China had. A little bit you see coming from South Africa, and then a bit from India as well, but not as significant. What is the possibility for anti-dumping? As long as this is fairly priced, we do not need anti-dumping. We can compete. As soon as it is not fairly priced, we will take our cue. One of the things, one of the questions I got is, to what extent are you sure this is really Taiwanese and Korean stuff? Rest assured, we are monitoring this like a hawk, and as soon as we see any evidence of circumvention of anti-dumping, we will take action.
Have you felt any pressure on pricing from those two countries to date?
No, not really. You could say that, of course, it puts a cap. We cannot suddenly say, let us move 100 EUR up, because then you would open up a lot of leeway for those countries. Having said that, back in, what was it? A few months ago, Chinese, Asian prices in general moved to a premium of European prices. Then suddenly you see these streams going back again until it flips. There is a lot of volatility, and I think this is one of the things that makes it difficult, but you have to accept. Quarter on quarter, there will be always a tremendous amount of volatility. The only way to judge where the thing is going is to take a longer view, have a longer view on the trend.
Because again, China is just very volatile, the trading is volatile, and the markets will react to it.
Time for one more question there.
Hi. Thanks. [Tim Stejskal from Klöckner]. Looking across this volume growth you're highlighting, what do you see as your operational leverage in Europe from your current asset base from here?
What do you mean with operational leverage?
If you grow the top line 5%, how do you see that cascading through the business, through the P&L?
Very big.
Excellent. Any sort of hard numbers on that?
No.
Okay. Thank you.
You are welcome. By the way, before I forget, I do not know, do your own numbers, try to strip out our performance in Europe. You now know our stainless performance, and look at the performance of our competitors. We think we have become the best value creator in stainless steel in Europe. That is what we think.
Thanks, Roeland. Thanks for the questions. Time to move on. Americas has made great progress since Mike Williams started as the head of the business area back in the summer 2015. We have reached break-even results this year, and we have still a lot of improvement potential left. Mike will now come and explain how we are on track to solid profitability.
Thank you, Tommi. Welcome to the Americas portion of our capital markets day. I saw many familiar faces that joined me and my team in Calvert earlier this year, so it is good to see you back. I will cover the progress on Americas, so let us go ahead and get at it. Pretty positive on our market developments this year. A couple of just quick notes there. As we have said, we are targeted to full customer or commercial acceptance by 2018. Made a lot of progress this year. This is not because I am saying, it is because it is what the customers are telling me. We have brought on over two dozen new customers in 2017. Our sales volume is up by over 10% in 2017 compared to 2016.
We have transformed our sales back office into moving to Calvert instead of having a, what I would call a collaboration communication nightmare with an inside sales back office in Chicago and the product being made in Calvert. We have totally transitioned that into Calvert, and we are already seeing some very positive results there. Looking at the manufacturing excellence, and I am going to give you much more detail than just these highlights of this introductory slide. But looking at the manufacturing excellence development, there has been some pretty good progress. You are going to see some numbers, improvement in safety, improvement in yield, improvement in our variable transformation cost. You are going to see that we also shipped this year to date, about 2% more cold roll.
And we still have what I would consider huge opportunity at moving our lower capable products into the higher capable markets and customers. We've had pretty good success in appliance this year, and I'll talk a little bit more about that. In the Americas, just like corporately, we're focused on the must-win battles. Those of you that were in Calvert, I hope and I expect that you got a really good impression of the passion, the focus of the team in Calvert. I'm going to talk a little bit about that because I think that's one of the most powerful tools and capabilities that we have.
That's why I'm going to tell you that we're extremely confident that there's plenty of runway left to deliver the value creation that we expect. So that being said, let's talk about what I think one of our biggest competitive advantages that we have is our human capital or our people. We've implemented a new safety program, and you heard Roeland talk about the importance of safety and its influence on your overall success within your operation. So we've taken on a new program called SafeStart. It really transitions us from being a reactive-oriented safety process to a proactive.
It's a 24/7 behavioral-based, people-centered process, not just on rules and procedures. So it's extremely proactive, and we've already seen some significant benefits within the Americas. It is a global Outokumpu implementation. We started in Americas, and it'll transform into Europe as well. I talk about the Organizational Health Index. You heard Roeland comment on it. So again, this is just to convince this group the passion, the commitment, and the collaboration, and the voice that the employees in the Americas have. So our response rate was 86%.
I think you heard Roeland comment that the average response rate in those 1,200 companies is between 50% and 60%. The collaboration and the passion that people have within the Americas to have a voice, it also leads to a tremendous improvement pipeline we have in projects, both commercially as well as operationally. As we navigated the markets this year, as I had said, our sales volume increased. We brought more different products to the market. One thing we noticed is that we were not focused and we were absent in a couple of key markets, the energy market being one of them. So we hired a couple of new sales leaders in the second half of this year. They're based in Houston. They're heavily networked and engaged, seasoned veterans in the energy markets, particularly with steel, carbon, and aluminum, as well as stainless.
We're already seeing pretty positive results in this regard. It's a market that we weren't heavily concentrated in from a sales commercial standpoint. It's also an interesting market. It doesn't have a lot of focus from some of the competition. So this is a market that we've invested in with people resources and capability, and we're already seeing some really nice multimillion-dollar orders brought in for the first quarter of 2018. As Roeland and Chris both mentioned, we've undergone recently a value stream mapping process or restructuring process. There's a couple of fundamental things that we see as huge opportunities in Mexico, both in market concentration as well as in cost optimization. I'll talk a little bit more about that.
One of the things I do want to highlight, and again, this is more of a people thing, where the Americas was recognized by American Metal Market for the best operational improvement in 2016. We got the award in 2017. What you see in the blue there are the statistics that are the improvements over 2016. So we feel very confident that we're in a pretty good position going into this. One thing I want to comment is OEE is the tool that we use to lever our backbone of manufacturing excellence. It is availability times performance times quality. And performance is really velocity or speed in which you deliver. So this is something that we've aligned very well with our bottleneck units. We basically have every unit that is measured on an hour-by-hour, minute-by-minute basis on OEE, and that's how we run the business.
Combine that with visual shop floor management that most of you saw in Calvert. The operators know where their performance is, each and every minute, hour, day, and shift. Talk about a couple of things that we're really striving for in operational excellence is our efficiencies. We've learned a lot about our raw materials. We have some opportunity to not only optimize our supply chain that got heavily interrupted with hurricanes in the third quarter, but also the types of materials we use, the types of materials we can trade for to use, where we can lower our overall material cost.
We've implemented a brand-new software application in June of this year, and we've learned a lot about because it basically goes where the tons are with the major scrap collection centers, the types of scraps that are available, and based on our incoming order mix, it allows us to optimize our buys in that regard. One of the projects you heard me talk about, those of you who were in Calvert, was our hotline slitter project. Unfortunately, we had some delays in that project, getting the equipment from the manufacturer. However, that line is being commissioned, and we'll, by the end of this week, begin production. There's a significant amount of yield improvement we're going to see both at Mexinox as well as Calvert in the cold rolling works. This is removing certain types of defects, particularly edge defects.
Therefore, we're not transporting them all the way to Mexico, where there is no scrap market, and having to recover those material removals properly. There's a 300% return on investment on this project. So we will start to see the full realization of that in 2018. We have migrated from what I would call a yield czar. We formed a dedicated yield team. It's one of the areas I've communicated to you about before. As we benchmark ourselves to our sister facilities, we see yield deficiencies within our system that we have to improve upon. We were incorporating that in project plans with the existing departments. We felt that we were not making enough progress. You'll see later that some of our progress only yield about a 1.1% improvement in yield this year. And we need to elevate that, accelerate that to 3%+ for next year.
I already mentioned about our OEE. It is aligning our management efficiency tools, manufacturing excellent tools, with our sales supply capability that we want to take to the market, and it really manages it very transparent and aligned together, so we can manage our bottleneck per hour. Most of you are probably considered experts on this data here. This is the market. This is the size of the market. This is a forecast of the development of the market. I am not going to go in great detail. I think the numbers, they are published by SMR. They basically paint a picture that is pretty positive between now and 2020. We see this as pretty good going forward for where our assets exist and the regions in which we operate with. Again, I am not going to go in great detail.
Most of you already know this or commented on at least a weekly, monthly basis. In 2017, demand did recover. Stock levels still remain fairly reasonable within the supply chain. We did see prices move, as were indicated in earlier presentation in the United States. I will always make this statement, is the import participation is in that 20%-22% range. We do see some blips of increases from time to time. Their major influence is the East and West Coast, and their major influence basically puts a ceiling price on the market. We are focused on that customer acceptance by 2018. I mentioned there is a lot of favorable things going on. One of the things that the customer survey tells us, the Americas, is that we have to improve our on-time delivery.
We have made great strides year to year, but we are still not where we want to be. We see this as a differentiator to market to help customers optimize the supply chain. We are heavily focused in the appliance market. If you look at what we are doing in the appliance market, we are probably one of the largest participants in that market in the U.S. Then we are driving, again, resurgence into the automotive markets. We are heavily focused, and I am going to give you some directional charts going forward on product mix, both the types of products as well as regional. Again, you are not going to see specific numbers, but you are going to see at least a directional indication of that. One thing that we in the Americas as well as our European colleagues, we do differentiate ourselves with quality. Again, this is not me telling you this.
This is what our customers are telling us. I mentioned already the new sales folks, that we have high expectations. We are already seeing a return on that investment as well. We are already seeing with the transformation from Chicago to Calvert with our back office, we have seen about a 35% improvement in our ability to respond to not only quotes but also order acknowledgments. Therefore, we have closed a little bit of that lag time that we have given the opportunity for another competitor to get the order before us, and we have specific KPI set up for our back office. We expect even further improvement there. As I mentioned, in Mexico, we need to refocus our efforts on the Mexican capability. We, or the market, we see development growth continuing in Mexico going forward.
We do have the only stainless steel plant in Mexinox, and we should be the dominant player there. I'm not saying that we're not, but I'm saying we can be better. So, where I think there's a lot of leeway, and I would say that according to the mix that Roeland put up there, the 55/45, the Americas probably has a little bit more to do on a commercial side than our European colleagues. I think under [Ali Mady's] leadership and the new organizational structure, their penetration and success in the markets has been phenomenal. It's something that Steve, who runs sales for me, and [Ali Mady] are collaborating on to bring some of those capabilities to the U.S. and drive that top-line growth faster.
But the two key areas where we still see quite a long runway is getting more of the higher-end products into the more sophisticated markets, where the value chain, the benefit is greater. That's bringing more cold roll product in the market into the right markets, within the right regions. You can see an indication of what our market or product mix is. You can see as the cold roll You have to be careful because our volumes increased from 2016 to 2017, so the 2016 could be a little deceiving. But we brought 2% more cold sold, 2% more cold roll year to date, an overall 10% volume increase. Predominantly in, we've seen good growth in CMP, as well as some hot band black.
Where we want to be is a few tons of hot band black, a nice portfolio of the coil mill plate, but really it's the cold roll penetration into the higher sophisticated markets, and segments where we need to be. We also have to be very conscious of our geographic location. I don't say that because I'm implying it's a disadvantage. Actually, I think it's a tremendous advantage based on where you see investment in manufacturing going in the United States. We see much more investment going into the southwest and the southeast regions of the United States than we do the Midwest. However, the Midwest is still a mature, large consuming region.
And what we're trying to point out here is strategically, because in the U.S. there's this freight equalization concept that the competitor, no matter who it is, you're going to freight equalize to the most, the closest plant to the consumer. So there's huge opportunity as we grow market participation in the southeast and the southwest versus the Midwest. There's some value creation recovery we get there. So we're just trying to indicate that there's quite a bit of opportunity here. So I think Tommi said it, I think Chris said it. I'm going to say it again. I know there's a lot of anxious perspectives on how much and when. But we started in 2015 at -120. We had great success, in my view, in managing and performing better in those things that we control in 2016.
We got that down to EUR 22 million or EUR 27 million loss, and then we got off to a pretty great start. We did have a stumble in third quarter. Those details have been conveyed. We are absolutely confident that this development will continue, and my team is confident, and it is about what my team can deliver, and we will deliver continued value creation out of the Americas. We talked about some of the key projects that we are invested in, some of the key strategies from a commercial standpoint, but not too much exposure because it is recorded, so I have not told you everything, but hopefully given you enough that you can take away directionally. There is still huge opportunity in the Americas, and we are going to play our role in that value creation, in meeting our 2020 targets.
That being said, can I be willing to take any questions?
Yes. We are now ready for the questions, and Mike here, was the first one.
Yeah. Thanks a lot for the presentation. Can I ask a couple of questions? The first one, just on the toll rolling agreement you have, which obviously went wrong in the third quarter. How comfortable are you that this was a one-off issue that is now solved, or this could be a recurring issue, which may make you think about having to build a stacker mill in the U.S., is the first question. Second question, Roeland talked a lot about infrastructure, Sweden and similar. Obviously, there has been huge talk of infrastructure in the U.S., with Trump's plans and similar. So how far are you down the road in terms of your planning for marketing this? This stainless steel should be the material that if Trump wants a major infrastructure plan, he is going to use stainless steel. Thank you.
Sure. On the first one, let me just say this, is that, I do not believe it will reoccur. I have confidence in the operational management at Calvert on the AM/NS side. They have assured me that the timing and the fit for use issues that we experience, that they have put all the proper corrective actions in, and we should not see that again.
[What would you do if you do sit again? Would you then have to think about using the plant?]
Well, there's a couple of things. We are qualifying other hot mills. We realize we need to have some flexibility in that regard. They own and operate the equipment. We have an agreement of supply. They establish their maintenance plans, they establish their outage plans. We just need a little bit more flexibility in that regard. It makes sense for us from a risk management standpoint to have an alternative source in the mix. We have one that we're in the process of qualifying.
Infrastructure. Well, the United States. is an interesting. If you look at the stainless steel consumption per capita, it lags Europe significantly. I think as the Americans start to get more focused on sustainability and price versus value, because they have huge infrastructure made out of carbon steel. There's huge issues. He talked about water leaks. My home city, they have over 26% loss on water, and it's costing the city who provides and owns and operates the utility significant issues. I think stainless steel has those solutions where the value creation is there, and I think it's just a matter of time for the U.S. people to get there. I think there are certain geographies within the U.S. that are there, and we'll start to see that. In regards to the big scheme of infrastructure, that really depends on our government.
That depends on our politicians to fund such an investment in that regard. Is there absolute need for it? Yeah, there is. There are issues with bridges and roadways and water systems and electrical systems throughout that country. It just takes people to make a decision, fund the decision, and move forward.
And in terms, sorry, just to follow up. In terms of studies that Roeland was talking about, that have been done in other countries in terms of water and also bridges and similar, clearly to be proactive with that would help the stainless steel industry in the U.S. Is that something you are doing, in terms of getting studies prepared, which would prove that stainless steel has the same benefits as it does elsewhere?
Well, what we do is we actually use the studies that are already done. I know that Kari's done that with stainless rebar and some bridge projects that he's been bidding on. The Specialty Steel Industry of North America Association, they also are heavily in making that information public. So we use it commercially as ourselves, but we also use it as an industry, stainless steel industry, to market those products. So those studies are very helpful in that regard.
All right, Kevin.
Kevin Hellegård, Goldman Sachs. You have previously mentioned on a site visit that for each percent of yield improvement is roughly EUR 5 million to your EBITDA. Is that still the same sensitivity or is it higher or lower now you have moved forward?
Well, it will float with commodity prices because yield is basically keeping the content in the product from melt to delivery to the customers. The more content you can keep in there, depending on commodity pricing, net value can go up. But we say on average, it is about EUR 5 million per point, 1. 0.
Is it 3% in both Calvert and Mexico, or is it 3% for Americas in total?
3% for Calvert.
Okay.
Johannes, next question.
Okay. Johannes Grasberger, Nordea Markets. I have got two questions. First one on 2018, the improvement. You mentioned the yield improvement, but what else is there to drive profits higher? I suppose it is the mix and the stainless steel.
Yeah, you are going to see the top-line growth. As we have built the confidence from the customer base to go after the more sophisticated applications with our cold rolling products, we are going to see that mix improve. The other, and yield is just one project. We have the Mexinox restructuring value steam project that will bring a pretty significant improvement value. Then we have our constant manufacturing excellence with dozens and dozens of projects that will deliver further improvement and efficiency and variable transformation cost reduction.
Kind of a follow-up. When you joined this company, and now you see the performance until today, has there been anything that has, say, surprised you on the negative side in terms of costs? Or did you see this in a way coming that there is still a lot of work to be done?
When I came, what I saw was, and the reason why I took the job, I took the job for two reasons. The first reason was I saw the opportunity of Calvert, and the Americas business, the improvement opportunity that was there. After a couple of days of touring the sites, I could see what the upside opportunity. That is why you have seen the transformation cost evolve so quickly. I do not know how many turnarounds you folks have done in your life, but I have done a few, and this is pretty fast. There is no doubt there was some fat there, but it was pretty fast turnaround, and it is predominantly been focused on cost. But at the same time, we have had to recut or build our reputation and credibility in the market.
People don't let you into their difficult applications, let alone let you take an order from a long-term supplier. You have to earn your way. I would say that's been probably the most frustrating to me. But again, I show you our success in two years, we've increased our sales volume by 43%. That was a number shown, I think, by Roeland. This year, we've increased it by 10%. There's still more runway there, but it's really that top-line growth rich in the mix. It's really getting into the complex, sophisticated end users and selling that higher value-added product. It's really having a good sales team, particularly the back office, that is proactive in communications, is communicating effectively with accurate information, able to turn our order around as quickly as possible, so you don't give a competitor an opportunity to get that order.
Is there any way to describe it, how far you have earned your way already? Is it halfway or
I leave that up to Roeland to determine whether I've earned my way or not.
Fine.
I just say, there's the Americas. There's still quite a left opportunity and runway. Yes, it's been significant, the speed and the amount of the turnaround from 122 to the +22 year to date. I believe there's plenty of runway left. In fact, if you look at some of those other numbers, now you see Europe clearly. You can see to that 750, some of that comes from Kari and I, too. You can do the math there.
Just one more question. That is the last one. On the ATI and the plans with the Chinese.
Yeah
If you could comment anything on that, whether, I suppose from supply, demand. Demand is growing.
Oh, yeah.
There is a little bit of more supply coming in.
Yeah.
How does that look?
Yeah, sure. I guess this is my perspective of it. The plant that's now in the JV is not a new entrant to the market. The product's known. It's been idled for a couple of years. They got a new slab supply. It'll be interesting to see, and the import data will be able to tell us what the value of that landed ingot or slab is going to be. We'll have to see what it is. It seems to me to be a very complex supply chain, and the U.S. markets require very efficient responses to the supply chain needs. It's not a new entrant. If you look at the market development, I think where we are geographically, we're in a pretty good spot compared to the markets that they most likely will serve. We'll see how it develops.
There's no doubt, as I think Roeland said, there's going to be some short-term pressure on some things as they try to reintroduce the product into the market. Long term, based on what we see on the market development and demand, I'm not overly worried about that.
Okay. Thank you.
Philip.
Philip Ngotho , ABN AMRO. You indicated that a large part of the improvement should come from product mix, higher product mix. I am wondering, if you want to penetrate into the more complex products, how long does it normally take to qualify for? Can you say something about that? How does it look?
Well, again, it differs by market segment as well as customers within that market segment. It could be anywhere from 90 days to six months. Sometimes longer, particularly on certain automotive OEMs that sometimes it can take up to a year.
The last question, Seth.
With regards to the product mix within the U.S., I think when you first started, you talked a bit about trying to expand your direct-to-customer sales as opposed to going through service centers. Can you give us an update on your mix via distribution networks, either direct or through service centers? You touched on trying to gain share within autos. That is obviously an area where one of your competitors has historically had very high market share. How do you plan to enter that market? Will it require some price competition? Can you give us a sense on, again, the approvals physically?
That's a regional market that we want to focus predominantly in Mexico. We have some advantage in that regard because we have the only asset there. From an automotive standpoint, that's what we see. We do see some opportunity with Calvert, but it's not the main exhaust systems with Calvert. What was the other-
Service centers.
Yeah. One of the reasons why I like the energy market, because that tends to be direct with the pipe and tube producers. We are seeing positive development with our OEM. I'm not going to give you an exact figure on what that is because I don't want to share that with the competition. But we've seen positive upside in the OEM development.
Can you give us how it changed over the last two years?
I think Calvert was heavily, percentage-wise, distribution. I think it was like 80/20 or 75/25. We have seen that distribution shift. I would say we are not where we want to be, but I am okay with the progress so far.
Thanks, Mike. Thanks for the questions. We now move to the next presentation. As Chris showed earlier in his presentation, Long Products has returned to profitability this year. They have made a lot of improvements in both cost side and also on the top line side. Kari Tuutti will come and show how Long Products is set to capture significant growth opportunities going forward.
Thank you, Tommi. Good afternoon, ladies and gentlemen. Icing on the cake, Long Products. I am very excited to give you an update on the Long Products strategy and business development. As you well know, Long Products today accounts for roughly 10% of the group revenue and even smaller percentage of the group profits. What I am very much focused on and committed is to grow Long Products to be a significant third leg in the Outokumpu strategy. My story is all about how we are driving growth of the Long Products business in the next few years. Let me start by giving you an overview of our priorities going forward. Overall, it is about growth opportunities that we are seeing out there, and how are we planning to capture these opportunities.
The first major task we have is to grow our capacity utilization across the Long Products facilities, and particularly the Sheffield melt shop that was mentioned. Growing the capacity utilization combined with improvement in our manufacturing excellence will give us the cost competitiveness that will enable us to really compete more actively in the high volume standard products with attractive profitability. In U.S., we will continue to grow our business enabled by the enhanced capabilities that we have built in the last 12 months to grow in key segments like automotive, aerospace, and fittings. In Europe, we will leverage our improving cost competitiveness in standard products as well as looking at value selling, looking at attractive high profit niches with special applications. Let me then next give you a few highlights on the progress we have made in the past 12 months.
Since the last CMD, we have made excellent progress in many key areas of our business. First and most importantly, we have returned back to healthy profitability this year, both in terms of profits and return on capital after the challenging 2016. Secondly, we have finalized Outokumpu's exit from the stainless pipe business as we divested our Wildwood pipe mill in U.S. And we did that with excellent valuation, over $35 million price tag on that mill. This exit will give us better opportunities to focus our efforts and investment in growing our core Long Products business. Thirdly, we have made significant inroads in driving our cost competitiveness. We have made this year over 10% improvement in fixed costs per ton versus 2016. Very significant and important enabler.
Also, we have made very good inroads in key product areas, both in U.S. and Europe, and I'll come back to that later on. Let me then discuss with you the Long Products market outlook. As you can see on the chart on the left, the global Long Products market size is 6 million tons annually. China and rest of Asia Pacific amounts to roughly 3/4 of the overall demand. While our sales to APAC is roughly 10% of our overall revenues, it's fair to say that our core markets for Long Products is North America and Europe. North America and Europe market size is 1.6 million tons annually. Largest markets, typical suspects, Germany, Italy, U.S., followed by France, Spain, and Sweden. In these core markets, our market share today is less than 10%.
From that low base, we have tremendous opportunities to grow in those core markets as we improve our cost competitiveness and strengthen our product offering. Not to even mention then the opportunities we have in Asia Pacific. Let's then look at a couple of comments on the segment view. Overall, the Long Products market is expected to grow by above 4% in the next several years. Very healthy growth rate. Chemical, petrol, and energy is the largest segment with roughly 30% of the overall demand. Expected growth rate 4%+. This in part driven by the recent bottoming and increase of the oil price. I was last week with our U.S. team, and I was very happy to see that our sales in the Houston area have significantly grown in the past six months.
So clearly the oil-driven investments are coming back, not to the same level we saw in 2014, but still a significant growth. Industrial and heavy industries, second largest segment, above 3% growth, and the highest growth we expect to see in the infrastructure and architecture segment where the growth is expected to be 5%-6%. Looking at the market environment today, we are seeing very healthy demand, both in U.S., but even more so in Europe. The industry lead times are clearly longer than normal and the pricing environment is healthy. One good example of the pricing environment is the graphite electrode increased costs. In Long Products, we and all of our competitors have been able to make price changes to mitigate the increasing costs. Let me then say a few words about the financial performance.
The first nine months of this year have been very positive, both in terms of volume growth as well as profits. In terms of volumes or deliveries this year, I expect them clearly to exceed the 2016 levels, and I expect this trend to continue as we move into 2018. Our profits already during the first nine months have exceeded the 2015 levels. Again, I see that combined with the volume outlook and our margin outlook, the profit outlook also for 2018 remains very healthy. Let's look at a bit more details in our cost competitiveness. As you can see on the chart, we made a significant step change in 2016 versus 2015. Even after that, we have been able to make a 10% improvement year to date 2017.
This has been really enabled by improvements in our manufacturing excellence, improvements or reductions in our SG&A costs, increase in our capacity utilization, as well as normalization of the British pound versus the euro. Looking at our volume outlook, the development in costs that we have been able to achieve this year. When I look at 2018, I really see that our cost competitiveness among the Western Long Products players is going to be second to none. This gives us a tremendous platform to drive growth. Then let me cover a couple of the key must-win battles, supply chain, Americas, and commercial excellence. Looking at our achievements this year, our delivery reliability or OTIF continues to be on a very healthy rate at 90%. This delivery reliability definitely is a corner element of our customer value proposition.
I continuously hear from our customers that they value this a lot and they see that we are ahead of the competition when it comes to reliability. Our inventory rotation days now below 60. This is a combination of the high reliability as well as the business model where we primarily ship directly from the mill to the customer. This is clearly enabling us to have a very low working capital. High customer satisfaction. This is particularly now relating to the feedback we get in terms of the customer's engagement with our back office and frontline salespeople. The customers appreciate the speed, responsiveness, and flexibility that we can offer to them. It's like all of us are extremely busy and the customers really need answers quickly. They need reliable information. They need exact information. When we can deliver this, it definitely is something that the customers value.
Looking at next year, while we aim to maintain all of these strong elements, the key aspect that we are going to develop further is to further shorten our lead times, be it through manufacturing excellence, but also developing more integrated planning with our key customers and also building some key standard product stocks so that we can offer superior lead time to the key customers. Looking at Americas. U.S. is our single biggest market for Long Products, over 35% of the sales. This year we have made excellent growth, more than 20% volume growth, 100% profit growth in U.S., significantly driven by the new coil-to-bar line that we have now fully up and running in South Carolina. This is really enabling us to grow our sales with key customers in automotive, aerospace, and fittings.
Rebar is an area where we have this year developed a full product offering, made partnerships with key fabricators in the rebar industry. I expect to see good growth as stainless rebar is more and more being used in key infrastructure projects, such as bridges, both in Canada and in North America. Let me give you one example of the good customer satisfaction we have in the U.S. market. Earlier this year, we were honored to receive the Supplier of the Year award from one of the key distributors, thyssenkrupp Materials NA, in the stainless category. Here the customer is very much pleased with the overall service that we offer: reliability, quality, responsiveness, and technical support to help them win new end user customers. We are very pleased with this award and obviously aim to maintain the same service levels.
Looking into 2018, we plan to grow our market share in the U.S., working with our service center customers, expanding in regions where we are underrepresented, taking share from the imports market, particularly where we can offer shorter lead times, better service, and then, as mentioned, the rebar growth. Finally, commercial excellence. Here I'm particularly focusing on Europe. Excellent development in our special shapes bar strategy. More than 100% growth in volumes and profits in this key area. Secondly, we are making good progress in marketing our Prodec high machinability bar. Roeland mentioned earlier value selling. Selling Prodec is all about value selling. We are charging EUR 100- EUR 150 premium for Prodec over standard bar. But with the higher machinability, our customers, the machine shops, end users, can have longer tool life, faster tooling speeds, and better surface quality.
We are seeing many customers who can actually cut their component cost by 50% when they use Prodec. This is very much a value-selling exercise. For next year we expect significant growth in this area. I expect us to be able to announce a European-wide go-to-market partner for Prodec by end of this year. With this partner, we will then go after the end users and sell the value of Prodec. Also, we have made good inroads in expanding our large bar capabilities, and again, this offers good opportunities for growth in 2018. Looking at next year, Prodec key area, leveraging our improved cost base and then further growth in finished products. We will look at opportunities to invest either organically or looking at M&A opportunities to grow further our finished products capabilities. Ladies and gentlemen, let me conclude.
The Long Products market is expected to grow 4%+ in the next several years. There are significant growth opportunities with attractive margins in this space. We are making significant improvements in our cost competitiveness. In U.S., we will grow enabled by the new capabilities with aerospace, automotive, fittings, construction segments. In Europe, we will be looking at growing both in standard products as well as in special applications. As I said in the beginning, I really am fully committed in driving significant growth of the Long Products business to really become a significant, strong third leg for the Outokumpu strategy. Thank you. Now happy to take questions.
Thanks, Kari. We are now ready to take questions. I think we have time for a couple of questions if there is any. Bastian.
Hi. My first question would just be on your product mix. Is the 25% share of energy in the market reflective of your product mix as well, or is it higher or lower?
For us it is in the same region, yes.
What I understand from talking to many other companies in that segment, so far this year, we've been seeing a really decent volume growth, but we haven't really seen the pricing effect. Companies mostly turned more positive on this in the last couple of weeks. Is this what you see as well? Because I imagine it must be a big, say, margin driver in your business because if I look essentially at your profit, how it dropped from 40 to negative, now back up into positive territory, I imagine a large delta of that essentially will have been the energy segment and end market.
Indeed. Although we saw solid profit volume growth in the first half, the pricing was unchanged. But now we are seeing increases in pricing in the second half.
Thank you.
Johannes
Johannes Grasberger, Nordea Markets. One question related to anti-dumping. If you could remind us how the competition of Asian imports in Europe and in the U.S. looks like, and whether there are any anti-dumping measures or whether there perhaps might be in case of unfair competition. Thanks.
Very good questions. In Long Products, there are no material anti-dumping effects in place, neither in U.S. nor in Europe. This obviously is both a threat and an opportunity. Looking at U.S. bar market imports account for 50% of the market. There we are seeing a very significant impact from the imports. In Europe, it is more in the 25% range and stable. I would say that, we do not expect any major shifts in the import levels. They are certainly relevant players in both regions.
Peter.
Kari, could you remind us a bit about how cyclical the Long Products is versus the Flat Products business historically, going back, because you have probably got the data. Is there any reason why you cannot produce similar margins or returns to the Flat Products business in the future?
The cyclicality, there is no significant differences. The oil dependency of Long Products is bigger than in Flat. Certainly this had a negative impact in the past two years. Assuming that there are no further oil price collapses, then I do not see any significant difference between the cyclicality. When it comes to margins, I do see that when we are able to get our capacity utilization to a decent level and we are able to drive the growth, then we should be able to deliver good profitability.
Just as good as the Flat Products business or?
Yes.
And just in terms of Sheffield, when you are accounting for the sort of numbers, how big a swing is that if they are selling some slabs into the Quarto plate or to the flat products area? Is that a big part of the profit sort of swing?
No, the internal deliveries are with a more or less cost basis with a very small margin. So let us say that these internal deliveries help to improve the utilization, but they are not driving the profits as such.
Thank you.
Thanks. I think there is no further questions, so thank you, Kari.
Thank you.
We are about to move the breakout soon, but before that, I would like to invite Roeland one more time to the stage and give us a brief summary on what we have heard today so far.
Right. I can summarize pretty shortly. I have seen four presentations that point to one direction, which is we are solidly on our way to achieve our 2020 vision, at least by 2020, if not before. Second thing that I want to bring out is markets are looking very good. We do not see really a letup on the growth rates, and you mentioned that you have seen in the past. We do not see a leveling off. We still see this 4%-5% per year. You see as well that we are in markets that are extremely positive. Europe, U.S., where you have seen that overcapacity is starting to or capacity is starting to be to the short side. So, extremely good forecasts for our industry and for our company. I am extremely pleased with the progress we have made. We have great plans, as you see.
We have a few investments going that will cement further our future, and we have already are developing a vision on what we are going to do once we have our house fully in order and are platform based. So, I invite you all to the breakouts. They will be very interesting. It is smaller groups. It is more operational. You can ask questions. I would say do not wait until the end of things, just pepper questions if you have questions. Last but not least, I do hope that all of you have time to join us for dinner tonight so we can, over a glass of wine, continue the discussions. Thank you very much.