Ladies and gentlemen, welcome to this first Capital Markets Day of the new SSAB. My name is Taina Kyllönen, I'm the head of Group Communications, and I have the pleasure to open up this Capital Markets Day. The theme of today is towards industry-leading profitability, and we will start with the presentation of our President and CEO, Martin Lindqvist. Followed by Håkan Folin, our CFO. And then after the Q&A session and a small break, we will move over to presenting our five divisions to you.
And as you know, we are organized into five divisions, and we will start the presentations with SSAB Special Steels with PO Stark, followed by SSAB Americas with Chuck Schmitt, and going back to Europe with Olavi Huhtala, to SSAB Europe. Then we will introduce to you Tibnor with Mikael Nyquist , and Ruukki Construction with Marko Somerma. From the management team, we have also present here today, Grégoire Parenty , who is responsible of the market development. So ladies and gentlemen, I hope you enjoy the day, and we are ready to start. So Martin, please, the stage is yours.
Thank you. Good afternoon, and once again, a warm welcome to this, Capital Markets Day. I will start with, presentation describing SSAB in brief, some words about market opportunities and the challenges, our way forward, and also sum it up, a bit at the end. I will start with this, picture, and the reason for doing that, this is our vision, stronger, lighter, and more sustainable world. I think this is also a very good description of SSAB. When we clearly state that together with our customers, we will go further than anyone to realize, the full value of lighter, stronger, and more durable products. This will be a part of the theme today.
You will see it be mentioned and as a theme in the divisions, but this is one of the things that are differing SSAB from other steel companies, the way we work with our customers. But we will come back to that a number of times during this day. Another way of describing SSAB is this, a global, highly specialized steel company, active in all steel-consuming areas of the world. Of course, with a strong footprint globally for Q&T and advanced high-strength steel. Strong footprint on our home market for flat carbon and tubes in the Nordic region, and of course, with a strong footprint in North America or NAFTA, our home market for standard plates.
The net sales, as you see, is split up to a big extent between Nordic and North America for the more standardized products, but of course, also for special products. Then we have sales in rest of the world and other rest of Europe. These are the markets we serve, fairly small fraction of the global steel market. One important market is, of course, high-strength steel, a global market of approximately 25 million tons, out of a total market of 1.5 billion tons or something. Where we have a market share between 5% and 40%, depending on segment, market, and product. And if you slice it down even tighter and talk about the Q&T market, where we are clearly the global leader, that is a market roughly of 3 million tons globally. We have an average market share of roughly 25%.
Of course, much stronger in certain regions like Europe and for certain products, and a little bit less strong in other parts of the world. But we will come back and cover that as well during the day. The second market or another important market is, of course, the Nordic market. It's steel market for flat carbon of 45 million tons per year, where we have an overall market share of 40%-50%. For some products, like hot rolled, the market share is stronger, and for some other products, like galvanized products, the market share is slightly lower. The third, but not the last, least important, heavy plates in North America or NAFTA. A market of approximately 10 million tons, where we have a market share of 20%-25%.
So in these markets, if we talked about the Q&T market, the Nordic market, and the carbon market for carbon plate in North America, we are clearly the leader. And for high-strength steel, globally, one of the leading producers. We only target a couple of segments. The three segments on the top, material handling, construction machinery, and yellow goods and heavy transport, is typically segments for our Special Steel Division. These are segments where you move and lift material, where you benefit a lot from reduced weight, increased payload, reduced fuel consumption, reduced emissions, longer life length, better productivity. And we will come back to that, how we work in these segments. Automotive is an important segment for us, where we typically only focus on extremely high-strength cold-rolled products for safety details, mainly crash boxes, side impact beams, bumpers, and so on.
Energy is globally also important market, I would say, in North America and Europe, and especially in North America, where we are focused a lot on shale gas applications or related applications, shale oil, wind towers, pressure vessel, tank bodies, and so on. But Chuck will come back and cover that. Industrial applications and engineering, another important area, and then, of course, construction. Not only the painted material we produce at our sites in Hämeenlinna and Borlänge, but also the construction division, Ruukki Construction. As you see, we sell approximately 60% or a bit more than 60% directly to end users, and this is typically the, I would say, special steel products, they go only to end users, and other products as well, to a large extent, to end users. The rest of it is sold via distributors.
A big part, of course, via our fully owned Nordic distributor, Tibnor. Another part, of course, via the North American steel distribution system. So a strong market position in our core markets, strong market position in our segments. Talk a bit about products then. What kind of products do we have that are unique in the steel world? To start with, wear steels, where we are the producer of wear steels globally, where Hardox, our brand name, is the industry benchmark. We have the widest portfolio of all. We produce abrasion-resistant steel between 0.7 millimeters up to 175 millimeters, from very narrow strips up to wide plates, wider than 3 meters. And we produce today and sell Hardox Extreme with a toughness of 650 Brinell on the market, which is unique, and the only one who does it.
Structural steels, also hot-rolled, Weldox, Domex, and Raex. We are reaching new heights. We are producing 1,300-megapascal material for the crane boom industry, for concrete pump trucks. We are one of very few capable of doing that globally. Automotive, Docol steels with high strength, cold-rolled material at up at 1,800 megapascal and above, for as said, the safety details to the passenger car industry. We have a number of tool steels, the Toolox family, where we produce heat-resistant machine steels in plate and bars. Also, very unique for being a flat carbon steel producer. But we have other areas as well, or other products, where we are unique. We have the laser steels for Ruukki Laser, produced in Finland for mainly the Nordic and the European market. And this is steels with no inner tension at all, and they are optimal for laser cutting.
We have a couple of color-coded products and steel tubes and piling products, but we have a very unique position with them on the Nordic market. In Americas, on top of producing Q& T in QL6 and QL5, we have a number of normalized steels where we have invested a lot, where we are unique in leading the market. We are, together with the energy sector, continuously developing new specifications for them or together with them. We have also the ability to produce coils for spiral welding with a width up to 3 meter, which is also something that you can't find anywhere else in North America. Our ways of working is very much to take the starting point together with the customer out in the market.
Of course, we work with sales and marketing and so on, but we also use this as the quality input to develop new products within our segments where we are active. So product development, technical competence, value-added services. So we start in the market, then bring it all the way back to production development, raw material development, to find the right, steel that is usable for that segment and that customers. We rely a lot on what we call customer development projects, where we, together with end user, take a look at their applications, redesign them to use our steels to reduce weight, reduce fuel consumption, and so on. Last year, we had 1,200 of those projects together with customers, and on top of that, we were also able to educate more than 3,000 customers in what we call technical seminar.
That is typically how you design, how you think when you use these kind of material. Because they are different than ordinary steel. They are tougher to bend, they are tougher to weld, they are tougher to use, so you need to have a fairly good knowledge to be able to use them. Some words about the market. I brought this picture back because I think it gives a bit of a perspective to the market. This is the latest forecast from World Steel Association, and gives a view about the market development this year and the coming year. I think to put things in perspective, it's always good to remember the heydays of 2008.
If we start with North America, we will actually, and this is total steel consumption, be back this year to in steel consumption terms, where we were in 2008. The prospects or the idea for the coming year is a fairly decent growth in line with the underlying economic growth in North America. Europe is a completely different story. We are still far behind where we were in 2008. As you see, there's lacking more than 40 million tons, so there is, of course, a structural overcapacity in Europe.
There will be, according to this at least, a growth next year in line with, I would say, or a bit better than GDP, but I think this is probably the new normal, and we should expect steel consumption from this point to develop in line with GDP, plus or minus something. China, once again, completely different story, way above what we saw back in 2008. That is, of course, good news. The bad news in that respect is, of course, that the Chinese industry has built out capacity during these years. And looking forward, we will see a more moderate growth or a slowdown after a number of years with almost double-digit growth. Latin America, moving on in a fairly decent tempo. The difference is maybe that the big, or the bigger part of the growth will be in Western Latin America.
Rest of Asia, around 3% next year. So globally, an increase of steel demand, apparent steel demand, of approximately 3%. The different compares to previous year is that it will not only be China driving this and the rest of the world retracting. So the growth will be more evenly spread over the markets and over the segments. How do that then relate to our core markets? If we start with high strength steels globally, we see global growth opportunities. And why do we see that then? Well, first of all, the long term fundamental trends driving growth of high strength steel, that is of safety, need better safety, lightweighting, fuel, and energy efficiency, emission efficiency. So they are there, they have been there, but the importance of them is only increasing.
Of course, in the short run, we look at the underlying growth in the core segments, like mining and some others. They are a bit, call it, exposed, and we see currently moderate, moderate overall underlying growth. But over time, and in midterm, there is a big potential. If we look at the emerging markets, and we typically measure when it comes to Q&T, the penetration of Q&T compared to the total plate market. And to give you an example, if we take Europe, the penetration of Q&T out of the total plate market is roughly 7%-8%. North America, 6%-7%. China, as one example, is 0.5%. Rest of Asia is maximum 1%, but below 1%. Latin America, 1%. Africa, of course, below 1%.
So with these long fundamental drivers for increased productivity and better use of steel and the penetration grade, we see good prospects on emerging markets. We will be there to help customers to convert into these kind of steels from ordinary steel. If you look at the old Nordic market, the midterm view is improvement from very low levels. First, the worst part of the European crisis seems to be behind us, but of course, there are some concerns when it comes to the Russian, Ukrainian situation and how that will play out. The Nordic economies are expected to develop slightly better than rest of Europe. Of course, we'll see what how that will play out. In the short term, there is a bit of a slower economy, maybe in Finland then.
And we will continue as a leading player in the Nordic region to offer our customers leading value proposition on this market. North America, then for heavy plate, the third important market. Well, we have a positive market outlook. The U.S. economy is on a continued recovery track. When we look at our customers and our segments, we feel that we are exposed to some very attractive segments, shale gas, shale oil, wind, and offshore, and that kind of related products. So that makes us positive for the future. The demand situation in North America is balanced. Of course, there is always a concern when it comes to import, but for the time being, the supply and demand situation is balanced. Some words about our strategy and our strategic thinking. This is our strategy. We call it Taking the Lead. It's divided in...
It's fairly simple, divided into two areas, what we do and what we think makes us successful. What we do is to have a leading position globally in Q&T, and being one of the leading producers within high strength steels. What we also are, is a leading supplier on the Nordic market for tubes and steel flat carbon, and for in US or North America, for standard plates. Leading value-added services. What makes us successful is, of course, the cost position and our flexibility, and I will come back to that. Having a high-performing organization and superior customer experience. And to put the Ruukki acquisition into perspective, it's a perfect fit with our strategy. Of course, with the strongest focus on the synergies, the yearly cost synergies of SEK 1.4 billion, and the flexibility in the production system.
Of course, with a focus on creating a clear number one player on the Nordic market, with more than 2 million tons and 40%-50% overall market share. But in other areas as well, this will help us to pursue our strategy. We will have improved growth prospects with complementary markets and complementary products. We will have more steel service centers and processing centers, and so on. So the fit, SSAB Ruukki, is perfect according to our strategy. Talking a bit about the synergies. When we announced this, we had an industrial plan that we have gone through before the announcement, and we felt that there were synergies in the range of SEK 1 billion-SEK 1.35 billion to be reached, hard cost synergies, within three years. After the announcement, we started to work together more deeply, Ruukki and SSAB, to look into this.
After opening the book, we have seen that the synergies are there. We will be able to deliver the synergies within three years. We will have full run rate at the latest, 2017, and this is the impact of the cost synergies in the P&L. As the market looks right now, we will be able to deliver SEK 1.4 billion in hard cost synergies. If the market gets much better, there will be a part that we will not be able to deliver, and then we will deliver at least SEK 1 billion. The spread of the synergies, of course, a big part within production, comes about specializing lines, combining products, closing lines, and so on. Another big part is within purchasing. It's raw material optimization and a lot of other things.
Supply chain, of course, closing down stocks, reducing transport costs and so on, shipping together. We have synergies within Tibnor. We have synergies within Ruukki Construction, and then, of course, SG&A and other. All this summing up to SEK 1.4 billion in hard cost synergies within three years. I said we have gone through it, and, we are not only confident, we know that we will be able to deliver this, and this is breaking down into actions. So we know what to do, we know how to do it, and we know when to do it.
We will come back to that when we present also the divisions. When we designed the organization for the new company, the idea was to do it with focus and to do it out of the different business logics, in the slightly different business logics in the different divisions. If we start with SSAB Special Steels, they should be the global leader in Q&T, and advanced high-strength steel. And if we look at the priorities, priority number one is growth on a global basis, priority number two is improve cost and service offerings, and priority number three is capture synergies. And we will have a smaller part of the synergies in this area. If you take SSAB Europe, the Northern European or the Nordic leader within strip, plate, and tubes, the priorities are very clear as well. Capture cost synergies is priority number one.
Priority number 2, secure and grow the whole market share from those 40%-50% to something else, and then portfolio optimization. So we make sure that we only produce one product in one line at one site. SSAB Americas, the leader in heavy plate in North America, priorities, expand market leadership from where we are today, protect and develop our low-cost model, and then, of course, make sure that we remain the preferred supplier among all the customers, and Chuck will come back to this. Tibnor, with a mission of being the leading Nordic multi-metal distributor, their priorities are clear as well. Win market share in the Nordic region, capture cost synergies, and reduce cost and complexity in the supply chain. Ruukki Construction, the fifth division, being a leading producer in construction and building solutions, continue the already started turnaround in Ruukki Construction.
Growth and portfolio optimization as priority number two, and priority number three, right sizing of operations. Of course, all these divisions will be interlinked, but with clear agendas and a clear missions, and clear targets for each division. So if that is what we are doing right now, do we have any future or further opportunities? Yes, we have. There are opportunities to strengthen the platform in emerging markets. We think that, as we talked about, the penetration grades of these kind of special steel products will increase over time, so we need to strengthen the platform, we need to open new stocks, we need to have more salespeople in those areas. We see further possibilities to expand in wear services.
This summer, we announced that we bought the majority in G&G, a company in Western Australia, where we have not been active before, producing buckets and repairing buckets for the Western Australian iron ore industry. We see a potential for further expansion in North America for plate, and Chuck will come back to that. And we see also, going forward, a potential to divest non-core assets. So to sum it up, SSAB is a unique company with a specialized offering and unique, strong market position. We have a clear plan for the Nordic Northern European strip business, and a detailed plan to deliver synergies, hard cost synergies of SEK 1.4 billion per year. The combination with Ruukki has progressed well so far, without any business interruptions.
The new organization is in place and working from first of September, with a strong and motivated leadership. And we have identified additional, call it, potential for cross-selling opportunities. To give you a number of examples, we will be able to produce thick, normalized plate in Raahe to be sold to our existing customer base in North America. We see a big potential in high-strength tubes, now with 7 tube factories in the company, sold to existing customers within the automotive industry. We see also a big potential in abrasion-resistant tubes now, when we have tube capabilities. We have a U.S. business that is recovering, and we have done an extensive benchmark at, during last year, end of last year, that confirms that we still have, and will continue to have, the leading cost positions among the North American plate producers.
We have a platform for growth in high-strength steel, based then on leading product portfolio and a strengthened sales force globally. We have, during the last couple of years, done all strategic investments we need with a QL7 in Borlänge, we've done investments in Raahe, QL6 in Mobile, and so on. So I see no reason why we shouldn't be able to once again regain the position as the most—one of the most profitable steel companies in the world. With that, Håkan, some meat to the bone and some figures.
Good afternoon, everyone. My name is Håkan Folin, CFO for SSAB. In my presentation, I will cover pro forma figures for the new group, and I will do it both on a group level, but also on a divisional level. I will also come back to the synergies and more on the capital expenditure avoidance and the working capital reduction. And finally, I will describe what the financing situation looks like now that we are a combined company. I will start with a little bit of an historical background, looking at.. This is SSAB standalone figures, a ten years history review, and the bars are the sales, and the line is the EBIT margin.
From 2004 up until 2008, SSAB was performing very well under very good market conditions. We saw an increase in sales continuously, and also with a jump leap when we acquired IPSCO in 2007, and we saw steady, healthy EBIT margins of around 20%. Then, of course, we had the financial crisis in middle or autumn of 2008, and there was a significant dip in profitability in 2009, starting to come back a little bit in 2010 and 2011, but then we actually have seen somewhat of a double dip in 2012 and 2013. And what we are seeing now is that margins are slowly starting to recover somewhat from the low levels that we've seen historically.
This picture was SSAB standalone, but if we would have added Ruukki or had a similar picture for Ruukki, it would have looked basically, in the same way. The figures I will present, this was SSAB standalone, but going forward, basically all the figures you will see will be on a pro forma basis for the combination of SSAB and Ruukki. And doing that, and looking at the, first half of this year, we can see the profitability improved, although we're still on very low level. The combined company, had sales of close to SEK 30 billion, which was up a bit more than SEK 1 billion compared to last year.
The EBITDA for the combined group was a bit about SEK 2 billion, which was also up compared to the same period last year, and this is approximately 7% of total sales. If we look at it on an EBIT level, it's a bit about 300, and same period last year was almost -100. So all in all, improving, but from very low level. However, we have been able, during this period, to generate operating cash flow, which has been positive. Close to SEK 600 million in first half of this year, and almost SEK 1.5 billion in the first half of last year.
From a result point of view, the main improvement factors are the increased prices on plate in North America, and then the lower cost in the European production, which is partly driven by the raw material, but also by the structural program that we were running within old SSAB, EMEA 800, and also Ruukki was running with Ruukki EUR 70 million then. When we looked at the market, we gave an outlook in Q2, and, we're basically sticking to that outlook with a continued positive outlook for the U.S. plate market, a seasonal weakening, which we always see in Q3 in Europe, but overall, fairly stable demand. In Asia, no short-term improvement for the segments in which we operate.
Looking at this on a quarterly basis, we see that sales are between SEK 14-15 billion per quarter, slightly lower than in Q3 last year, and then a bit higher now in Q1 and Q2 this year. From a profitability point of view, the worst quarter in this period was Q3 last year, and since then, we have seen a positive development, and especially then for Q2 this year, where we were a bit above SEK 300 million. If we then look at it on a divisional level, we can see that SSAB Europe is by far the biggest division with 36% of sales, and after Europe, we have Special Steels and Americas with approximately 20% each, and then finally, Tibnor and Ruukki Construction with 12-13%.
From a profitability point of view, it looks a bit different, with Special Steels, where we have our most advanced products, being the biggest contributor to EBITDA, with 35%. We have Europe and Americas being roughly the same on 24% on total EBITDA, and we have Ruukki Construction with 10%, and then Tibnor on 7%. And I forgot this one. If we then look at it on an EBIT level, it's a similar picture, with Europe, the first half of this year, being basically around zero. They were SEK -140 same period last year, so we see a clear improvement, but it's obviously still not where we want to be with this division. However, a large portion of the synergies of SEK 1.4, they will be captured within SSAB Europe.
We'll come back in a division presentation on how we split the synergies, but, roughly SEK 1 billion of the synergies will be in Europe. Special Steels, then, close to SEK 600 million in EBIT, first half this year, a little bit better than last year, but there's still room for improvement, both in terms of, both in terms of cost and definitely in terms of growth. In SSAB Americas, we see a clear improvement, first half this year compared to last year, and this is done despite an outage that we had in, the first half of the year in Mobile. When we look at Tibnor and Ruukki Construction, it's important to remember, they are buying steel at market prices. And, with this setup, Tibnor made a small profit of SEK 63 million first half this year.
It's a bit less than last year, same period, but then there was a real estate divestment within Tibnor, so excluding that, it's roughly in line with last year. Ruukki Construction, both last year, first half, and this year, are around minus SEK 90 million. There are a few one-off items included here, which Marko Somerma will come back to in his presentation... Then we also have depreciation and amortization on surplus values. And here it says SSAB Americas, and it's minus SEK 250 than first half this year. We have not yet finalized the so-called purchase price allocation from the Ruukki transaction. I will get back to that a bit later, but moving forward, there will not only be depreciation and amortization of surplus values based on the IPSCO transaction, but also from the Ruukki transaction.
The profitability level is not where we want it to be. We think we have a very clear agenda for each division and on a group level to get back to where we should be. But despite this, we have actually, during the last few years, been generating good operating cash flow, especially for the full year 2013, where we were a bit above SEK 3 billion. This was coming to a fairly large extent from a reduction of working capital. Also, the first part of this year, we've been operating cash flow positive, close to SEK 600 million, and here, this was actually despite then that we have increased our working capital with around SEK 1 billion, where most of that or even all, is coming from accounts receivable, increasing with SEK 1.2 billion.
So on the cash flow, we think we have had a decent performance. The combined group has a cost structure from 2013 of approximately SEK 57 billion, where the biggest item is, input material or raw material. Number two, we have personal costs, then we have purchased products and purchased services, and energies, of course, a fairly big amount as well. But by far, the biggest one is input material. And for input material, it's evenly spread between iron ore, pellets, and between scrap, with 28%-29%. And note that this was based on 2013 figures, and now we have a different price structure or price level for iron ore, so it would look a bit different if we did this today, where scrap would then be bigger than iron ore.
The number 3 item is the coal, and then we have alloys being item number 4. Looking down at the development for raw material and also our sourcing of raw material, we will, as a combined company, have an improved, sourcing, situation, where we, for iron ore, will be a bigger purchaser, now buying 6.8 million tons on an annual basis. A change compared to old SSAB, where we only bought from LKAB, Ruukki had a dual sourcing strategy for iron ore, and this we will now have in the combined strategy, and we will make, obviously, the most out of that. For coke and coal, a similar situation, we will be a larger purchaser, now buying 2.9 million tons, and we will have more suppliers.
Former SSAB used to buy from Australia and U.S., and now in the combined company, we will also have suppliers coming from Canada and from Russia. Scrap, then, it's the U.S. business, so this is naturally unchanged by this merger, where we buy approximately 2.5 million tons, and we do it on spot pricing. Looking at the price development, it's quite an interesting picture. We indexed this from January 1, 2013. If we take scrap first, we can see that, well, it's been going up a bit. It's usually in the winter season, and then it come down in the spring, and it goes up a bit again in the winter season when it's harder to collect the material. But overall, it's fairly stable around this index line of 100. Why?
If you look at iron ore and the coke and coal, it's been a dramatic change since January 2013, where iron ore especially, it's almost down to half of the level it used to be at that time. Martin showed this picture before regarding the synergies, where we are confident in delivering SEK 1.4 billion in cost synergies. And on top of the cost synergies, we also see good potential to release some working capital and to avoid capital expenditures. For capital expenditures, we've identified SEK 1.4 billion that we can avoid, and for working capital, we have identified at least SEK 500 million that we can release. For working capital, the majority of this is coming from inventory, and we will see around half of this already during 2015.
For CapEx, having this both production systems now in Europe, we will be able to use the assets in a better way and be more selective where we do invest. We think that this SEK 1.4 billion we can avoid over the next three years, and the largest portion is from strategic investments, where either old SSAB or old Ruukki had the assets that either company was looking for, and this is approximately SEK 800 million. We also see that we can avoid maintenance investments, and this is approximately SEK 600 million. As a combined group, we believe our new maintenance CapEx level will be approximately SEK 1.6 billion-1.8 billion going forward. In order to finalize this transaction and in order to achieve the synergies, there are some associated costs.
If we start first with the transaction cost, we will have approximately SEK 325 million, which will impact quarter three, and this will be advisory cost. We will have to pay something called a transfer tax, which is, according to Finnish regulation, we'll pay that for buying the shares, and we will also have some financing costs, for the bridge financing. And then we will also have, over time, we will have restructuring costs. We have estimated this to be SEK 550 million, where we see 400 being cash costs, for example, for redundancies or for IT systems. And then we also see that we might have potential write-downs of up to SEK 150 million, which are then non-cash costs.
If you compare it to what we announced, when we announced this in January, we then said SEK 350 million in cash costs. We're now saying potentially slightly higher, and we didn't mention any write-downs, and we now said that, okay, maybe around SEK 150 million. While the transaction cost will be already now in Q3, the restructuring cost will impact as we define these actions in more detail, then we can make the provision for this restructuring cost. As part of the approval from the EU Commission, we agreed to sell certain assets. We agreed to sell a steel service center in Halmstad in Sweden. We agreed to sell a steel service center in Naantali in Finland. We agreed to sell Tibnor Oy in Finland.
We also agreed to sell 50% of-- rather, our ownership, which is 50% of Norsk Stål and of Norsk Stål Tynnplater in Norway. Finally, we agreed to sell Plannja in Finland. When we combine these assets and look at the total sales compared to the total group sales, it's approximately 4% of the total turnover. We initiated the divestment process as soon as this was agreed upon, and our aim is to finalize this before year-end. Important to point out here is that the synergy target we presented previously of SEK 1.4 billion is not impacted by these divestitures. I will spend a little bit of time talking about our balance sheet. I'm not gonna go into details on each and every item, but I want to highlight a few things here.
First of all, the total assets and total equity and liabilities for the combined company, pro forma, then end of June, is SEK 89 billion. And a few items that have changed is equity has increased quite a lot, which is a result of the share issue, the rights issue we made in order to finance the transaction. So in this pro forma, it's SEK 42 billion. What you might also note is that we have quite a lot of cash on the balance sheet. We have SEK 8 billion in cash, and I'll get back a little bit later on why and what we intend to do with that. And then what you can also see is that we have a goodwill of SEK 24 billion.
The main portion of this goodwill is coming from the IPSCO transaction in 2007, but it now also includes the full step-up value from the Ruukki transaction. What does that mean, then? Well, when we closed this transaction, we got step-up value totaling SEK 6 billion. Then what we will do, and what we have started with, but not yet finalized, is to do a so-called purchase price allocation. What we do then is that we allocate this SEK 6 billion to different asset classes in the balance sheet. So we will allocate it partly to goodwill, and this goodwill is not depreciated, but we'll make an annual impairment test on it. We'll allocate it to buildings and land, machinery and equipment, intangibles, and also to inventory and order backlog.
These items, then, they will be depreciated over time, and they will then, going forward, also impact the P&L. Now, I will spend some time talking about our financing situation in the combined company. What you see on this picture is our gearing, and from 2009 until all the gray bars are SSAB standalone, and then the last one is the pro forma, then, at the end of Q2. We have had an ambition as within SSAB to decrease our gearing, and from 2011, when it was at 60%, we decreased it, so it was at the end of Q2, 54%. And as we then made a rights issue, for the Ruukki transaction, it's now down to 51%.
The total net debt, on the other hand, of course, increased because we took over the debt of Ruukki, so we're now, as a combined company, at SEK 21.5 billion in total debt. Our ambition is to continue to decrease the debt and decrease the net gearing as we are in a cyclical industry. We, standalone SSAB, used to say that we have a balanced debt maturity profile, and we will continue to say that also after this transaction. It's really not a huge change in how these loans are maturing. You see the blue bar is former SSAB, and the red bar here is former Ruukki.
The big change, you can say, is in 2014, and here, both SSAB and Ruukki has bond issues, which is maturing towards the end of the year. But then in 2015, 2016, and 2017, it's not a very big difference compared to old SSAB. Worth mentioning as well is that the Ruukki backup facilities, they were canceled upon closing of the merger. This was approximately SEK 3.9 billion. And also, at closing, we repaid SEK 54 million of Ruukki's debt, and the remaining debt was assumed by SSAB.
This is the reason why we have quite a lot of cash on the balance sheet, because during the spring, we made a number of financing activities as SSAB, because we wanted to make sure we could take over Ruukki's debt in case that the lenders were not willing to accept us as having the loans. But these discussions went actually very well, and we only had to repay a very small portion of the Ruukki debt of SEK 54 million. Final point on the financing situation is that our interest rate is basically unchanged as a consequence of this. We have, however, a slightly lower duration on the loan portfolio.
Within SSAB, we managed to increase in Q1 and Q2, and we were up on 42%, but then after we took over Ruukki's loan, we're down at -- sorry, 4.2 years, we're down to 3.8 years. So no dramatic change, but slightly lower. My final point here will be regarding the currency exposure for the new combined company, and I will try to point out the difference versus old SSAB. The first difference is for the U.S. dollar, where SSAB, we were short on U.S. dollar, and now taking also in Ruukki, we will be even shorter than the U.S. dollar. We, of course, have a big American business, which is buying raw material and selling in U.S.
But for the European business, both us and Ruukki are buying a lot of our raw material in U.S. dollar, but then selling in other currency. So this means that we are now even more short of U.S. dollar. On the other hand, for euro, it's actually the opposite. For old SSAB, we used to have cost in SEK, but selling quite a lot into euro, while Ruukki are actually doing the reverse. They have cost in euro, but selling quite a lot into Swedish kronor. So given the new combined company, this is actually a benefit for us, that we have less discrepancy in terms of of the euro. And combining the U.S. dollar and the changes in U.S. dollar and euro, this makes us more similar from a currency exposure as other European steel competitors.
The last change worth pointing out, I think, is the ruble you see there, where former SSAB, we've been fairly small in Russia. We haven't had that big of a ruble exposure, while Ruukki, and especially Ruukki Construction, has big business in Russia. The reason why you can see that it's fairly balanced in terms of inflow and outflow is because the construction business in Russia is sourcing material locally and then selling material locally. It's not really a big discrepancy there. To summarize this, starting saying that we see improved profitability in 2014, although from low level, but we do have a clear agenda per division towards industry-leading profitability. We are committed to deliver on the synergies. We mentioned the cost synergies before, of SEK 1.4 billion.
We've also identified at least SEK 500 million in working capital reduction and SEK 1.4 billion in capital expenditure avoidance. Looking at the loan portfolio, we have a stable funding situation. We have continued low funding cost. We were able to take over the majority of the Ruukki debt, and still we have no financial covenants within our debt portfolio. And then the final point, we now, as a combined company, have a more balanced euro exposure. Mm-hmm.
Okay, can you hear me? My name is Andreas Koch, Head of Investor Relations, and now we're turning to the Q&A session. For those who are not—you're online, you can't see it, but it's large interest in the audience, and people are standing, and there are a couple of seats there if you want to have a seat, and we will make sure that after the break, all can have a seat. But we're very happy for the big interest for our day. Well, now we're starting the Q&A session, and we will open up for questions to Martin and for Håkan. We will have microphones on that side and that side, so just raise your hand and state your name and company, and we'll make our best to answer your question. Maybe start with Oskar from Danske Bank.
Thank you for that introduction, Andreas. So it's Oskar Lindström from Danske Bank. I have actually 5 questions. I'll perhaps start off with 3 for you, Martin, and then you can let me know if I can continue. You showed a chart there over sort of longer-term EBIT margins for SSAB, the old SSAB, and you commented on the sort of pre-2008 level. Do you feel that that level is sort of at all relevant looking forward?
No. With EBIT margins of close to 40% now. That's never going to come to come back? You never know, but I think what we saw in 2008 and 2007 was as abnormal as what we saw 2009, so no.
Is there any other historical period that you feel is a good sort of benchmark for where you would hope the business will come to?
Well, I know where I would like the business to be and where we plan the business to be, but that's, I mean, these were exceptional times. And as I showed, we had booming days in Europe. What have happened since then? Well, first of all, at that time, the, the Asian market and the Chinese market were undersupply. They have increased capacity. Europe was the steel industry were exporting a lot of steel to standard steels, to Asia and China. That will not, it's not, I mean, economically a good idea to continue to do that. There's also been, there was a lot of companies at that time, and still are, of course, producing things in Europe, exporting to Europe, that have moved production closer to the market.
So I'm not expecting for the near term to see steel consumption at or above 200 million tons in Europe. I said, I think this is the new normal, and we'll see a gradually increasing in line with GDP. Will we see improved margins for the steel industry? Well, it depends on the market. Will we see improved markets, margins for SSAB? Yes, I think we have a very good chance with what we have presented, the synergies, the growth and so on, to have better margins. Am I expecting 40% EBIT margin next year? No.
All right. Well, that was interesting. Another question, more, more specific maybe, is on the synergies, and perhaps this is for Håkan as well. You mentioned that part of the synergy, or the SEK 1.4 billion, is related to increased flexibility in case of lower demand. Now, what are the sort of volume thresholds when we should expect sort of a tapering of these SEK 1.4 billion down to SEK 1 billion?
In a better market situation like this, I mean, with the market, as we said, as I said in the picture, as it looks right now, we will be delivering SEK 1.4 billion in hard cost synergies, and we will have flexibility also in the production system to, in a cost-effective way, meet the demand as we saw back in 2009. But of course, if we get a better market than what we see right now, the synergies will be slightly lower. On the other hand, the margins and the volumes will be higher, so the net effect will be more positive than losing... SEK 350-400 million in flexibility synergies.
Okay, thank you. Like a final question then is on any new—there's no new financial targets in your presentation here. Does that mean that your old sort of net debt to equity target of, I believe it's 30%, is what you're still aiming for? And how sort of urgent is that?
Well, first of all, we have just combined these two companies. We are fully, I mean, occupied with, with getting the organization up and running, starting the synergy projects, and so on. We felt that we want to focus on that, and we'll come back in the annual report for 2014 and discuss about financial targets. But as Håkan said, we are continuing focusing on reducing our net debt. So no new financial targets today. We didn't see the need for it.
Wonderful. Thank you.
So should we go to the next? Is it Julien this time, maybe, on this side? So Linnea, could we? And also before the question, just stating, if you are watching this online, you are able to write down your questions, and we will read them up, let's say, in the end. So please.
Thank you very much indeed. There's a consolidation item on the divisional EBIT chart. Could you just talk us through the flows between the different divisions in the new setup?
Please explain, do you mean-
Are you selling from one division to another?
Oh, okay. The Special Steel Division, Per will come back and show that later in his presentation, are what... In, for Special Steels, Oxelösund is related to the site in Oxelösund, but on the other hand, we have the facilities in Borlänge, in Raahe, and in Mobile to produce the products that Per's organization will sell. So you will have a flow also from other sites into the Special Steels Division. Yes.
Okay. So when I look at Americas, as you report it now, the EBIT figures seem to be lower than you previously reported it. Is that because you've taken the local sales out?
We're breaking out the products that are being sold by Per's division are taking out from previous Americas, correct.
Okay, great. And then the Ruukki amortization, what's your best guess as to what will that be annually?
We'll come back to that. We will take a lot of time to make sure we do this PPA in the right and correct way, so we'll have to get back to that.
Okay, great. And then finally from me, Tibnor also looking lower now in the pro forma than before. Is that the removal of the Plannja division to Ruukki?
No. Plannja was not in Tibnor before. Plannja was actually within EMEA. Tibnor is combination of, as I say, the old Tibnor and the distribution part, which was within Ruukki Metals before. But then we've actually moved the steel service centers that were in Tibnor before, is now part of SSAB Europe division.
Thank you.
Okay, and where do we have the next one? Christian, maybe.
Thank you. Christian Kopfer, Nordea. Firstly, on iron ore, you mentioned that you have seen quite dramatic drop in iron ore prices. Have you seen the same magnitude on the pellet side?
We have a contract which gives us with a lag time, an average price for pellets. And then on top of that, we have a premium for fines, and then on top of that, we have a fixed pellets premium. So we have seen, and we'll see the effects of the drop in fines, but the pellets premium will be fixed.
Okay. On your customers, have you seen any response from the customers starting to demand the lower prices on the standard products because of the lower iron ore prices?
Well, if you look at the spot market prices without giving any prognosis, they seem to be fairly stable.
Okay, fine.
In Europe.
Yep. And then finally, for me on synergies, you said that you are quite confident on delivering on the SEK 1.4 billion in the current state of the market. Is it... And then you're also breaking it down on the several areas. Is it one of the areas or that you see that there's special upside to the to the synergies or?
Well, what I said is not that I was not only confident, I know that we will deliver on this SEK 1.4 billion in synergies. And of course, we could run into some areas where we are a bit luckier. I don't know, but what I've say, I'm saying is that we will deliver on the SEK 1.4 billion.
Okay, thank you.
Okay, so take Johannes here in the front.
So it's Johannes here, ABG. Just a question here on what you see in demand in Europe. I mean, Christian touched upon prices. You indicated stable prices, but what do you see in demand? And are those sort of softening PMIs here coming in Europe, seeing in the discussions with clients?
Well, first of all, I commented on the spot price development, which you can all follow more or less day by day. And when it comes to demand, well, we were seeing a lot of positive news from PMIs and so on, and we never saw that really on the market, and now we see some mixed picture. I would say what we see is, stable demand overall.
Okay, and then-
And I mean, we have more or less the same market view as we had when we released the Q3 report. We didn't see it at that time. We talked about normalized margins in U.S. and so on. We didn't see that in the order intake or in the P&L, but we were expecting it to come. And boring enough, I mean, it's the same picture as we see today. So no big moves.
Okay. And is this also the message when it comes to mix? Because you previously talked about stable mix progress in Europe.
Stable? Mix progress. I was thinking about the-
Oh, product mix.
Yeah, product mix. Yeah.
Yeah. And then on CapEx here, you give us the new maintenance CapEx level for the new group. How should we see this total CapEx coming in in 2015, 2016?
Around that volume, ± something you saw on the pro forma 2013, it was obviously a bit lower then. But as we said in the old, in the old SSAB, we said SEK 1 billion ± something, and you see, so see this as the new call it equilibrium, then ± something.
Okay. Thank you.
Maybe you were referring, Johannes, to strategic CapEx as well, or?
Yeah, I was thinking about the reported CapEx number here.
Yeah.
-for the next coming two years. I know you have some refurbishment in Luleå, and
Yeah.
-that should boost the number.
That in terms of maintenance, the relining in Luleå next year will, of course, have an impact, correct. And then in terms of... The level I gave was for maintenance or replacement and compliance CapEx. We will, of course, also have some strategic CapEx, although, as you know, we did the big strategic investment program for SSAB 2009 until 2012, and we don't see any need for any of these significant strategic. Of course, there will always be some, but the big program is behind us.
So, James, second line.
Thanks. It's James Gurry from Credit Suisse in London. Just a quick question about the percentage of niche steel shipments out of the group total. It's obviously a lot lower now than what it was before. Have you changed the definition of niche steels at all? And is there a new target? And is this key to sort of enhancing that EBITDA margin that you mentioned in the press release?
Well, first of all, we have not changed the niche definition. We're not... I mean, special steel is something else than what the old niche definition was in SSAB. That was from, was it 420 megapascal and upwards. Now we say that Special Steels Division will be responsible for selling hot-rolled coil products above 700 megapascal. So there are, according to the old definition, niche products in the other divisions as well. I mean, in Europe, we will sell-- They will have a global responsibility for the automotive products up to and above 1,800 megapascal. Definitely, clearly, however, you measure it, a niche steel. But, but we have decided to do this because we have also, as I showed, due to the different business logics in the different divisions.
But Ruukki also had, they call it a niche definition or a special steel definition with a slightly different content. So we will continue to focus on these divisions, and SSAB Special Steel will be the most unique and specialized products in the whole product portfolio, with a number of exceptions when it comes to automotive steel, when it comes to, you talked about normalized and so on. So we haven't forgotten it, but we have a different... I mean, it's not one to one, so the translation from niche into special steel.
Okay, thanks. And just one other one, just on the goodwill amount. The SEK 24 billion, that'll be the maximum goodwill, and it's expected to come down after you do your purchase price allocation. Is that correct?
... Yes, the SEK 6 billion, which is then the full step-up value from the Ruukki transaction, that will be allocated. So part of it will be in goodwill and part of it in the other items, yes.
That's in the 2024?
Yes. Yeah.
Okay, in the back, yeah, that's Steven from Goldman Sachs.
Hi, it's Steve Benson from Goldman Sachs. I just had a question on margins. So you've, you've showed the synergies, the cost down, the working capital down, the CapEx to be saved. But what's the outlook for margins and returns? So if we take your forecast that you presented at the start or the world steel forecast for next year, and we maintain these prices that are stable today, where would your margin levels get to next year with the new group?
Well, you can probably do the math. We haven't done it, and then, of course, we have done it, but we are not presenting it.
Or return on capital, you know, are there any targets that you have?
As said, I mean, we are coming back with the financial targets, what we think is relevant financial targets, and we'll probably do that in conjunction with the annual report for 2014.
Okay. Second question, when will we get an update on the operating footprint and capacities? Is that, is that coming later with the divisions? Like, where you might adjust some capacities-
You will get-
in a melt shop.
Some information about that when we go through the divisions, but mainly we will take that after we have, first of all, decided and then negotiated and made it clear internally. We have a very good view where to do it and when to do it, as said, but, I mean, for obvious reasons, we can't start to communicate it here. We need to start to communicate internally.
Okay. Will, will the financial markets hear about it this year, or is it more of a next year?
Gradually.
Okay.
Starting this year and gradually over this period.
And with iron ore down 40%, some of the steel companies are highlighting margin expansion into the third quarter. Is this temporary, do you think, or is it sustainable?
That's a very good question. Impossible for me, of course, to answer, but depends, of course, where the prices will go.
Historically, it would point to prices coming down eventually.
Mm.
Do you agree?
Historically, yes.
Yeah. Okay. And just lastly, on the U.S. market, you, you flagged up that there might be a plant expansion in, in Iowa. Has there been any more discussion at the level about it?
Well, I won't take all the punchlines away from Chuck, so you, you need to bear with us a couple of minutes or an hour or so.
Okay.
We'll come back to that.
Okay, thanks very much.
Okay. We have Selena. Here, we have Julien and yeah.
Ah, yeah, this is Bastian from Deutsche Bank. My first question is on the portfolio, and you have been already flagging that you have a couple of non-core operations, obviously, now in the new structure. So how do you plan to basically tackle this? Do you plan to just sell possibly some of them opportunistically, or will, will there be a formal process or even a timeframe? And then also, obviously, which precisely, which operations are you thinking of here? Is this possibly just the Ruukki Construction business, which maybe doesn't have a necessarily strong strategic fit, or is there anything else which you plan to sell? That's my first question.
Well, first of all, we haven't taken any decisions at all. This is what we are presenting today is what the company like looks like. Then, I mean, we are a steel company, and our focus, I presented the focus for SSAB. So, I mean, I think you can imagine what kind of potential divestments and non-core business that could be in the group, but it will not be one of the major sales sides.
And-
But we need to come back if and when we decide to do that, and then explain how we plan to do it as well.
And you plan to do this until the end of the full year as well, similar to the financial targets or?
Well, what we plan to do until the end of this year is to sell the remedy assets that we agreed upon with the European Commission. That is in the plan, and as Håkan pointed out, that work is ongoing, and we feel confident that we will be able to do that.
Thank you. Then my second question is on client stickiness, and I guess it's probably very high in your business, given the very close relationships which you have with your customers, and the same thing probably on the side of Ruukki. But then, I think one phenomenon which we've been seeing in the transaction of one of your local peer company, Outokumpu, was that, when two companies merge together, obviously having a very high market share, we saw some of the clients migrating away and obviously trying to re-diversify their supplier base. I appreciate it's very early to say this, but do you see any indication for that happening, i.e., some clients obviously seeking re-diversification, which I imagine is a little bit more difficult here for the local clients now, given that you're basically the dominant domestic player?
What I said during my presentation, and maybe I was too, what do you call it? Subtle in Swedish, probably the same in English, but I said, so far so good and no business disruption.
Okay. Thank you.
Okay. Julien Johnson, follow-up question.
Okay. Yeah, thanks. There's been a number of truck and automotive companies in Europe and the States, and in Brazil, I should say, indicating weaker markets quite recently. It looks like you've got about 15% of your sales directly to those end markets. Are you seeing any impact of that in your orders at the moment?
No.
That's great.
Mm-hmm.
...And we'll also talk more about that market in the next session as well. So on the side. Oh, are you starting with Ola?
Yeah, Ola Södermark, Swedbank. Just to follow up on the market here in Europe, the steel market, the order books, how does they look in for?
We will come back to that when we report Q3.
Okay. But you are taking orders for Q4 now at current market prices or?
We are always taking orders into the future, yes.
Okay.
That's the meaning behind the process industry. Now, I will not be specific on that, but we are taking orders, yes, into Q4, both in Europe and U.S., as we always do at this time of the year.
Thank you.
Jan Sparrevik, DNB. Yeah, how is the scrap-based business compared to the iron ore pellets-based business now when the scrap pricing has been kept on a stable level and the other has fallen 50%?
Well, still, as we see it, a big benefit for a lot of reasons for the setup we have in the U.S. Of course, the cost position, but also the flexibility. You're right, we haven't seen any correlation or a 100% correlation between fines, prices, and scrap, as Håkan showed, and typically, over time, there is a correlation. But so far, we have not seen it, no. But we are still very cost competitive in North America compared to the integrated means.
Okay, let me see, Linnea, do we have any questions from online at this point in time? Nope, not so far. No questions online. Do you have any additional last questions? We, we'll say we have, several other Q&A sessions, but, just the first one. Do you have any questions related to the group? Students? One more to go.
I hope I didn't nod off when someone else asked the question, because some people ask quite a few questions. But, were there any, is there any indication as to your dividend policy going forward?
No, we haven't changed that dividend policy either.
Would you expect to pay a dividend for this fiscal year?
Let's come back to that when it's, I mean, time for it.
Thank you.
Okay. Well, now we have had a presentation on CEO and CFO, and the next session will be about our three steel divisions, and those who should deliver the SEK 1.4 billion. So, I definitely recommend you to stay tuned and to listen in to the next session. As we are a bit ahead of schedule, I propose that we meet up here at 2:30, and maybe we also can quit a bit earlier. So 2:30, back, and we'll make sure that you can all be seated. Thank you.
So, okay. Good afternoon, everyone. My name is PO Stark. I'm head of the Special Steels Division in SSAB. I got a little bit more than 30 years in the company, the first 25 years working in the former Plate division of SSAB, half of that time responsible for marketing, sales, and product development. After that, I was doing almost 3 years in Plannja, made a turnaround there, and started to make profit. And see, for the last 2 years, I've been working, trying to develop or starting to develop the new business unit, Wear Services.
As I will talk a little bit more about in this presentation as well. The aim of the Special Steels Division is to build ourselves to lock a position, build a position as global steel and service partner in advanced high-strength steels and quenched and tempered steels. We are doing this with a quite attractive product offering. Hardox, the abrasion-resistant steel plate, wear steels, is a little bit more than 55% of our business. What we are offering there is the possibility for reduced weight and extended wear life. The worldwide market leader when it comes to abrasion-resistant steels, that is Hardox. In addition, we are now adding Raex to the product portfolio. The structural steels makes up a little bit more than 45% of what we are selling, what we are producing.
The advantage there is the possibility for the customers to build lighter, more designed for lightweight, building more competitive structures, and at the end, saving weight and saving fuel consumption. And there we have three brand names, Strenx, Weldox, and Optim, that are all very well recognized within their respective region. Protection and tooling, that is a small portion of our business, at less than 5% of our total sales. When it comes to protection steels, we talk Armox and Ramor, and that is steel for the protection of life and property. That has been used, for instance, in the Swedish Embassy in Washington, D.C. And then finally, we talk about tool steel, and Toolox is the brand name there. That is steels that gives the customer a quicker access to market.
Pre-fabricated steel, you could say, in the way, compared to the way it is normally done. So these protection and tooling steels are important for many aspects. They are good, but they are also very, very high-end, I would say. So they help to drive the development and lifting what, what we are doing for the other steel grades as well. In addition to that, we are adding know-how and service to the products that we are supplying. We know what state-of-the-art material can do to the design. We know fabrication, we know machining, we know welding, we know how to deal with the steels. We also know how the steels behave in a certain application, so we can predict, we can work together with the customers, discuss: what do you want? What is most important for you?
Then you should go for that steel or that steel or that combination of steels. So from that point of view, I would say we have an extremely strong product offering, and it's not only steels, there is a lot more than steels that we are adding to it. Martin touched on the niche and special steel. Ruukki used to talk about Special Steels and had a certain definition of that. In SSAB, we are talking about, or used to talk about niche steels, and there is a slightly different definition to that. In Special Steels Division, we will sell the hot-rolled products, we will sell all the quenched and tempered products, and we will sell the advanced high-strength steels with yield strengths equal to or higher than 700 MPa.
That means, as Martin said, that both Europe and Americas will sell steel that was formerly included in the special steel or niche definition of the products as well. In Special Steels, we have a global production setup, allowing us to give good service to customers all around. We have in Raahe, two quenching lines, one for strip and one for plate. We have in Mobile, two quenching lines, where the newest one is really state-of-the-art and probably the most modern quenching line in the world. We have in Kunshan, a finishing line for Q&T plate that helps to improve us to give better service to Asian customers. We have in Borlänge, a new built quenching line for strip that is, I would say, also state-of-the-art and probably the most modern in the world as well.
And then finally, in Oxelösund, we have four different quenching lines. We have a mill that is entirely dedicated, built up around producing very high-end qualified quenched and tempered products that we are producing in thicknesses from 3.2 mm up to 175 mm. With the combination of the two companies, we are widening our product offering to the customers. We are doing that for the abrasion-resistant steels, and we are doing that for the structural steels as well. This is an example showing what it means for our new product program. You can see that for structural steels, we are covering yield strengths up to 1300. We are working with thicknesses from 3.2 mm up to 165 mm for this. We are working on 175, we will soon be there.
And then for the strip, there, especially with the combination with Ruukki, we are extending the strip offering to the customer, both in terms of dimensions, and I would say in terms of certain product characteristics that are important for some customers as well. Håkan gave you a briefing of the financials and where we are, but if you look at the Special Steels Division, a little bit more than 50% of our sales goes to Europe. Around 20% is for North America, and the remaining spread out through the world. You can see that we've had a fairly stable sales at the level that is a little bit lower than what we would like it to be.
You also know that we have it affected by the vacation period in Europe, we have a seasonal slowdown in Q3. That is mainly related to the European activities. Profitability, EBIT, and EBITDA, Håkan touched on that as well. I mean, we-- there was a lot of work done in old SSAB, in old Ruukki, working with the cost. We see a positive effect of that now. We know there is more to do, but, I'll come back to that. For the Special Steels Division, we have identified and looked at synergies that amount to SEK 250 million. Most of that is production, raw material optimization, using the plants in the right way, and producing the right thing in the right places.
We also see an effect of the integration of sales and support functions that will help us to deliver this. You will see some effect next year, and the full effect from the full year 2018, then, that will be up and running at SEK 250, 250 million. Martin touched on the market situation and where we are there, and I will look a little bit deeper into that, and give you the view from a Special Steels perspective. Starting with North America, we see a somewhat improving demand in recycling, construction, machinery, heavy transport. There is a modest recovery in lifting and what we are doing there.
Mining is at an extremely low level today, I would say, but we are maybe seeing the first signs of a slow recovery there, even if mining is not a very big portion of what we are doing. In Latin America, demand for new mining equipment is remains at a low level. We think it's at the bottom. We don't think it will go any further down. And we see a more positive outlook for lifting equipment in the longer term. In Asia Pacific, we see a moderate growth in Chinese heavy transport. We see a softer market environment in Chinese construction and lifting. That is what you can read in the papers as well. Mining in Australia, and especially in Western Australia, is at good levels, and in some cases, especially for iron ore, at record levels.
But the demand for new equipment remains at a very, very low level, I would say. So that is... That's a little bit where we are. Looking at the strategic priorities and how that fits with the strategy of SSAB, I mean, the first part and global leadership in high-strength steels, and the number one and most important priority for us, that is to accelerate the growth in QT and AHSS, and that is where we will really, really focus. We all need to develop our product offering, and we are doing that, focusing a lot now and see what we can do when it comes to value-added services. We are building a new business that we call Wear Services.
I will come back to that, but we are also looking to see what we can do in terms of making a more attractive offering to the customers in certain segments, and working with high-strength steels and do that in a good way. We have the customer's business in focus, and we will continue to have that. Based on that, I mean, we are working very hard to improve the service. We will be looking at reducing cost. We know there is always something extra to do. And of course, we can always, I mean, we have the synergies that we have a plan for how to realize and how to work with that. To realize the priorities and to see where we are, I think we have a fairly decent and good starting point.
We have our own sales organization with very committed, well-trained salespeople in more than 50 countries around the world. Where we are strong today, we will continue, continue to be, I would say, very aggressive, getting back, taking market shares, selling more with the expanded product portfolio that we have. We have. That is the blue areas that you see here. We have, in the green areas, identified the regions where there is a good potential for growth. The underlying growth in the economy is expected to be good, and also the penetration rate that Martin talked about for Q&T, AHSS, is relatively low, so we can have kind of a double effect from growth and increased penetration in these, in these areas. That is important areas for us.
Coming back to the Wear Services and what we are doing there, what we are aiming at, or what we are doing, is to develop the products and applications for the wear market and the aftermarket. We are doing that under the umbrella of Hardox Wearparts. Hardox Wearparts today is a network of 140 small and medium-sized companies around the world. SSAB owns 20, or about 20 of them, wholly or partly. The idea here is to find working together with companies that are, like I said, small or medium-sized, that are small in the local markets. Our role, we are the link, keeping it all together, supporting them with what we know, what we can, helping them to learn from each other, so they can all be stronger in their respective home market.
We are talking about becoming a one-stop shop for wear services, and that means that we shall be able to go to a mine, go to a quarry, go to a recycling plant, talk wear, and we know that plate is very good in most applications, but there are areas where other material could do a better job. We shall be able to supply, to deliver those products, to discuss with the customer, this is the best you can use in that application if you want to have that result. And then we shall also be able to provide that for them. Typical examples of how we are working and what we are doing within the wear service concept is, of course, to work with wear parts, spare parts made out of plate. We are doing hardfacing.
Hardfacing means that you weld a very hard, a little bit more brittle material onto the top of a plate, and that makes a better job in certain applications. We are producing this product at four places in North and South America today, and we are adding to that. We'll do that in more, more, more areas as well. We are working with developing methods of measuring wear in order to be able to plan maintenance, to see in advance when things are going to break down or when things will be worn out, to help our customers to plan their maintenance in a proper way. Many of the Hardox Wearp arts companies are doing on-site services, repairing excavators and, I mean, the wear parts of the things that we are talking about. We are doing fabrication, still in wear parts and related to that.
Then we are also working with reverse engineering. Reverse engineering, in this case, means that we are using a way or a method of laser scanning bigger products, and then preparing drawings to be able to produce spare parts that can be put into a large structure with minimum delay, minimum stop time for that part. It takes us roughly 15 minutes to measure, to scan a large bucket or a large stamp box. Then we will need between half a day and up to a couple of days to prepare the drawings, to see exactly what we need to produce and how we shall produce it.
I mean, it's kind of the idea is to develop these ways of working, to learn this way of working, implement, implement that into the network, and thereby helping to make the network more stronger and doing a better job. A few customer examples, and this is Serin Trailer in Turkey, which is a customer or company that we know. What they have done now, very quick, actually, after we announced the merger, they developed a new trailer where they are using the Hardox grades and the Optim construction grades from Ruukki. Developed a new tipper that is 500 kilos lighter than before, with an extended lifetime, with a factor up to three. It's not rocket science in a way.
It has been done in other markets before, but what we can help, what we can do is, through the network, we can make this. We can support customers, we can support companies to take the step and to produce more competitive products and be better. SSAB did invest in a thick plate quenching line in Oxelösund a few years ago, and that opens up new segments for us. One of those is the offshore industry, where we are. And especially, thick plate in the offshore industry is, to a big extent, used for jackups. And there, we are working now with projects both in U.S. and in Asia, and we have very recently secured the first order for 6.5-inch or 163-millimeter plates for one of the jackups that is currently being built.
So we are very happy for that and see a good potential to continue to do a good job there. If I should sum things up, then I would say that we do have a market-leading product portfolio that will help us to grow, that will help us to make more business. We know that we have, with the way we are working and the know-how that we have, very good in knowledge about applications. We know product development, we know fabrication, we know how the products behave at the end of the day. And, I mean, that is a very good combination. We do have a very good geographic coverage. We are in more than 50 countries around the world. We are there with our own people, specialized in selling and marketing these products. So that is a good starting point.
And then we have access to a global production system that will allow us to give a good, good service, competitive lead times on most of the markets around the world. So from my point of view, I'm very happy to have the chance to, with this as a base, to start to implement and working towards the overall strategy of SSAB. And I would say that we have a good starting point. We have a good position to make good business. With that, I would like to thank you and leave the word to Chuck.
Thanks, PO. Good afternoon, everyone. A couple of things before I get started. My name is Chuck Schmitt. I'm over SSAB Americas, and I'm chasing P at 29 years in the industry, starting with U.S. Steel in Pittsburgh. And I actually grew up in Pittsburgh, and not unusual, as a young guy looking for a job in Pittsburgh, I followed my father, who followed his father, who followed his father, so now representing 4 generations in the company business. So I couldn't be more proud of that, to follow my ancestors, as well as being proud to be part of the SSAB management team. And I also wanna thank Martin and Håkan for not stealing my thunder.
Hopefully, the materials I'm about to present here will answer some of the questions being asked. As the North American leading producer of high-quality plate and wide coil, SSAB Americas' product portfolio begins with as-rolled plate, laser quality plate, normalized plate, heavy plate and coils, and expanding to hot-rolled sheet and coils, in addition to heat-treated plate coming from our European operations. Our North American manufacturing footprint provides effective geographical and logistical advantages, where we serve a strong Midwest manufacturing base from our Montpelier facility, while our Mobile operations provides us a strategic location on the Gulf Coast, supplying southern U.S. customers, as well as export opportunities for some of our key products. Both of our mills are EAF-Steckel mill design, with a total production of 2.4 million tons.
We also stretch our home market geography with three temper mill coil processing lines in Toronto, Canada, St. Paul, Minnesota, and Houston, Texas. Shipments were 2 million tons in 2013, while sales has shown a slow but steady recovery since the middle of 2013, excluding the impact of the Mobile outage and severe weather complications that occurred in the first quarter of this year. Similarly, profit margins have improved over the same period, tracking to higher prices, but balanced somewhat by stable, if not high, raw material cost, and I'll come back to that in just a minute. The Americas margins are heavily influenced, as you can see, by the spread between market prices and scrap cost. And judging by its historical trend, it is now returning to more normal levels, where profitability is restored.
Our electric arc shops are 95%-99% scrap charged. However, we are undergoing a number of trials using higher mixes of DRI and HBI to determine related cost benefits across various grade profiles. Our margins are also impacted by planned maintenance outages, and our next scheduled outage is in October for our Montpelier, Iowa, facility. In Americas, our targeted maintenance schedule is 12-16 months for the Montpelier operation and 16-24 months for our newer Mobile works. As we've done in the past, and as we reserve going forward, we will consider many or split outages as part of our flexibility program as market conditions present themselves.
Americas' market outlook remains stable in the near term, driven by the strong energy play that Martin referred to in his presentation, and its very positive impact on pipe projects, wind and transmission tower infrastructure, and other segments such as transportation. Tank car and barge builders are experiencing high demand through 2016, boosted by petrochemical industry needs. Improving economic conditions are also driving support for a steady recovery in most of the construction markets. Service centers have enjoyed good shipment rates for most of the year and have kept inventory levels relatively stable in meeting the market demand. Some headwinds are currently developing, as has been referenced around plate and strip imports into North America, which are running significantly higher than historic levels.
Specific examples within the energy and transportation-related industries include a very bullish long-term outlook for line pipe projects and tank cars used in oil and gas transportation to the North America refineries. Additionally, new tank car designs are expected to increase steel usage by over 20% due to heavier wall thicknesses that are being required in these specifications. Wind and transmission tower activity look to remain strong through first half of 2015, as electricity investment continues. Our strategic priorities for SSAB Americas, as Martin described earlier, are, number one, to secure our leadership position in the North America plate market and continue growth in identified customer segments. Number two, is to strengthen our low-cost position through aggressive, continuous improvement programs and flexibility in our operating practices. And lastly, to maintain our industry-leading service levels as measured by third-party customer surveys.
In order to maintain our leading plate market position, SSAB Americas is evaluating several options for capacity increases, both large and small, along with flexible raw material feeds. I think this was brought up earlier. Our organic growth initiatives continue, and initial debottlenecking investments are underway at both Mobile and Montpelier, with expectations for very short payback periods. Larger investment decisions, likely in incremental steps, will be made based on long-term demand supply scenarios and our ability to keep a low-cost production model. SSAB's position as the largest and most cost-efficient producer in North America, starts with our modern production equipment and enhanced with flexible operational setup within our EAF shops, with lower manning and overall lower labor costs when compared to the integrated mills.
Our locations in the U.S. industrial heartland and Gulf Coast port system provide us competitive advantages in logistics, raw material, raw material sourcing, as well as attractive utility rates. At the beginning of 2014, SSAB Americas reestablished itself as number one in overall customer service satisfaction, as measured by the Jacobson Survey of major North American plate suppliers. While our service and on-time performance have bounced between number one and number two over recent years, SSAB Americas has never lost its position as the number one supplier in terms of quality. One of the examples of how we work with our customers is described here, and in this case, a major North American rail car builder worked with SSAB on redesign of its car to take advantage of lighter, wider, high-strength steels versus strip mill product capabilities.
Also, by utilizing our in-house processing capabilities, we were able to eliminate some of their fit-up issues, reduce the welding areas, and provide a fully formed side panel delivered directly to the assembly line. This comes, you know, directly from what was pointed out earlier in our unique capability to do three-meter wide plate, which happens to be very close to the size of a side panel on a rail car. So it's a project just because of the dimensions itself, which has been underway for some time, and then we were able to introduce the benefits of the lighter weighting and using the higher-strength steels, and obviously, the reduction in welding costs.
So summarizing SSAB Americas, our outlook is positive for the plate market based on continuing activity in the energy sector and expected improvement in heavy transport and construction segments. Stable pricing and our continuing cost improvements should also provide for improved earnings. We combine our strong North America production footprint with an industry-leading cost position and best-in-class customer service. And finally, our capacity growth alternatives will continue to be evaluated based on long-term market opportunities that provide solid financial returns. So thank you for your time, and I look forward to your questions later.
Okay, ladies and gentlemen, nice to be here today. My name is Olavi Huhtala. I'm Head of SSAB Europe. I must say that I have only worked 27 years in this business. I realized that PO, over 30 years, and Chuck, 29 years, but I try to learn, I try to learn every day. I've been working in previous life in many sales and production positions, and in the last 5 years before the position today, I have been heading the steel business in Ruukki. I'm going to go through today, a little bit about what we are, a little about the numbers, the markets, then the synergies, of course, which is one of the key issues when we talk about SSAB Europe and the short-term activities.
We can say that we are leading Nordic-based steel producer with high quality. I hate somehow the word standard steel, because what we do, we are far away from every product what we do, what is really a standard steel. So that's why it's very important to understand that our base from the whole operation is different than we compare that to the real standard steel producers. Our steel offering, we can start from the biggest hot rolled strip and plate. There we have some high-strength steels. We have some, what we call standard grades. When we go to the cold rolled strip, there we are really a global in automotive, especially with the high-strength grades. I'm going to have one very nice example in the end of the presentation, which is really killer.
Then, of course, we have some standard grades in cold rolling. In coated, hot-dip galvanized, also there we have some high-strength steels and some special coatings like galvannealed. Color-coated, where we are quite good in the company, special coatings. And then not the smallest one, but very important, is the tubes and piles. So, we can say today that we are the only steel tube producer in Nordic at the moment, and we have a great potential also to grow on that area. This is the setup for SSAB Europe. I think we can be quite proud about that. All the units what we have here, when we start from Luleå, the largest individual blast furnace, is strategically located near the iron ore mines.
Then when we come to the Finnish side of the border, we have Raahe, which is integrated steel mill with two blast furnaces, hot rolling and a plate production. Then when we go to Hämeenlinna, which is dedicated to cold rolling and coated products, and then once more back to the Swedish side, Borlänge, which is the largest strip rolling system with hot strip, cold rolling, galvanized, and color-coated. I think the important thing is that all these places are in a very good condition. I think that now when seeing those in the last couple of months' time, I can be very happy about to have that set up, and I think that they are completing each other quite well.
Of course, it's a little bit too early to say what to do, but anyway, there's a lot of products which we see that we can learn from each other, which is, of course, one of the, one of the key things. Håkan was showing the numbers. We can say that the net sales from Europe is quite stable, a little bit improving, but mainly on volume based. When we look about the net sales per market area, I think it's very important to see that Nordic is, of course, very important for SSAB Europe. It is about half of the volumes. About 3.5 million is the total, so that's half of the volumes in Nordic. And then rest of the Europe is, of course, also very important.
The rest of the world is mainly, mainly cold rolled, high-strength steels and some, some galvanizing products, and also some plates. But really concentrating to be on the Nordic and European operations. Then a little bit more sad picture, we can say that, at something which is not in a satisfactory level, and, that's, that's the priority number one, to change that picture. And that's, of course, a lot of things. It's a synergy project, which we are going to do. It's all the improvements, what we are going to do, but also we have to work hard on the sales side to get the best out of every customer. The profitability has improved, but that's mainly because of, of some, let's say, capacity utilization is a little bit better.
And of course, we have had both companies early at this saving programs, which we have been running, and we are still running part of that still, so they are not ended yet. But I say, I think the only message here is, from this picture, is that this must be way better than it is today, and that's as I said, I'm quite confident that we can do that. If you look about the markets, there are some key segments for Europe which we are following. We can say that it is stable. We don't see so much big changes there. Maybe in automotive, there's slightly... We are hoping that it's getting a little bit recovery. But then if you look about the heavy transportation, the construction business, I think it's more or less stable.
The same as the service centers, what we are, which is one quite big part of, or not big, but let's say an important part of our sales. So that's also very stable, and the good news is, of course, that the inventory levels are quite normal. But of course, there's still place for improvement, but at least today, we can operate with a quite stable market demand. The strategic priorities, I'm coming a little bit more detail on this first one, especially, I have one slide, which I like to use a little bit more time with you. But of course, when we think about this combination, it is something that we really have to improve the cost position and the flexibility.
And now, of course, we have a lot of more muscles than we have been having, having earlier, but I come back on that. The whole market is surely very important, as you saw that 50% of the volumes are going to the whole market, so that's something what we really have to take care of. There were some questions in previous that how the, how the customers are, are reacting, and I believe myself that when we can keep on going the good service, the good quality, the good level of operations, then, the customers are not moving away only because they have some strategic issues, that they have to have a dual sourcing. We can also offer basically dual sourcing because we have two hot strip mills, we have more galvanizing lines.
So we can guarantee quite easily for the customer that there are no disturbances in the deliveries, which is very important. And then window markets here, that's something where we have to bring value for our customers. And the value is for everyday work, and that's something really that it's a delivery accuracy, it's a quality. I've been now seeing a couple of the big customers, and I think they are quite positive about that because now we have more muscles than earlier, and they can rely us much more than it has been. So I think that's something what we have, and we have wider product portfolio, so we have a lot of things to offer, and I think that's something which is very important.
But then when we think about this, we call it production system, but this combination that—and, and just to give you an idea that where can we take the synergies? Where can we improve the cost position, et cetera? It's more or less to turn big rocks and small rocks. And I think it's, there are four quite clear areas that if we start from the sourcing point of view, then, of course, we are talking about mainly about the raw materials like iron ore or pellets and coal additives, what Håkan was presenting in this pie. It is something really that we can consolidate that, and we can use the power to get better prices. It's a clear thing. Then other way around is to increase the raw material flexibility.
It is something what we say that fit for the purpose, and what we need from this type of things is, of course, for example, which coals we are using. I think we are using altogether about 15, 16 different coals, which we are mixing. It's an everyday work to find the best coal mix for each purpose. And that's something really what we see that we can improve learning from each other. Now we have, when we take PO, Oxelösund, too, we have 5 blast furnaces where we can really start to find the right mix. And I think it's good always to remember that when we make more than 6 million tons, when we earn EUR 1, it's EUR 6 million a year.
So it's something what we really have to, have to take into account, that they are not that small things, that it's not worth of doing better. Then when we go for the steel and production or steel production and rolling, we can say that specialized lines, which was already said here, that's quite simple. We can improve the yield, we can improve more or less everything there. Important is that we do the products there, where it fit best for the purpose, and we have the best landed cost position. That's something which is very important. Then, as already announced in January, that now we have more muscles, we have more flexibility, we have 5 blast furnaces and not 2 plus 3 or 3 plus 2. It is, of course, giving us much more possibilities to be flexible.
It's also something what has been said today, that, of course, if we have a capacity what we are not using, then we have to do something about that. That's a possibility to do. Maintenance is a big, big thing for us when you think about that you put two of these big companies together, that, how much maintenance improvement there can be. So it's one example. And then there are hundreds of projects which we can do to take the best practices. When we go further, then to the steel distribution and supply chain, of course, we can consolidate the distribution network, warehouses, we can cut some, unnecessary inventories, et cetera. So what I like with all of these things, they are quite logical and it's, it's quite, easy to understand. It's, it's nice to do.
And then, of course, the transportation, what we can do together, we can merge that and, and really increase the payload traces, is it in a ship or, on other carrier. So really, we can do a lot of things. And then also I would highlight here that it's something that we can, from the steel distribution, then I'm also thinking always Tibnor here together, that how can we as a combine, do that things better and, and, and cut some inventories and make better services for the customers? Sales and customer support and administration as a total, that's also something what we can see. We have overlapping in most of the countries. I think everybody understand that, that when we put two sales, offices together, then it is a different case than it has, it has been earlier.
Of course, that's very important that we really take care of the customers in this phase. So that's something which we are probably not cutting that fast because we have to be on the market active and take care of the customers. And then there's a lot of general administrative savings, what we can do. So I hope this is going to show you a little bit that what we are doing, and I said there are many, many places where we can do the improvements and improve the cost base. The industrial logic for this whole, whole merge, what we are now talking about here, it is very strong. And I can say that I have been long enough in this process that I believe on this 100%.
So it's really something what I see that we can deliver. And, of course, as shown in a previous picture, most of the synergies, when we talk about the big ones, they are from the operational setups. They are from structural changes, raw materials, et cetera. So in SSAB Europe, we will deliver SEK 1 billion in 2018. So I'm very confident on this one, so the logic is that strong. We talk about whole markets and a lot of savings, but I would also highlight here that there are a couple of areas where we really see also that we can increase and grow. And if I talk about the color-coated, okay, let's say, start from the biggest one, automotive globally, that's something where we can grow.
We can still be better and better. It's more like that we have already leading position in this high-strength steels. All the trends in automotive is supporting us. It's the safety, it's the weight of the vehicle, et cetera. So the logic is strongly there. We have the good products. Russia, of course, now at the moment, because of the Ukraine, is a little bit unstable, but it is a market as CIS, where we see a good potential to grow. Color-coated as a product is something where we are very good when we compare us to the other steel companies. There, of course, we have a good one advantage what many others are not having, and that's Ruukki Construction, because this is something that we can develop, combine the products, the deliveries.
We have more or less in-house, in-house benchmark, so that's one thing where we can do it quite well. And then tubes and piles, I said we are the only, only producer at the moment in Nordic countries, and there we see potential. But also, as Martin said at the beginning, from the high strengths and wear-resistant, steel tubes, like a slurry pipes in mines or concrete pump, pump tubes, those are there. So there's a lot of, lot of possibilities. And then, as I said, this one nice example is that we can kick off aluminum, which is always fun. This is an example of, of a U.S.-based company. They are special in, roll form bumpers.
With this Docol steels, we can give the reduction of the weight, we can give the same safety measures or safety as from aluminum and everything. So more or less, it's a very good product. Weight reduction is there, but still there's this crash performance, which is very good. So this is one good example. We are delivering this to Mexico, China, and Czech Republic. So it's a very good example for steel taking part of business from aluminum away. And then other example, which I have, is from the color coated.
This is from a Ruukki product, Pural Farm, which is specially innovated to be in the aquaculture, where all this, let's say, corrosion, chemical, humidity, scratches, everything is different than we compare that to the roofing, for example, or sandwich panel. This is specially done for that. It's more life, lifetime, and minimum maintenance, and there are a lot of possibilities also in these type of products, especially, I would say, in Russia at the moment. Maybe Marko can say a few words about that later today. So as said, this combination is going to give us more muscle, more possibilities, more flexibility. It's a lot of things to do, but I said, it's--
It's many big and small rocks, what we have to turn and look about the whole chain. We have to be strong in all markets. We have to take care of the customers. We know that we can bring new value for, for our customers with this wider product portfolio and, and better value and services. Further develop the offer. Is it delivery accuracy, quality, better lead times from the, from the mills directly, et cetera? So there are a lot of things. And I see that the pace for turnaround, when I said about the numbers, they are unsatisfactory. I think the basement is there. It's, it's a good, it's a good possibility to make a turnaround. That was more or less what I was planned to say. Now I don't know what-
Yes.
What is going to be the question?
So, yes, we are entering now into the second Q&A session.
There are going to be some helps.
Yes, and then we bring Chuck and Martin and PO up to the stage. So do we have any questions in the audience, starting with Johannes?
So Johannes Grunselius here, ABG. So a question for you, Chuck, and the rest of you out there. On the U.S., I mean, we always hear you're a cost leader, and from the SSAB reports, at least the old structure, we know that the cost in Q4 was sort of $800 per ton, $850 in the first half. But where do you say the competition is on terms of cash cost per ton in the U.S.?
Well, it's referring really to the benchmark study that we did last year. It's a difficult question to answer in capturing in time because of the raw materials and scrap prices at that time. You know, I don't want to hazard a guess here of where our most aggressive competitors, such as a Nucor, Mittal, where their costs would exactly be. But we were very, very confident from the numbers that all the details we pulled in utility costs and labor rates and raw materials and freight and so forth, that we still held a distinct advantage.
We measure, we measured it, ex-works cost, and we were substantially better than the best competitor. We was, at that time, much better or better at, the Montpelier plant because we still had some... So Montpelier was clearly the cost leader in the North American plate market. Number two was, the Mobile operations. Since then, we launched a program, or Chuck launched a program to take down costs with $17 million, and then running at better yields. Today, we are running the Mobile operations with a more complicated product mix than ever at yield levels that we have not seen historically or at record yield levels. We have closed the gap between Montpelier still being the leading one, and then closed the gap between Mobile and Montpelier.
It would be so interesting, though, to have a number.
I have the exact number, but I'm not going to share it.
Okay.
But it's a fairly decent number, I would say.
Okay. And then the second question is, you're talking about an expansion now, a small one. Is that a definite expansion? And how come you arrive with that expansion of 60,000 tons?
I can answer that question because I mean, we have the possibility to, in steps, increase the capacity. This was one of the first steps. It ended up with being a bit more than 60,000 tons in finished products. The payback time was less than a year, and the market was definitely there, the need was there. So it was a fairly, I guess, easy decision for the board to take that decision. We have a number of steps that we will look into. Some are in that range, some are a bit bigger. We will not do a big bang and increase. The total potential capacity increase is up to 850,000 tons. We will not do that as a big bang, but gradually, when we see short payback times, interesting market opportunities, we will take these gradual steps.
If you then do those steps, investments, what would you sort of end up with as an aggregate? Would that be total of 150 or 200, or what do you think?
No, I mean, the theoretical potential is much higher than that, but, I mean, this was the first step, and I said, with a payback time for less than a year, it was a fairly easy decision, I guess. It was at least easy to bring it to the board, get approval for it.
Well, I just would, would add to the, how the opportunity was created is, what, what Martin referred to the yield improvements and productivity improvements at the Mobile operation. They began to consume all of the extra slab that we were sending to Montpelier for quite some time. And so, we became, slab short, and leaving rolling mill time, open at Montpelier. So as Martin described, these steps we have to take, the first step was now, is to determine what kind of gap we've created, and we're not even finished yet with, growing the, the Mobile rates on the rolling mill. We have to identify what that gap is and then the additional steps of cost of from cost of equipment to permitting and so forth, of all of those, until we determine a financial target.
... And these are typical debottlenecking steps, and it will, as Chuck points out, depend on how good we are at driving productivity and yield performance. And as said, as long as it benefits our low-cost model, and we don't ruin the cost position, because I think in the American operation, it's two important things: to keep the low-cost, leading cost position, and then to make sure that we keep the quality on-time delivery and service in the mind of the customers. And I usually say to Chuck, it's a fairly easy business to run because you need to have, check your cost position and then check the Jacobson survey. And as long as you're best in those two areas, you will be the last plate producer in North America.
What he says, yeah.
Oskar, please.
Oskar Lindström from Danske Bank. First, a question for you, PO. You mentioned the, you know, in your niche segments in the Q&T and AHSS, could you give us a figure, what type of, sort of top-line CAGR growth we should expect for the market, for yourself, going forward? Because you talked a lot about the sort of expansion opportunities-
Mm-hmm.
for this segment. Is there such a figure that you can share?
I mean, when we look at it historically, what we see in average over a business cycle, we have been reaching or around 4% or 5%.
All right.
That's the level.
Super. Thank you. And a second question, if I may, to you, Olavi. You mentioned the previous cost save programs and that there were some residual effects from those. Could you quantify that? And would that be on top of the synergies that you mentioned there in the chart?
I would say that those are minor compared to these synergy figures, what we are now talking about here.
All right. Wonderful. Thank you.
Yeah. James, with a question?
Just on the special steel segment, can you elaborate on what are the competitive threats to Hardox, the materials, and what people might be adopting in perhaps the mining industry? Because I have heard that rubber is being used in some of the mining, in the back of the mining trucks, instead of steel. So, are you looking to actually go into selling these other materials, and how would that impact the way you run the business and how you make money?
I mean, one thing that we have learned, which is the reason why we are developing the wear services as we are doing, is that, I mean, plate is very good for wear, but there are applications where other products make a better job. That could be rubbers, that could be elastomers, that could be castings, that could be hard facing and things like that. And we are developing the plate program to be as competitive as is possible with the plate. But we see that if we want to be a one-stop shop for wear, with the wear services, we need to be able to provide other products as well. That doesn't necessarily mean that we will produce them ourselves, but we may source them and make them available to the end user.
This network, the Hardox Wearparts network, as pointed out, is today 140 companies, or actually 141. But it's gradually growing. It's not our company. It's like a franchise network where they use our brand name, and we help to develop the network. So we are not selling rubber. We are helping them to find ways, so maybe then, if that would be an example of finding rubber or products, because they want to be able to have a full service offering at the mines. We are a steel company. We will not be a rubber-producing company.
Just one other quick one. Given where the currency is, and where scrap prices are, and how successful in the U.S. you have been in defending steel prices, are you on the verge of returning to 2011, early 2012, levels of profitability there?
You mean because of the import levels?
Well, that's a threat, but-
Well, I guess the first thing I'd say is, you know, the difference in the time periods is the economy. Right now, you know, we have a much broader steel consuming segment, higher consumption. You've also had some steel production in North America has been taken offline. So the opportunity that's been created is when you have high prices combined with a strong steel demand, imports are going to find its way to market. And with domestic mills that stretch lead times out to 10 weeks or more, including SSAB, it's created an opportunity.
Now, the question going forward is, you know, does the economy sustain itself, that is going to consume these imports along with the domestic production? But as you've seen from the presentation, we're a very strong energy market and pipeline activities and so forth, and you could actually see where some of the plate and coil are feeding some of these pipe mills. But you know, right now, that's the difference; is the steel consumption going on.
That seems all good. You're confident of returning to those previous high levels of profitability?
We are not giving any such prognosis, but there is a good market for us right now. What that market will look in, at, like in a year, it's impossible to say, but right now it's a fairly decent market.
... Okay, we've got Steven on the back there. Or maybe, please go ahead.
Thank you.
You're close.
Thank you very much for your presentation. It's Maria Perez Corral from RBC. Martin, I think this is one for you on behalf of your sector heads. You've spoken about securing the Nordic markets, you've spoken about growing market shares. I know you are in an integration process at the moment, but my question is: are you going to be considering inorganic growth as well through acquisitions?
We have just, as you said, started-
Yeah
This process, and I mean, this is... I mean, let us swallow this, and then, I mean, we did an acquisition this summer with a small company in Australia, as I talked about. We are not bidding for Ilva. We will not buy ArcelorMittal, so, so, No, we are not a consolidator. We are a very focused steel company. We saw the opportunities with these combinations, the clear logic and everything that could help both the former Ruukki and SSAB, and that's it, so no.
Noted. Thank you.
Yeah, take in the back.
Hi, it's Steve Benson from Goldman Sachs. A question for Chuck, just on the U.S. market. So the plate market around 10 million tons. With what's going on with shale gas and the renaissance in manufacturing, do you think for the next 5 years or so, we're looking at structurally higher demand? Are we looking at 12 million, 13 million tons a year of plate demand in North America, and that's why you're, you're, you're thinking about adding up to 850,000 tons?
Which was just an example, but the theoretical potential, and we are not going to do that, but still, yeah.
You, you-
Sorry?
You're not going to-
No, that is the theoretical maximum capacity we could add, but as I said, we are not going to do a big investment to add 850,000 tons. Now, after this new investment, it's less than 800,000 tons, but still.
kay.
But please, yeah.
Well, I haven't seen those numbers forecasted in terms of the total plate market. But as I said, number one, we've introduced our own opportunity to create more capacity internally. And then, number two, is it, you know, is it a realistic expectation that import will continue to command almost 30% of the market? And that is very much historically a high level. And as Martin said, we've got to do some more work on the customer segments and demand scenarios, in addition to confirming our cost structure before whether we take a small leap or a big leap. But, you know, to your original question, I've not seen those kind of growth numbers, but, you know, there are game changers out there that are unforeseen right now.
Okay. More in the near term, where is the sort of plate price differential in the U.S. versus Asian imports at the moment, and where do inventory levels stand?
I'm sorry, I didn't quite hear everything.
The plate price differential versus the imports. Is it... Are you running at a historically very, very high level at the moment, the prices you're achieving?
It is on the higher end. It's been, depending on where it's coming from, $150 to sometimes $200 a ton.
Okay, and the inventory levels at the service centers, are they normal or high?
Well, at least as I talked about within service centers, they've been relatively low, starting to increase somewhat. That's not terribly surprising at the end of the year. But I couldn't give you a projection of where the import levels are.
Okay. Martin, just on the Special Steels. So how do you think about how much CapEx you should be giving towards the wear business, the service business, which I guess makes a very good, healthy margin, you know, doing that versus adding capacity in the U.S.?
I would say, these investments are fairly limited. This is, as said, the network, call it an external network, that we are building, like a franchise concept, you could more or less say so. So, I mean, it's about expanding that network, and we have no aim to own that network. We own a couple of them, as PO pointed out, and for different reasons then. But, the thing is to continue to expand that network with the wear parts suppliers only working with Hardox products and other related products within that network, and that will not require any investments. This is signing up companies, and we do that typically every month and every quarter.
Okay, thanks very much.
Okay, Linnea, I will start with Julien and a couple of people. Yep. Yep.
Thanks again. Now that SSAB and Ruukki are all friends together, could you talk a little bit, PO, about the areas of your special steel offering, which were subject to most price competition between your two companies? And, are there any-
Mm-hmm
-immediate benefits of no longer having that competition?
I think, I mean, we had, if I... We felt Ruukki as a follower, and I mean, being maybe one of the toughest competitors that we had. They had a very good product program, I would say, especially in parts of the structural strip, where they were. We realized they had a good product that was very much appreciated by the customers.
Okay, structural strip, was that mainly used-
Yeah
in cranes and that sort of thing, or?
That's for part of the cranes, yeah, part of the... Yeah.
Heavy transport.
Heavy transport and cranes, yeah.
Okay, and any immediate benefits for you of no longer having that competition?
I think the major benefit and the major advantage is that we have a wider, stronger product portfolio in the new company, so we can give a more complete offering to the customer. That's where I see the main, main benefit.
Okay, thank you. And, I'm not sure if this is a question for Chuck or, Håkan, but looking at the new shipment numbers for New Americas versus Old Americas, it's down about 10%-20%. Is that exclusion of your special steel production? And how's the cost accounting going to work for reporting on divisional profits?
Definitely a question for Håkan.
You're right in the shipment. It's for special steel, but it's actually also for the special steel products. That's right, but it's also for automotive products. Those were previously included in Americas, and now they are, as Oliver explained, part of SSAB Europe, because that's where they are being produced. So volume-wise, it's those products being moved out. And then from a profit and loss perspective, I had it on one page. I didn't mention it, that for the products that are sold by a certain division, and in this case, especially the Special Steel Division, they get the full profitability for these products.
Then it's backed out in the consolidation line? Do both special steel-
No, Special Steels gets the full profitability for that.
Okay, I think Bastian had a couple of questions.
Hi, thanks. This is Bastian from Deutsche Bank. So I have a couple of follow-up questions for PO, first of all, on Special Steels. So first of all, what is the current utilization rate level you're running in the specialties business, roughly speaking?
We don't... I mean, we are not running full. We are—I mean, in Europe, the overall, I would say, capacity utilization for the steel industry is something like 75%, plus or minus something, or plus something. We are not running full. We still have in Oxelösund, one blast furnace idled, and we are running at, I would say, stable capacity over this year, but not running full.
Okay, thank you. My next question would be on the regional split. You made clear that the, your growth targets are very much overseas. I think that's roughly 30% of your business, at the moment. Is there a number where you want to stand, maybe in 2-3 years from now?
Internally, yes.
But not external?
No.
Mm-hmm.
Well, yeah, I mean, we see bigger potential, quicker growth rate in the regions that I marked with green. But I also said that we do see a potential with the expanded product portfolio in the areas where we are strong already today, to increase our market shares there.
Okay. And then just looking at the profitability of that business, I just remember from the previous reporting structure, obviously, I think APAC was very much still rather weak, compared to the rest. Now I see you're basically reporting a 12% EBITDA margin in the new structure. I think previously, we were in, much closer to this, I think, low single digit, area, which suggests that initially this growth overseas will be margin dilutive. Is that correct, or what's actually then the margin driver for that? So is the international growth, initially margin dilutive, which we know?
No, not necessarily. I mean, the reason for APAC having lower margins was mainly volume related. We, as we talked about many times before, we have not been delivering so much to Weldox steels to the mobile crane industry because they have not been buying at all. So that was a volume issue. Nothing has really changed in Asia. We, I mean, we showed, both me and Håkan, I think that the market is not trending upwards. It's fairly stable on very low levels for the time being. So, I mean, the profit in expanding volumes is they are really good. So we're running now at low capacity utilization in that business, and that shows in the figures, and every extra ton, so to say, with this high margin product, will do a big difference.
So, basically, in other words, if I look at your EBITDA margin of 12%, right now, I can probably think that the 30% contribution from the overseas regions is probably rather lower single digit in margin, and maybe the developed markets closer to 15%. But then the contribution margin from every ton you sell is going to be much more profitable from the overseas part?
Yes.
Yeah.
Every extra ton will... I mean, we have covered all the costs and so on, so, so the margins will be much better, yes.
Could you give us a rough, rough sense of the contribution margin for every incremental ton you sell there?
No, but I mean, typically, these kind of products, if you take an Hardox product, the price of that is typically double as much as for a standard plate, but the cost of producing it is not double as high. It's rather 50% or less than 50% higher.
So we look at $400- $500 on a per ton basis?
Well, you need to do the math yourself, but we're looking at much better margins.
Okay, very good. Then one question for all of you. Obviously, you know, I think you crossed the premises of your peers as competitor just a couple of weeks or months ago. And obviously, I think you've been looking at that daily before with probably very different eyes, probably explaining your clients why you are better. And now you see probably very good where you are. So, and maybe where you're not, where you're not. So, just with your fresh pair of new eyes, coming to this company in the new structure, and I appreciate you maybe don't want to talk that open. But what... I mean, what do you think has SSAB been missing before, and what do you feel is basically the Ruukki team able to bring into this company, which SSAB didn't have?
Okay, an easy one. How many hours I have time now? It's both of the companies. I think the competence and, and the knowledge, what we have in both companies, it's in a high level. Surely, if I looked at from the Ruukki side, I'm missing brand name Hardox. I think that's something what, what is, what is unique. Then, how I see that, what we should definitely improve from other side, sorry, guys, it's the delivery accuracy and the lead times. I think those are the two things which are... Then, of course, there has been some, some quite big differences that we have totally integrated sales and, and, and SSAB has having, deeper on SSAB, but I cannot bounce anyways there, which is better. But I would say those two things that really... Of course, we have to say, as Martin say, that, well, that no, not that Ruukki has been a follower. But that's true, and I think we have some good product, but Hardox definitely and delivery accuracy. And in the end, we can go further, but it takes a couple of hours, so.
Very interesting. Thank you.
Okay, we have a question at the front row.
Jan Fors, a question to all of you. For advanced high-strength steel for automotive-
Mm-hmm.
That goes into to your area. Could you say something about the volumes and profitability of that group?
Profitability is good. I think it's something what we can compare to the Special Steels. Then it's, of course, now the question really, what we talk about, the really advanced high-strength steels. I would say that it's about 350-400 thousand tons.
350-
Yeah.
thousand tons?
Yeah.
Okay. What about, if you look into the aluminum business, you have very heavy investments in Alcoa and Novelis and everybody else, and they, they are talking about automotive as the reason for these investments. How do you consider aluminum?
Let's put this way, that this one example, which I was showing, it's a good example, and there are reasonable volumes on that. I think there has been a fight between steel and aluminum quite a long time. Of course, I see it from steel man's point of view, and I think that we can probably be with the same, with the savings, with all the descriptions. But if something happens, everybody knows that it's quite tough to fix aluminum, et cetera. So it is going to be more expensive.
How much more expensive? You, you had this example of the bumper. Do you have any relation, price-wise, for a steel bumper and an aluminum bumper?
I would say only that if you talk about the steel, the price is somewhere between $1,000-$1,400, and then when we talk about aluminum, it's $1,900. So everybody can calculate that. I don't have exact figures there.
Okay, thank you.
Okay, I think Steve had a couple of questions.
Yes. How much CapEx is involved with the debottlenecking? So that's 60,000 tons. How much was spent to do that?
As said, I mean, we have not been exact with the figure, external, but it is fairly limited amount, and as said, with the payback time on that investment shorter than one year.
Okay. I want to try again on the margin expansion.
Maybe not,
Please do that. Not maybe for anyone up there who's prepared to have a go. But is the European steel industry next year going to see- sustainably higher margins because raw materials are weaker at the moment?
If I could answer that question, I would be more than happy, but it's of course, impossible to answer. Depends on what happens with the raw material prices and, steel prices. But, what I'm convinced of is that we will not, during next year, have been able to absorb the overcapacity in the European steel industry.
Okay, that's helpful. Thanks.
Okay. Yeah, sure. We have one question here.
Good morning, Jean-Baptiste from Exane. I had a first question on the U.S. or North American trends, and also on the price trends that you see going forward, given the import pressure that you mentioned, at historical high levels, and also the prospect for maybe slightly declining scrap prices, how do you think this would impact the plate prices going forward?
Well, as you're aware, we've come through a period from the beginning of the year of a number of formal price increase announcements that have been successfully implemented. And as Martin and I both described in our presentations, we think we're in a fairly stable position right now, price-wise. A lot of attention will be given to imports at the end of the year and how that starts 2015. So I can't answer that. As it relates to scrap, you've seen the chart of the disparity between scrap and iron ore right now. The thing to keep in mind there is if you go back in history, that is an anomaly right now.
That's it is quite unusual. And so if any of you that may have attended the New York conference a few months back, there were people there predicting at the time that scrap was going to drop by over $50 a ton. And we certainly welcome that, but we're not seeing that at least at this point. But I think those that are forecasting that kind of change in scrap price are looking at the historical trend between... We are far away from that right now. And so, you know, I don't see that necessarily putting pressure on the price side, given the demand scenario right now.
Okay, thanks. And then I had a second question on the potential for commercial synergies. I touched upon that in the release and the other presentations, the opportunities for cross-selling. Can you be a bit more specific there in terms of what kind of opportunities you see and maybe what would be, I would say, an indicative figure, is that significant?
No, we have been, I mean, we focus on the hardcore synergies that we know for sure that we can deliver, and then if there are any possibilities, that will be seen then in the P&L.
Okay, thanks.
Okay. Now, yeah, we have one question from Christian, and then we'll take two questions that we have had from the web.
Thank you. Firstly, a follow-up to Olavi on Europe. You mentioned that on the aluminum side, that the ultra-high strength steel is as light as aluminum and also much cheaper. But still I see several manufacturers switching over to aluminum. So, I mean, what do you see any particular reason for that, or?
Well, I think that the reason is the same as it has been before, that the weight of aluminum parts is probably better, but as I say, that we can compete more and more from steels, and I think that example shows that there's a good example to do that. If we can do it once, we can do it twice, and three, and four times.
Okay. And on to PO, on special steel. In your case example, you were showing lower weight and longer life lengths. And from an analyst point of view, it's quite straightforward to see the investment case of this. But what would you say is the highest challenge to really convince the customer to switch over from standard products to Hardox or anything else?
I mean, yeah, I think the challenge is to you, in many times, you have a high investment from the beginning. You have to take a higher cost early at the stage, and then you get to get an extended lifetime, or you can load more on your vehicle and get paid more for every trip you make, every day you use it. So, I would say that's the to take the initial costs.
Would you say it's tougher now when iron ore comes down quite heavily to explain the advantages of Hardox, for example?
No. No, no. I mean, iron ore, that would be for that kind of industry that are very... I mean, if we look at it, new mining equipment, that is low, but to replace worn out, I mean, all the mining companies are focusing and being very much aware of the value of productivity and the cost of maintenance stops and things like that. So there, it's, that's a much easier sell in that respect, because it gives so much more, and it's easy to convince. It's more tough to convince maybe smaller customers, smaller end users.
Thanks. And then finally, for Chuck, on America.
Just, I just wanted to point out, it was really interesting, the connection in your question. Iron ore is not gonna stop the car and truck manufacturers from putting high-strength steel and aluminum in. And our approach is to introduce the same concept into bigger vehicles and construction equipment. That's exactly what we're doing.
Thanks. And finally, for you then, Chuck, on America. So I've started to see on the screens that U.S. plate prices have started to come off a little bit. Have you felt this yet, or do you have any comment on that?
I'm sorry, have we what?
I've started to see the U.S. plate prices started to come off.
Oh, come off?
To decline in, on, at least on the spot, on the spot side. Have you seen anything on that yet, or?
Well, at the end of the year, I mean, it certainly stabilized with the last price increases and lead times coming in. So at the moment, it's stabilized. It's been a sort of a constant run-up for most of the year. Now, question whether, you know, it ultimately has plateaued or not, we don't know yet.
Thank you.
Okay. So now we'll have a final question from the web, and then we'll take a break. So-
The first questions we received quite some time ago, but it's from Mr. Cedar Ekblom from BofA in the UK. The first one-
Bank of America, I'm sorry.
Yes, sorry. It's directed to Chuck. Where do you see the steel prices in the U.S. trending into year-end?
I think I just answered that.
Yes. And then, he had a second question. Has the U.S. market started to see the effects of record high imports?
Well, the market itself, as I said, the steel demand is at high level right now. And so, without big inventory adjustments, then, you know, our assumptions is most of these imports are being consumed right now. And so, you know, the answer is no. We, we haven't seen the impact yet, but, as described, there are certainly concerns out there.
We saw the highest import volumes was late this spring, early this summer, and then after that, it's come down a bit. Then we were on record levels when it come to import of plates to North America.
The second question is directed to EMEA, so either PO or Olavi, I guess. Where are utilization rates, and how long are lead times?
If I start from Oxelösund, I mean, we are, I would say that lead times are normal. We are delivering, can meet most of the customers' demands in that respect. And with the setup we have, we have a fairly good capacity utilization.
We have received another question from the same person, Cedar Ekblom. What do you need to see in order to take the decision to ramp up the idle furnace at Oxelösund? What sort of visibility on demand do you need to see? What is the cost to ramp up this facility? Does it require CapEx increased workforce?
Well, it will. If we would ramp it up, it will be require a slightly increased workforce, of course, because it's idle. We probably have to do that when we do the big blast furnace relining next year, because then we will stand still with the big blast furnace. But we don't see any need from a market perspective, except from that, to ramp up or start to produce in the idle blast furnace.
Yeah, that was it.
Okay.
Thank you.
Okay. Then I think we'll take a 15-minute break, and next session is Tibnor and Ruukki Construction, so don't miss that. Welcome back.
Okay. My name is Mikael Nyquist , and I'm head of Tibnor. I've been in SSAB since 1995, so it will be pretty soon 20 years. The last 10 years or so, I've been heading Tibnor. Looking at the new Tibnor, we will be the leading Nordic multi-metal distributor up here, having steel and non-ferrous metals in our offer. We estimate that we will have a market share of roughly 20% up in the Nordic market. We will have the broad product portfolio that we have will enable us to have a one-stop shop for our customers up here. We will have a strong distribution network with good delivery positions and short lead times.
We had a turnover last year of SEK 8.1 billion, and an earning of an EBIT of SEK 109 million. We are 1,300 people in seven countries, the four Nordic and the three Baltic states. Looking at the new setup here in the Nordics, we will have a full footprint throughout the Nordic countries in distribution. It's a very good fit between Tibnor and former Ruukki distribution assets, both in terms of sales and assets. So we really don't have any big overlaps. We will be stronger, have a stronger combined processing sites for the SSAB product range. We will have four processing sites for flat products, and there will be two processing sites for tubular products.
This is just to give you an example of the product that we distribute. So in long products, we have products both for structured purposes also for engineering purposes, everything then from carbon steel, stainless steel, non-ferrous products in long. In flat, we also have stainless, we have of course carbon steel, and we also have non-ferrous. In non-ferrous, then we're talking about aluminum and copper. And then we also have rebar products in our offer. Looking at the split between the countries or between the different products, as you can see, the flat product group is by far the biggest, 38% of our sales last years. And flat products then is both strip products and heavy plates.
The second largest product group is long product, long carbon, which is at 23%. Then we also have in carbon steel, engineering steel, which is 10% of our turnover. And then we have stainless, both long and flat here, 17%, non-ferrous, long and flat, 9%, and then also some rebar business. And we have since long cooperation with leading Nordic suppliers and also leading North European suppliers. So, for instance, up here in the Nordic, SSAB, of course, is a big supplier to us, but Outokumpu Stainless is very important. Ovako in engineering steel is very important for us as well. And we also have Luvata and Hydro in copper and aluminum. SSAB's product range represents roughly 40% of our turnover.
Looking at the sales development, comparing first half of this year with last year, in volumes, it was more or less on the same level. It was slightly down in price mix compared to last year. And I would say that our development totally is in line, more or less, with the overall markets. And looking forward, the macro indicators now are pointing to a rather slow recovery as we see it up here in the Nordic. You can also see the split between the markets here. As you see here, Sweden is the largest market for us, 49% of our turnover last year, followed by Finland, 22, Norway, 20, and then we have Denmark and the three Baltic states.
Looking at the profitability, as I said, sales was down slightly due to the mix and price effect, but we have had a stronger gross margin so far this year, so we have compensated the lower sales. We had an EBIT this year of SEK 63 million compared to SEK 106 million last year, but then we had a one-off. We sold the real estate in Sweden, which gave us SEK 57 million as a one-off. Looking at our strategic priorities going forward, we believe there is a potential to grow by rolling out our multi-metal offer throughout the Nordic countries. We will establish one more optimal Nordic distribution setup regarding assets and also material flows. We think there is also an opportunity to expand value-added services regarding pre-processing and logistic solutions.
So looking at growth, as I said, we believe there is a potential, and this is both, for internal SSAB products and also for external products. With SSAB products, now we will have a bigger, broader internal product portfolio, which we, we'll leverage from. We will, of course, have tight cooperation with both SSAB Europe and SSAB Special Steels, and we have focused on both standard grades and, special, special grades. And as I said, regarding external suppliers, we have long relationships with a number of, of important suppliers up here, and we believe there is a potential to grow here also, especially if we look into the Finnish market and also a little bit on the Norwegian side, there is a potential to grow. We will also be able to establish a more optimized setup in distribution now.
This will give us synergies. We will capture synergies of roughly SEK 50 million in the coming three years. This will come from optimization of stock processing sites. It will also come from lower SG&A, and we will also be able to consolidate our external purchasing. With the new combination, we will also have new capabilities in processing, so we will be able to have sales of new value-added services in Tibnor. We will be able also to insource currently subcontracted processing that we do, and we will have a much better possibility to balance processing between our own units. The third sector where we believe there is potential to expand is also in value-add. And for us in Tibnor, value-added services is really it's stock sales and it's processing sales.
We have three business types, where stock sale is very short lead times, 24-hour, rather low order rolls. And then we have processing, where the lead times are 15 to 10 days. And then we have 20% of our sales is what we call direct business, where the deliveries goes directly from the mill to the end customers. Much longer lead times, and also much bigger order rolls. And we believe, depending on customer needs, there is a possibility to grow in value add, and what we want to do is really to go from standard stock sales to more advanced logistical solutions. And we would also want to move in processing, from standard processing to more advanced processing. And we also offer our customer administrative services such as EDI and different type of web solutions.
This is a customer case. It was Volvo Construction Equipment in Arvika that chose to outsource their pre-processing in 2013. We came in here and took over their processing. What we do today is we carry out all of their initial manufacturing here. It's plasma, laser cutting, it's machining, it's shot blasting, straightening of the plates, and we also manage a ready-made stock here, so we can have just delivery, just deliveries into the Arvika production system.
The interface between Tibnor and Volvo here is by an EDI setup. This, all the products here are based on SSAB. We're talking both standard grades and special grades. I think this is a very good example, how we want to grow in value-added services. It's a very good example of how we can work with SSAB products together with Tibnor's logistical setup. By that, I end my presentation. I hand over to Marko, and he will come into Ruukki Construction then.
Okay. Thank you. Swig? Okay. Thank you. Very happy to be here. First of all, I want to say that I'm very proud to be in part of this team. Whole integration, I think has been going pretty smoothly, and it's a-- I would say that it's, it is a-- it's not a surprise, quite a natural combination. Little bit about myself. I have been working in Ruukki about 10 years. First, 6 years on corporate roles, responsible for strategy and acquisitions and several corporate functions after that. Then I moved to more serious business in the line roles. I was heading engineering business 2 years. My job was to work on the turnaround, and then we created a joint venture and created a Fortaco, named the engineering company.
After that, I have been in the construction business, leading the construction business. But actually, all, all the way from 2004, I have been running around Eastern Europe. Most of the units have been some quite deeply involved in buying and developing. So that is my history here. Today's presentation is pretty much a introduction about the construction. Also, we of course our direction and what we are doing, but as some of you might not know so much about the construction. You can see the color is blue, red, so we are. We have all the construction brands and IPRs and we are really developing this as a construction division within SSAB.
First of all, we are really quite a sizable business, one of the biggest in, in this industry, about SEK 6.6 billion, last year's numbers. We have very, very strong base in Nordic countries. We are everywhere in Eastern Europe. We have been quite a long time there. So we have 3,600 employees. One-fourth of the people are actually in Nordic countries, so the rest is in Eastern Europe. We have 20 sites. So this is a local business. You have to be locally in those countries. We have divided this business to four areas. We have a residential and roofing business. That is the biggest one. That is the area where we have the overlap with the Plannja. Plannja is about 40% of the combination in roofing.
Building components is business to business, where we are manufacturing components, for example, the commercial shopping centers, logistics centers, walls, and roofs. And that is a business that is going pretty well at the moment, from the profitability point of view, the best, best one, and technology-wise, it's going very well ahead. Building systems is the project business, Nordic countries, CEE countries. That is the area where we have really had a lot of challenges. This financial crisis really hit it there. We were really in a big challenging projects, and of course, the bigger the project, the more the financing crisis has impacted. Then we are very strongly in Russia. Have been there quite a long time.
The base is actually from 2006, when we bought a Ventall that is close to Moscow and Kaluga region, the leading supplier there.... About the market development, you can see from the pictures, both the residential, then we are talking about consumer goods business, residential to the private houses, especially, and then non-residential. What is good here is that we can see that all these figures are positive. They are not big, but we expect in the coming years slow growth in all these countries. And this is the numbers, how do we calculate this? This is the recent data what we have, but then we have weighed it with our sales mix.
Russia numbers, I must say that this is even if that is quite recent, of course, there's more uncertainty than in other areas about the growth. But all in all, we think that we have a good mix. Nordic countries are very solid and stabilized Western economies, and then we are everywhere locally in Eastern Europe. We also believe that in the longer term, the growth will return to Russia. If you just travel around there, there is a lot of fundamental need, but that is a market where you have to get used to that there are changes, ups and downs as well.
About our market positions, in these businesses where we are in, in most of the segments, we are one of the leading players, and we don't really need new countries. What we are doing that we are really focusing, and we are working on to strengthen the market position in these segments. We have done recently refocusing, as an example, we have been long time in Ukraine. We have been a leader in roofing and components, and because of the war, we had to close down the business-to-business segment. Also, we have been developing business in Romania, which was really low-dependent on the financing that is coming from Western Europe.
There used to be a great growth, but now we see that there might be challenges for long term, so we decided that we discontinue business to business there and continuing only in roofing. But certainly enough markets and the businesses. About the sales development, sales has been about the same level, a little bit lower than last year. From the market demand point of view, this has been a challenging year. A little bit more challenging than the last year. And the main reason for us has been that our, let's say, the geographic, we have had quite much Eastern European and Finland in the portfolio, and we in that part of Europe, of course, the demand hasn't been very, very strong.
When we look at the sales mix, Finland, Sweden, Russia, CIS, and CEE countries, they're all quite equal, about 20%. And this picture has actually balanced quite well with the Plannja acquisition. So Plannja improved our business and increased our business, especially in Sweden, but also Norway, Denmark, and Poland, and a little bit also in Romania. About profitability, has been very hard years, the whole recession, but the trend is on a positive direction. At the moment, our profitability is a little bit better than last year. We have here one-offs, like the closing up the Ukrainian business-to-business segment. At the moment, when I looked internally, our business, all the businesses are going to the better direction.
So I don't, in that way, we are quite satisfied with about the direction, but we have to speed up the growth of the profitability. Not at all satisfied, but I think that we have good tools to improve the profitability. About synergies, these synergies are about Plannja integration. So we are targeting about SEK 50 million synergies, cost synergies. On top of that, we have a number of soft synergies related to cross-selling and working capital reduction. We don't list them here, but we are very confident that we are able to reach these synergies. We have the projects are ongoing, and some of the synergies have already started to be realized. About the strategic direction, our businesses, what we are doing in roofing business, we are changing our role.
So we are growing our installation business. We are doing installation to the end consumers in Finland, Baltic countries, and Poland as well today, and we are also increasing our own distribution. So we are getting closer to the end customers, which means that we are actually able to grow the business that way as well. In building components, it is a specialization strategy, quite similar like in steel, there has been a specialization a long time. That is going well. We are differentiating, changing the mix, focusing on especially on energy efficient buildings, but also other special power products. In building systems, recently, the main emphasis has been on especially on project excellence, both commercial and technical excellence.
There we have been doing good steps, and in that, our problems pretty much have come from in that area, from very, very complicated projects, where also customer has had problems. Now we have done quite good steps to change that, and we are going to continue that as well. Another topic is that we have been little bit too much of tailoring, so every project has been kind of unique. We are going to develop a business model where we are able to replicate more similar kind of components and designing solutions.
Then, of course, in the bottom, but not least, we are very much putting effort on, on profitability development, on the cost efficiency, but a lot on, on, on pricing and, steering the business mix so that we are focusing on, on, on most profitable businesses. There are some examples, of these business areas, little bit deeper. So in the roofing, if you look it from the consumer point of view, if you want to get a new roof, depending on the house, is it a renovation or is it a new build? The roof installation is about half of the, of the cost what you have to. So when we are going to installation, it means as a great opportunity to grow.
Also, when we go to the installation, it means that we are able to ensure that our products are used in the right way, so we are able to ensure the quality. Then also we are starting up, we are calling it energy. So, solar is something that will be step-by-step standard solution when there's a roof renovation or new build. We believe that in the future, there has to be some kind of solar system. And, of course, when we are in contact with the end consumer, we are able to sell and deliver the solar system as well. We don't produce them, but we see that it is something that we need to have in our package.
We are doing that today in Finland and started that in Poland as well. Then about energy efficiency, we have worked quite many years already in this theme, and this is really getting strongly. When you read newspapers, you can see that this is coming reality in all the businesses and in this business as well. So it's about the consumers, it's about end customers who want to have a energy efficient solution, sustainable solutions, but it's also regulations. There are like regulations for that the new builds have to be zero in a close to zero energy buildings in 2020. So this is something that is going ahead. We have a good solutions.
We have a products that are recyclable, we have a products that we are able to save energy in buildings up to 20%, some cases even higher. We also have a products that we are able to generate energy. Some more examples from the components, example of recent launches. This is Ruukki Forma launch. So, we have here energy-saving panels, but on top of that, we have a different kind of cladding solutions, and we can very flexible change the look of the building. And we are talking about affordable architecture, because this kind of buildings, very often, they tend to look quite awful, but with a good design and reasonable cost, they can, we can make them look a lot better.
So the same, same building, quite, we can make it look very different ones, and we can, modify it. And, and if you, if you go to websites, you can see a lot of examples and videos, what kind of buildings can be created. As an example, about our sales and marketing, change how we are targeting a lot on architects and investors. And if you go to website, you can find a young architects competition, where the competition topic is that we are, building a new logistics center for the Santa Claus, and we have a lot of young architects competing for the, for that, prize, and it is international, architects competition. Just an example of, of, our marketing actions.
We have started this year. This is a pilot test launch in Finland about renovations. So in the business-to-business business, normal renovation has been a Caterpillar. So Caterpillar comes and takes it away. And this is an example that old hall can in very short time, 15 days, can be renovated to look totally new. And we are working on that development, and we have some good promising examples. We believe that in renovation there can be quite a good possibilities in many countries. You think about just going around also countries like Poland and Russia, there's a lot of things that has to be renovated.
Using the same products actually what we are using for the new build, but we need to have a different kind of services. The end customer is different. We need to approach the customer in a different way. Then about the building systems, where we have had the hardest profitability challenges, we have had a program going on for developing the cost efficiency and the capabilities. We have been cutting the capacity a lot. The recent cuts, we did a capacity scaling down in Finland, in Peräseinäjoki, and now we have an ongoing capacity cuts in Romania. And at the moment, we have a situation that we see a very good change in the whole business.
So starting from the last springtime, we have been able to get the order book in a very good growth, despite the market environment hasn't actually been any better. And also our factory utilization rate is very good. So we are ramping up actually subcontractors in this business at the moment. And so all in all, it seems like the actions what we have been taking are working. We still have a couple of problematic projects that we work on, and but all in all, the quality of the whole order book is improving. Then about Russia. So there are lots of questions about Russia. First of all, it is a local operation. Almost 100% of cost is in RUB. We have about 1,300 people there.
It is really a locally run operation. In its, as a steel frame manufacturing plant, that is the largest in Russia. It is in the right, the best spot you can have it in Russia. It is close to Moscow, but not too close. It's between Moscow and Kaluga. We also localized this spring, roofing products. So we used to export roofing products to Russia. Now we are able to do them all in Russia. So even if, for some reason, the borders would be totally shut down, we would continue the business in Russia. Then also the Moscow is planned to expand, and that expansion is coming towards our area. So we see there's a lot of growth opportunities.
When we look at the order intake, the curve down there, we have had a good development, I would say, until the summer, midsummer, and even August. It has been surprisingly steady, despite all what has been happening in Ukraine and Russia. Now we can see that the situation is impacting more on the development there. But still, if you go to Russia, it is surprisingly how things are still moving ahead there. And we are local producer, and we have a local organization. So we also prepared to if there will be hiccups, we are ready to act on those hiccups and... Okay, as a summary, we have very good brands, brand reputation, and company reputation is very good.
We have a very solid market positions. Our market mix has improved a lot, so we have a Plannja was a very good addition to that. We have a very good technologies in this industry. And also, we have had many years of restructuring and that we have been able to improve the way of working and the whole network manufacturing network. So we believe that we have a really great opportunity to improve, and we see this a very solid, solid situation to going forward. Thank you. All right, Micke.
Hmm. We're now moving into the third Q&A, last Q&A session, and we could ask Marko, Mikael, or questions. So where do we start? Jean-Baptiste, do you have a microphone there?
Yeah, I had a first question on Tibnor. Margins are obviously quite lower right now versus the, let's say, pre-crisis levels. What is needed to come back, or is it possible to come back to the like 8% EBITDA margin that we were doing prior to 2008? Do you think this is achievable, and what is needed for that?
I think there is definitely room to improve our earnings. As I said, we see potentials to grow top line. And Martin mentioned that we have a target to increase market share, and, I mean, if we would increase our market share by, say, two percentage units, we would add another SEK 700 million in sales, which of course would have a good impact on earnings as well. And then we have the possibility to capture synergies. Whether or not we will come back to the earnings that we had during the heyday, I think. I mean, we had inventory windfalls and things like that. We had tremendous earnings at that point.
Thanks.
Yes.
This is a question for Martin. Something that hasn't been touched on much today, I mean, given the title of the presentation here, Towards Industry-Leading Profitability, I don't think we've heard much about capacity or jobs. So what, you know, what is. Can you achieve your SEK 1.4 billion in synergies without capacity closures at, say, Raahe and jobs?
We will cut jobs. That's part of the synergies. We have said that 5% or 900 employees is a rough estimation that we communicated already when we announced this, and that will be done. Of course, there is line closures in this as well. We talk about specializing lines. We will not close an entire production site, but we will, yes, move production from lines that are not fully utilized to see, make sure that we fully utilize the runs, the lines we are running. So yes, there will be capacity closure, and there will be redundancies. That's part of the synergy program.
When will we hear more about, say, specifics on blast furnaces?
We will, I mean, the way you do this is that you, first of all, make up the plans, then you negotiate, and then you go public with it. We have already started to reduce the number of employees, and we will do that gradually. You will hear also when we are ready to communicate the different lines that we are specializing in and lines that we will close. So we will take that in the right order. What we are saying today is that we have gone through this industrial plan, and we are very confident that we will be delivering on these SEK 1.4 billion, more or less, regardless of, I mean, the market.
The market we see today, we will be able to deliver those SEK 1.4 billion, and that will include redundancies and closing of lines, among other things.
Thank you.
Okay. But then you typically get the question, where will that be and how many will be in Finland and Sweden and so on? That is too early to answer. But, I mean, it's quite clear from this presentation that the majority of the synergies will be within SSAB Europe, and that means Finland and Sweden, and the production sites in Finland and Sweden.
Okay, I think, James, like a question?
Just on the construction business, how integrated is it with the rest of the old Ruukki business? And how dependent is this steel business on the construction business, what's the interplay there? And just another quick question about Tibnor. What's the timeline that you have to sell the sites according to the EU approvals? And who are your main competitors that you expect to enter the market or increase their presence in the market as you do that?
I mean, I can answer the question regarding the EU process and the redundancy. I mean, in Tibnor, there is only a small, small business called Tibnor [Weavest], which is a very small business that we have to sell together with the other redundancies within six months, and that would mean end of January, and that process is ongoing. So we are, as said before, fairly confident that we will be able to do that. That was one part of the question, sorry, Mika, regarding the redundancy.
Remedies.
Uh, remedies.
No, I mean, the figure I showed here is, the remedies are not included in the figures I showed here, apart from Tibnor, which was consolidated, which is a rather small business.
Do you expect your competitors, therefore, to increase their presence and put a little more pressure on you in the market?
I mean, who will take those remedies? It's too early to say. So we can only speculate, I guess.
But question about construction, how independent? All the business basic functions, sales, technology, production, they are totally separated from the steel. We have some administrative common functions that we will in the future have a little bit more separate than we have had in the past.
Mm-hmm. Okay, let's see. Do we have any questions from online, or?
Julien.
Okay, but then Julien have a couple of questions.
When I look at the Tibnor restated numbers for 2013, I think you're about SEK 36 million better EBIT than the standalone. Is that entirely coming from the Ruukki distribution business?
I mean, you take the 106 and redact the one-off. Well, I would say that, it's not completely comparable, 'cause, 'cause we have also chosen to put the steel service center business in, in Göteborg into all our Europe. But I would say, I mean, sales and earnings is more or less equal from former Ruukki and former Tibnor, more or less.
Okay. All right, so-
They are both on low levels.
I was going to say that, that means that the Göteborg business was more profitable than I thought.
They are both on if you look on the sort of percentage. They are both at the moment on low levels.
Great. A couple of questions for Martin. Have you decided how you're going to keep the market abreast of your progress and synergies?
Sorry.
Have you decided how you're going to keep the market abreast of the progress in delivering synergies?
Yes, we will do that in due time when we have done it, as you are supposed to do it in Sweden and in Finland. But, I mean, the message here is we know what to do, and we know how to do it, and then it's a timing issue, and we know that we will be able to deliver this 1.4 within 3 years.
Will you be able to give us quarterly updates on savings rate?
We will follow that up in the quarterly report, yes.
And finally, when is the appropriate time for you to inform the market of your new group financial targets?
When we have discussed and decided upon them, but, I mean, one timing could be when we release the annual report for 2014.
Thank you.
Yeah, that's maybe a question for-- It's working, yeah. Maybe a question for Håkan on the currencies. At the group level, what is the impact of the USD appreciation, given that you have, I think, a higher share of costs in USD-related terms, thinking about iron ore for your European operations. So net, net, is it still negative, a bit more negative than it was before? Can you help us here?
As I mentioned in my presentation, we are short of U.S. dollars, so everything equal, a stronger U.S. dollar would hit the result. That's a correct assumption. For the combined group, I don't have the exact figure in there, but I think you—based on the chart where we show the flow, you can make net, and you can do the calculations. And then we are hedging the purchase of iron ore and coal in U.S. dollars. We are hedging that, as well.
Would Lindab's building systems operation in Russia fit well into your operations that you have?
There are similarities, of course, and it's a good business. Lindab is a good competitor. We like to have good competitors that keep up good quality and price levels.
Okay, any more questions? Yeah, Jonas.
Okay, a question then on, on currencies again, but more on the dynamic perspective, and I guess this is a very broad question, but, do you see any changes in steel trade flows now with a much, much stronger U.S. dollar versus euro? And do you see any impact from the European export industry being supported by a stronger dollar?
Good question. I don't know if you have seen that yet. What would you say, Chuck?
Strictly related to the short answer is no. It's strictly related to the currency. You know, we've seen the trend on imports, but I, I'm not sure how much of that is tied strictly to the currency.
Okay. But then, before we are to end, and we'll say that for those of you who will, that will participate at the dinner, we'll have drinks outside at 7:00 P.M., and tomorrow there's a site visit to Oxelösund for those who have signed up for that at 8:30 A.M. outside this hotel. So now, Martin, some last words.
So to sum it up then, this was my last picture during my presentation. I think we have a very good starting point, and depending and independent of where the market will take us, and we have tried to share our view about the market. It's not getting worse in Europe. It's holding up, and it's very strong in North America. We have some internal things that we are going to do. I mean, the... Of course, synergies and the CapEx avoidance is an important, very important part, and with the current, call it profitability within the steel industry, SEK 1.4 billion in lower costs every year is definitely positive. As we have talked about, there are some opportunities when it comes to cross-selling. I gave you a couple of examples, and they are quite interesting.
We haven't externally put the numbers together, but there are opportunities with what we call cross-selling. So when we look at this, we see that we have a very good starting point. We see that with our products, our market presence, and our focus, this will be a possibility for us going forward, and we have a lot of it in our own hands. And then, if we get some help from a slightly improved market, that will make things better. But as said, with the current market outlook, what we have today and where the market stands today, we will be able to deliver within three years the cost synergies of SEK 1.4 billion. And this should definitely then help our profitability going forward.
So with that, I would like to thank you for taking the time and listen to us, and I think it was a lot of good and interesting questions. A lot of questions that we didn't want to answer, of course, as always, but you keep on trying, and I like that, and I respect that. But as you said, I mean, some of them, more detailed question, we can ask, answer more in detail when we release the report.
And to Julien, we will continuously update you or all of you when it comes to the exactly the hard actions we take for the synergy capture. But they are detailed, and we have 150, roughly, projects or actions that we are go... And they are laid out in time, and we have responsible organizations, responsible people for that. That is not one of my biggest worries. With that, I thank you very much for paying attention and being here with us for almost half a day. Thank you very much.